Thanks to the increase in interest rates in the last three months, deposits in banks grew strong in the December quarter of the current financial year, said a Mint report.
Mint quoted early business updates for the October-December quarter in which lenders shored up deposits despite an overall decline in current and savings accounts.
HDFC Bank reported a 20 percent deposit growth from a year ago. YES Bank posted 15.9 percent deposits growth compared to advances growth of 11.7 percent from the year earlier. IndusInd Bank, CSB Bank, Federal Bank, RBL Bank, and AU Small Finance Bank posted double-digit deposit growth, higher than the sector’s deposit growth of 10 percent, Mint report said.
Banks have raised deposit rates by up to 200 basis points since May 2022 and many of the hikes have taken place in the last three months.
Brokerage firm Kotak Institutional Equities pointed out that the latest data from the RBI showed deposit rates were up further by nearly 10 bps in November 2022, implying a nearly 50-60 bps rise (similar for both private and PSU banks) from the bottom of about 5 percent. Wholesale deposit cost (as measured by CD rates) has now risen well above the pre-Covid level.
The brokerage firm underscored that the repo rate has jumped faster than the one-year TD rate, implying a positive outlook on loan spreads. The lending rate on fresh loans is on a clear upward trajectory, while the lending rate on the outstanding loan book has followed a similar trend, indicating disciplined lender behaviour.
"The spread between outstanding loan yield and average term deposit rate has sustained at a healthy level, especially for private banks. Another rate hike in December 2022 has ensured that we will continue to see margin expansion in the near term, but the market for deposit rates is also getting aggressive by the day," said Kotak.
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