Impact: Negative (PSBs); Positive (Private Banks, RRBs)

Brief: Share of PSBs and Foreign Banks has been contracting from 78% and 5.7% to 69% and 4%, respectively as Private Banks gain. Private sector banks are also efficient in deposit mobilization (utilization of available funds) as it stands above 85% in FY17. New/ Incremental deposit mobilization is also close to 80% for private sector banks while it stands at just 35% for the overall banking sector.

A six year trend shows that growth in deposit is primarily driven by the Private Banks. These banks accounted for 23% in overall deposit in FY17 and have recorded a strong growth of 19.5%, the same year. This indicates that this group has been gaining public trust and expanding its geographical coverage of branches in remote areas. Moreover, private corporates and financial institutes are the major source of deposit for the private banks, especially for the CASA category. Similar to the private banks, we notice that the performance of Regional Rural Banks (RRBs) is also impressive. Deposit of this group (share of around 3.5%) has been expanding at 19.7%. Public sector banks and foreign banks, on the other hand, have been expanding at a slower pace. As a result, share of these groups has been contracting from 78% and 5.7% to 69% and 4%, respectively. As expected, the most prominent contributor to PSB corpus remains household savings, which accounts for around 63% (of total PSB NDTL).

Private sector banks are also efficient in deposit mobilization (utilization of available funds) as it stands above 85% in FY17. PSBs, having to deal with the SMA/ NPA situation are recording this at just 70%, at the same time. New/ Incremental deposit mobilization is also close to 80% for private sector banks while it stands at 35% for the overall banking sector. Public sector banks, as expected, on the other hand, are having weaker deposit mobility of just 12%. As this group (PSB) has a significant share in India's overall deposits (70% share) - lower deposit mobility indicates a higher cost of holding money. This means that as interest rates go up, PSB may have to provision for higher interest servicing obligation while being stuck with unproductive cash on the balance sheet. An impact on the health of the cash flows cannot be therefore ruled out.

Growth in deposits by bank groups:

Source: CMIE, Acuité Research
Outstanding deposit by bank groups:

Source: CMIE, Acuité Research
Deposit mobilization by bank groups:

Source: CMIE, Acuité Research
Incremental deposit mobilization by bank groups:

Source: CMIE, Acuité Research