In its most recent analysis, Kotak Institutional Equities stated that the banking sector appears to be approaching peak deposit rates based on a comparison of current term deposit interest rates and bank headline rates. According to the brokerage, there are still a few quarters until rates peak, but given the connections to LCR (liquidity coverage ratio), there will probably be fiercer competition for deposits, particularly those that are more retail in character.
"A higher share of non-individual that are non-operational in nature tends to have negative implications in deploying it. We are likely to see NIM pressure for banks overall but we do believe that we have factored the same in our estimates," it said.
These are Kotak Institutional Equities' target prices for public sector banks such State Bank of India, Bank of Baroda, and Punjab National Bank (PNB) as well as private banks like HDFC Bank Ltd., YES Bank Ltd., Axis Bank Ltd., ICICI Bank Ltd., and IndusInd Bank.
The main conclusions from the RBI's quarterly deposit update, according to Kotak, were that households accounted for roughly 60% of deposits and that public and private banks held a 60:35 market share in deposits. Household deposits account for 55% of deposits in private banks, compared to 70% in state banks. Government deposits are somewhat shifting to private banks, according to Kotak, but the ratio of corporate and family deposits stays the same.
"Our quarterly deep dive into deposits shows unexpected and unchanged trends in deposit flows across banks, regions and the nature of deposits mobilised. Individual deposits appear to be gaining some traction, but need a few more quarters before we can build on this thesis. Interest rates appear to be getting closer to peak levels, suggesting incremental pressure is lower," it said.
According to Kotak, public banks receive 70% of their deposits from metro and urban areas, but private banks receive 85% of their deposits from these areas. The fifty percent split between person and non-individual deposits has not changed. According to Kotak, private banks have more non-individual shares and higher individual deposits than public banks.
The report further stated that public banks hold a 60% deposit share; however, since Q4, they have lost 200 basis points, mostly to private banks. It stated that bank deposit mobilization remained skewed in the bucket of one to three years and was rising steadily.
As per Kotak, there has been a ten percentage point increase in the interest rate bucket ranging from 7 to 8 percent, indicating a shift towards headline deposit rates "Consumers continue to exhibit a strong preference to place deposits in the 1-3-year category. As highlighted previously, a part of it can probably be explained by the interest rates offered where the interest rate differential is probably pushing back consumers in placing longer term deposits. Lenders are also a lot more comfortable in this bucket given that the linkages to loan yields are getting broken with the introduction of EBLR linked loans. This is the first cycle of the current interest rate regime and we perhaps need a bit longer to understand the implications of the nature of liabilities that are getting originated by banks," Kotak said.
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