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Tuesday, July 23, 2024

Major banks experiencing decrease in deposits and credit since March; smaller banks performing better

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In Short:

Two major Indian banks, HDFC Bank and Bank of Baroda, reported a decline in loans and deposits in the June quarter of FY25. While smaller banks saw growth, HDFC Bank had stagnant deposits and a reduction in loans. Investors were disappointed, and HDFC Bank’s deposit growth was slower than expected. Changes in savings patterns are affecting deposit quality and quantity.

Welcome to the Banking World!

Decline in Loans and Deposits at HDFC Bank and Bank of Baroda

India’s two banking giants, HDFC Bank and Bank of Baroda, have reported a decrease in loans and deposits in the June quarter of FY25. This could signal a potential slowdown in the rapid business growth seen in the last fiscal year. Business for banks is measured as the total of loans and deposits.

Down q-o-q, but up y-o-y

HDFC Bank‘s total deposits remained almost the same at ₹23.8 trillion in April-June when compared to the previous quarter. Yet, there was a 5% decrease in current and savings account (Casa) deposits, totaling ₹8.6 trillion. On the other hand, gross loans and advances fell by 0.8% to ₹24.9 trillion by the end of the quarter. Despite the quarterly decline, both loans and deposits for HDFC Bank were significantly higher compared to the previous year.

Investors were concerned by these provisional numbers, leading to a 4.55% drop in HDFC Bank shares. News of the bank planning to sell loans added to investor worries.

At Bank of Baroda, domestic deposits and loans both decreased on a quarterly basis. However, the year-on-year growth for BoB showed an increase in deposits and loans.

The Casa Decline

Experts suggest that a decline in Casa deposits at HDFC Bank may be due to seasonal factors and changes in how people save money. Structural changes in savings patterns are affecting the quality and quantity of deposits, impacting the ability of banks to sustain credit growth.

SBI Capital Markets predicts a slower deposit growth trend compared to credit growth for FY25 due to these structural changes and the big base of FY24, which saw a surge in deposits due to the return of ₹2,000 denomination notes.

It’s an interesting time in the banking world, with challenges and opportunities on the horizon for these financial institutions. Let’s keep an eye on how this story unfolds!

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