In Short:
Axis Bank expects credit growth to slow and match deposit growth, reflecting the challenge of balancing loan demand with depositors’ preferences. The Reserve Bank of India is concerned about changing savings habits as people turn to other investments. Axis Bank’s deposits and loans grew, with a focus on improving the quality of deposits. Deposit rate hikes have outpaced lending rate increases, impacting banks’ profitability.
Axis Bank Expects System Credit Growth to Moderate
In a recent statement, Axis Bank reiterated its expectation of system credit growth to moderate and converge towards deposit growth. This reflects a challenge across the banking system in meeting the demand for loans while balancing people’s willingness to save funds in deposits.
Deposit Growth Influencing Advances
Speaking to reporters after announcing the June quarter earnings, Axis Bank’s CEO Amitabh Chaudhry highlighted the role of deposit growth in influencing advances in the near term. The bank foresees policy rates to remain higher for a longer period, and projects system credit growth to align with deposit growth of around 13% throughout the fiscal year.
Concerns Raised by RBI Governor
The widening gap between credit and deposit growth rates has drawn concerns from the Reserve Bank of India (RBI). Governor Shaktikanta Das recently expressed worries about structural changes in savings habits, as more individuals are turning to capital markets and other financial avenues rather than traditional banking deposits.
Axis Bank’s Deposit and Loan Growth
Despite the challenges in the market, Axis Bank reported a 13% year-on-year growth in total deposits, amounting to ₹10.62 trillion. The bank’s loans also saw a 14% increase to ₹9.8 trillion by the end of June. The growth in deposits was largely driven by a 20% rise in term deposits, reaching ₹6.18 trillion.
Growth in Casa Deposits
The current account and savings account (Casa) deposits, which are vital sources of low-cost funds, increased by 4% to ₹4.44 trillion. While savings accounts experienced a slight decline, current account deposits grew by 12%. The Casa ratio, indicating the percentage of current and savings accounts in overall deposits, decreased by 400 basis points year-on-year to 42%.
Focus on Deposit Quality
Amidst the changing landscape, Axis Bank has been focusing on improving the quality and granularization of its deposits over the past year. Despite the system-wide challenges, the bank is committed to enhancing its deposit franchise, particularly the current account segment.
Deposit Rate Trends
A recent report highlighted that deposit rate hikes have outpaced lending rate increases, with the weighted average lending rate on fresh rupee loans rising by 153 basis points. Conversely, the weighted average deposit rate on fresh term deposits increased by 226 basis points, underscoring the evolving dynamics of the banking sector.
