The Fixed Deposit pie: Pvt banks carve out bigger slice in Q2 of FY24

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Private sector banks have scored well in the crucial task of cornering a higher share of the term deposits in the country in Q2 (July-September) of the current financial year when their cumulative share rose to 35% from 32% in Q4 (January-March) of the last financial year. On the other hand, according to Reserve Bank data, the share of public sector banks in fixed deposits went down from 62% to 60% during the same two quarters. Fixed deposits are significant since the banks are in a race, in varying degrees, to procure cash because of the rising demand for credit, especially from the retail segment. In Q1 of FY24, private banks had a market share of 33% and the public sector banks had 61%. According to the RBI data, FDs with private banks have gone up from Rs 33.43 trillion in March 2023 to Rs 39.52 trillion in September 2023. Making their pitch on better service, the private banks have gone for aggressive client acquisition and have been able to raise market share from Q4 of FY23. Incidentally, as on September 30, 60% of deposits in commercial banks can be traced to large cities. “Large Indian metro centres have traditionally contributed more to bank deposits as they are hubs of economic activity with a large population and growing disposable income. The top 30 centres in India have contributed nearly 55% of deposits, and this has remained stable for the last decade. The next 100 locations have seen significant growth – albeit on a relatively smaller base – driven by growing income levels and increased banking penetration,” Sonali Kulkarni, lead, financial services, at Accenture in India, told The Economic Times. “Deposits, in general, have seen an increase along with strong year-on-year growth in term deposits. This increase is attributed to the credit growth that private banks are experiencing. So, credit growth for private banks remains ahead of the public sector. Private banks need deposits to fuel this credit growth and are willing to go the extra mile to acquire them. Even if they have to pay a small premium at times, they are fine with it as long as they get the deposits,” said Karan Gupta, director and head of financial institutions, India Ratings told the Business Standard. According to the data, term deposit mobilisation in the one-to-three-year category showed good performance. In this category, deposits rose to Rs 69.39 trillion in September 2023 from Rs 61.18 trillion in March 2023 – a rise of 13.42%. Significantly, as much as 65% of the total deposits are crowded in this tenure. Of the reasons driving the overwhelming choice of this maturity period, it seems to be the interest rate applicable for this period. In Q2 of FY24, 28.61% of the depositors parked their fund in interest rates between 6% and 7%. Around 80% of the funds are parked in FDs in the range of 6-8%. “Comparison of current term deposit interest rates and the headline rates offered by banks suggests that we are moving closer to peak deposit rates for the system. It is still not complete, and we probably have a couple of quarters before rates have peaked,” wrote Kotak Institutional Equities in a note. Gupta of India Ratings added, “The growth in deposit rates is likely to continue along with the competitive intensity during the rest of the financial year. The deposits are expected to see 11-12% growth in the remaining financial year.”