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Amid questions on the depleting <keyword id="20776807" type="General" weightage="100" keywordseo="loan-to-deposit-ratio" source="keywords">loan-to-deposit ratio</keyword> in <keyword id="19895091" type="General" weightage="20" keywordseo="Indian-banks" source="keywords">Indian banks</keyword>, a recent report by <keyword id="19896146" type="General" weightage="20" keywordseo="Motilal-Oswal" source="keywords" meta.keywordsubtype="org" meta.entityname="Motilal Oswal" meta.hostid="269" meta.entityid="Motilal Oswal">Motilal Oswal</keyword> suggests that the loan-to-deposit (LD) ratio is likely to subside on its own in the coming months. The debate on loan-to-deposit ratio (LD), particularly concerning sluggish <keyword id="19998084" type="General" weightage="20" keywordseo="deposit-growth" source="keywords">deposit growth</keyword> and potential risks to <keyword id="20089808" type="General" weightage="20" keywordseo="financial-stability" source="keywords">financial stability</keyword> is raised by even the finance minister and the <keyword id="20151998" type="General" weightage="20" keywordseo="RBI-governor" source="keywords">RBI governor</keyword>. However, the report notes that on closer examination, the situation may not be as alarming as it seems. As of 9th August, 2024 the Indian <keyword id="19964544" type="General" weightage="20" keywordseo="banking-sector" source="keywords">banking sector</keyword>'s loan-to-deposit (LD) ratio stood at 77.2 %, which is slightly below its recent peak of 78.2 % on 22nd March 2024, and its all-time high of 78.8 % in September 2013. The report stated that typically a rising LD ratio is indicative of a tightness in the banking sector, potentially indicating overheating. A lower LD indicates that the bank is aggressive in its credit disbursement practises, which could be risky. It highlighted that an analysis of the sector's transactions with the Reserve Bank of India (RBI) through the liquidity adjustment facility (LAF), along with recent trends in the weighted average call rate (WACR), suggests that the current rise in the LD ratio does not indicate tightness, which is why there is no immediate cause of concern. In fact, the report added that the concern over weak deposit growth may be overstated. Historical data show that bank deposits grew at an average rate of 9.5 % during the pre-COVID period (January 2015 to February 2020) and 10.4 % in the post-COVID period (March 2020 to August 2024). Earlier, Finance Minister Nirmala Sitharaman also urged state-run banks to enhance deposit mobilization through attractive offers and focusing on Tier-2 and Tier-3 cities. Loan-to-deposit ratio pegs the total deposits received by the bank against the loans it has offered. It helps in understanding how liquid the bank is. The loan-to-deposit ratio (LDR) is a financial metric that compares a bank's total loans to its total deposits. It's used to assess a bank's liquidity and credit risk, and to inform lending and deposit-taking decisions The report said while the exact measures are unclear, the deposit growth could potentially be increased by making other asset classes less attractive through taxation or interest rates, or by boosting fiscal spending to increase net credit to the government. In its forecast, the report noted that private banks will witness a moderation in their <keyword id="19998083" type="General" weightage="20" keywordseo="credit-growth" source="keywords">credit growth</keyword>, while public sector banks will maintain a healthy credit growth rate. "Our analysis suggests that deposit growth could be raised by either making other asset classes unattractive (through taxation and/or interest rate) or increasing the growth in net credit to the government by pushing fiscal spending higher" the report added. Alternatively, policymakers might consider curtailing loan growth to lower the LD ratio. However, this could slow deposit growth, particularly if corporate credit growth remains weak. Encouraging savers to shift investments from other assets to bank deposits could also be an option, but this carries risks of overreach and potential damage to economic confidence. Das had also flagged the excessive growth, or froth developing in the personal loan space. Notably, while credit growth in unsecured personal loans like credit cards continues to decline, it remains elevated at 23.3% as of June 2024. However, this is a significant reduction from 34.2% witnessed in November 2023. As fiscal spending increases, bank credit to the government is likely to grow, which should elevate deposits and broad money supply. The report said "However, the extent of foreign capital inflows and the RBI's policy for managing these inflows remain uncertain". Last month, RBI governor Shaktikanta Das had also addressed this issue in the 50th meeting of MPC (Monetary Policy Committee). Per him, deposit mobilisation has been lagging credit growth for some time now. This may potentially expose the system to structural liquidity issues. "While there could be a debate regarding ‘deposits funding loans’ vis-à-vis ‘loans funding deposits’, the current regulatory concern stems from the fact that there could be structural changes happening which banks need to recognise and, accordingly, devise their strategies. Households and consumers who traditionally leaned on banks for parking or investing their savings are increasingly turning to capital markets and other financial intermediaries", Das said. Per him, while bank deposits continue to remain dominant as a percentage of financial assets owned by households, their share has been declining consistently, since households are now increasingly allocating their savings to mutual funds, insurance funds, pension funds and other avenues.

Loan-to-deposit ratio will subside on its own in coming months, notes Motilal Oswal report

The decline in <keyword id="22920992" type="General" weightage="100" keywordseo="loan-to-deposit-ratios" source="keywords">loan-to-deposit ratios</keyword> (LDR) within the banking system has been attributed to lower <keyword id="22920578" type="General" weightage="20" keywordseo="money-creation" source="keywords">money creation</keyword> by the <keyword id="6354335" type="General" weightage="20" keywordseo="Reserve-Bank-of-India" source="Orion">Reserve Bank of India</keyword> (<keyword id="30067" type="General" weightage="20" keywordseo="RBI" source="Orion">RBI</keyword>) and higher <keyword id="20335010" type="General" weightage="20" keywordseo="profits" source="keywords">profits</keyword> accrued by banks over the past two years, according to <keyword id="2258232" type="General" weightage="20" keywordseo="Nomura-report" source="Orion">Nomura report</keyword>. One of the contributors to the decline in systemic LDR is the lower net money creation by the RBI over the fiscal year 2023-24. Cumulative net fresh money creation during this period amounted to only Rs 0.6 trillion, a contrast to approximately Rs 20 trillion created in the three fiscal years preceding it (FY20-22). This represents a drop in money supply compared to previous years. In the fiscal year 2023-24, the net money creation by the RBI was virtually neutral, recording -1 per cent in FY23 and +1 per cent in FY24, against a 20-year average of +3 per cent and a higher +4-5 per cent in the earlier three years. This moderation in money supply, a discretionary move by the RBI, has had a notable impact on the LDR, limiting the ability of banks to expand their lending relative to deposits. Another crucial factor influencing the decline in LDR is the substantial increase in <keyword id="387788" type="General" weightage="20" keywordseo="bank-profits" source="Orion">bank profits</keyword> over the last two years. In FY24, the total profit of banks was 1.8 per cent of the previous year's deposits, a rise from the average of 0.1 per cent observed between FY16-20. This increase in profitability, while indicative of strong financial performance, has led to a reduction in deposits as banks appropriate a larger portion of these profits. The relationship between bank profits and deposits is intrinsic; banks generate profits from their operations, which are ultimately derived from depositors' funds. As banks' profits rise, the balance sheet needs to be adjusted accordingly, often leading to a reduction in deposits. Consequently, higher profits can result in a diminished deposit base, further impacting the LDR. The elevated LDR, driven by these factors, should be viewed as a cyclical phenomenon rather than a systemic issue. The argument that banks are failing to mobilize deposits or that money is being diverted elsewhere is misplaced. Instead, flows into capital markets and the muted growth in currency in circulation over the past two years do not directly impact system deposits. Banks have continued to create deposits through credit expansion, and the factors leading to the higher LDR are beyond their control. The lower money creation by the RBI is a cyclical issue that is expected to correct over time, while the higher bank profits reflect a positive trend rather than a problem.

Lower money creation by RBI, substantial rise in banks profits behind decline in loan-to-deposits ratios in banks: Nomura

Over the past few months, there’s been a lot of brouhaha about the lagging pace of bank deposits in India. Simply put, the rate at which Indians are depositing their hard-earned money in banks has been falling constantly, and some blame the increasing financialization of household savings in the country, or the rising preference of Indians towards mutual funds and shares. So, the hypothesis is that people are choosing to invest more in mutual funds and the Indian equity markets through direct investments, IPOs, or NFOs, the money flowing into Indian banks in the form of deposits is slowing down. But is that really the case? <h2>A crisis or a phase?</h2><keyword id="19899808" type="General" weightage="20" keywordseo="rbi" source="keywords">RBI</keyword> data suggested that for the quarter ended June 2024, bank deposits grew at 11.7%. On the other hand, credit growth has outpaced this at 15%. This means that the outflow from banks as loans is far greater than the inflow into them in the form of deposits in Q1 of FY 2024-25. The situation largely saw cut-copy-paste in the first week of September as well, with loans registering a 13.3% YoY growth during the period, while deposits rose only 11.1%. This gap has only been widening for the last 3 years. Since deposits are how banks gather assets to further lend and earn interest income as a consequence, even a slight dip could set the alarm bells ringing for banks, and rightfully so. And truth be told, mutual funds are indeed taking on bank deposits in a big way. Per a report by <keyword id="20250971" type="General" weightage="20" keywordseo="franklin-templeton" source="keywords">Franklin Templeton</keyword>, in August 2024, the AUM (assets under management) of Indian mutual funds, or the total funds managed by them, stood at 31.3% of total bank deposits in the country, up from 24.20% during the year-ago period. As of August 2024, the AUM of mutual funds stood at Rs 66.17 lakh crore, an all-time high. But all said and done, is this really the reason why the rate of bank deposits is falling behind? SBI has dismissed this to be a “statistical myth”, and experts point out that since equity and fund houses also keep the cash in their respective bank accounts, there’s no cause for concern. So, is financialization really to be blamed for the trailing tempo of deposits? Or is something else happening behind the scenes? We take a closer look: <h2>First, are <keyword id="4000333" type="General" weightage="100" keywordseo="household-deposits" source="Orion">household deposits</keyword> really slowing down? And is that a cause of concern?</h2>Data from Motilal Oswal suggests the contrary. Deposits grew by around 10.4% between March 2020 and August 2024. Data from RBI also highlights that as of August 9, 2024, bank deposits witnessed a YoY growth of 10.8%. The loan-to-deposit ratio for the retail segment, which indicates what percentage of its total deposits the banks lend out as loans, has stayed at 77.5%, above the 77% mark for the tenth straight month. Also, we can’t forego the fact that the share of Indian <keyword id="20319599" type="General" weightage="20" keywordseo="households" source="keywords">households</keyword> in bank deposits has indeed slowed down. However, data from Axis AMC shows that the dip is marginal—from 63% in 2022 to 62% in 2023 and 61% in 2024. What has slowed down even more considerably is the share of government deposits in the aggregate bank deposits, which has dipped from 14% in 2018 to 9% in 2024. So, it's not just household deposits, you see. Moreover, as of March 2024, the collective CASA ratio (current and savings account deposits) of all commercial banks in India stood at 41.00%, down from 43.1% in March 2023 and 45.2% in March 2022, marking a nearly 5% point decline over the past year, while still staying over the 10-year average of 39.2%. This implies that Indian banks are relying more on higher-cost funds (savings accounts), which can limit their profitability. <h2>What is this financialisation of savings we are talking about?</h2>Then again, there is no doubt about the growing affinity of Indians towards mutual funds and stock markets. Recent data from CBDT (<keyword id="19942037" type="General" weightage="20" keywordseo="central-board-of-direct-taxes" source="keywords">Central Board of Direct Taxes</keyword>) highlights that India’s net direct tax collection surged by around 22%, driven exclusively by the significant uptick in the collection of <keyword id="20930760" type="General" weightage="20" keywordseo="securities-transaction-tax" source="keywords">Securities Transaction Tax</keyword> (STT), which doubled to Rs 26,154 crore, from Rs 13,352 crore in the year-ago period. Why does this matter? STT is levied when you buy or sell equity shares on stock exchanges, sell equity mutual funds, and trade in futures and options in the equity segment. Such taxes, including the multiple other taxes in equity market investments, are considered as leakages as the money moves out of the economy into government coffers. Data from a ValueQuest report explains that over the last 20 years, the markets have handsomely rewarded the investors, generating over $900 billion in incremental value for them. This is the major driver behind the dramatic rise in investment flowing towards the equity markets. There’s further proof of this budding romance, if you check the demat pudding. The number of demat accounts, which are a primary requisite for participating in the stock markets, also burgeoned by 42.3 lakh in August 2024, taking India’s total tally of demat accounts beyond 17 crore. To put this in perspective, this is almost equivalent to the population of just 8 nations in the world, including China, the US, Brazil and more. Vivek Iyer, Partner, Grant Thornton Bharat thinks it's rather important, as well. “Financialisation of household savings in India is an indication of deepening capital markets in the market, especially from a retail investor standpoint. Bank deposits with a modest rate of return are no longer the only option for savings for investors. Investors today have more avenues for wealth creation in the form of public capital markets, which have democratized wealth creation and provided equality of opportunity to retail investors”, he says. Yes, Indians are investing more and more in the markets, and in mutual funds. But is it a sin to look out for inflation-beating returns, which the stock markets offer, and vanilla bank deposits don't? After all, the allure of 12-13% annual returns offered by equities can certainly pale the stability offered by good old deposits, which generally do not go beyond 9% when it comes to annual returns. But all of this is not what is behind the slowdown. India is still a toddler in the school of savings financialization, with less than 10% of the population holding a demat account, and less than 5% of us saving in equities. That's a drop in the ocean of deposits, far inadequate to trigger a tsunami. <h2>Tell me why lagging deposits have nothing to do with Indians investing more in mutual funds!</h2>Says Shweta Rajani, Head - Mutual Funds, Anand Rathi Wealth Limited, “Households' equity holdings composition grew from 11.1% in FY 23 to 14.7% in FY 24. This trend reflects a growing awareness of investment options, empowering individuals to take control of their financial futures. Despite this transition towards equities, banks still hold a significant share of household financial savings—33.5% in FY24 compared to 34.9% in FY23”. Also, household savings and their subsequent financialization do not have much to do with deposit creation, which is entirely made by banks. What actually drives increased deposits is credit growth or increased lending. When interest rates are eased, people tend to borrow more and spend more, which circulates more money in the economy. For the past 4 years, RBI has been tightening the screws on interest rates, which raises the cost of borrowings, and makes it more expensive to take loans, putting a dampener on credit growth, but effectively curbing inflationary pressures. The last time RBI cut the repo rate by 40 basis points was back in May 2020, 4 years ago. The lag in deposit growth we’re witnessing is almost 3 years old. Coincidence much, or just good old economics at work? But with the <keyword id="19900043" type="General" weightage="20" keywordseo="fed" source="keywords">Fed</keyword> recently setting a rate cut precedent by slashing 50 bps off its interest rate, RBI is expected to follow suit in the next <keyword id="19918491" type="General" weightage="20" keywordseo="mpc" source="keywords">MPC</keyword> (Monetary Policy Committee) meeting, scheduled for November 2024. A rate cut would ease the aforementioned high cost of borrowing, and increase loan-taking for corporates and institutional investors, thereby stoking consumption in the economy. And then, deposit creation in banks is likely to return to its former glory. If not, then that would be a curious case to unravel! But that worry is for another day.

A Deposit Dilemma — What's the fuss about a crisis in Indian bank deposits? Are mutual fund investments to blame?

<div type="image" title="Are Indians depositing less money in banks, or more in mutual funds? Turns out, it&amp;#39;s neither of those." msid="113663806" hostid="261" sizebytes="1121785"></div> Over the past few months, there’s been a lot of brouhaha about the lagging pace of <keyword id="20202062" type="General" weightage="20" keywordseo="bank-deposits" source="keywords">bank deposits</keyword> in India. Simply put, the rate at which Indians are depositing their hard-earned money in banks has been falling constantly, and some blame the increasing financialisation of <keyword id="20751315" type="General" weightage="20" keywordseo="household-savings" source="keywords">household savings</keyword> in the country or the rising preference of Indians towards <keyword id="19929240" type="General" weightage="20" keywordseo="mutual-funds" source="keywords">mutual funds</keyword> and shares. So, the hypothesis is that people are choosing to invest more in mutual funds and the Indian <keyword id="19949641" type="General" weightage="20" keywordseo="equity-markets" source="keywords">equity markets</keyword> through direct investments, IPOs, or NFOs, the money flowing into Indian banks in the form of deposits is slowing down. But is that really the case? <h2>A crisis or a phase?</h2><keyword id="19899808" type="General" weightage="20" keywordseo="RBI" source="keywords" meta.keywordsubtype="org" meta.entityname="RBI" meta.hostid="261" meta.entityid="RBI">RBI</keyword> data suggested that for the quarter ended June 2024, bank deposits grew at 11.7%. On the other hand, credit growth has outpaced this at 15%. This means that the outflow from banks as loans is far greater than the inflow into them in the form of deposits in Q1 of FY 2024-25. The situation largely saw cut-copy-paste in the first week of September as well, with loans registering a 13.3% YoY growth during the period, while deposits rose only 11.1%. This gap has only been widening for the last 3 years. Since deposits are how banks gather assets to further lend and earn interest income as a consequence, even a slight dip could set the alarm bells ringing for banks, and rightfully so. And truth be told, mutual funds are indeed taking on bank deposits in a big way. Per a report by Franklin Templeton, in August 2024, the AUM (assets under management) of Indian mutual funds, or the total funds managed by them, stood at 31.3% of total bank deposits in the country, up from 24.20% during the year-ago period. As of August 2024, the AUM of mutual funds stood at Rs 66.17 lakh crore, an all-time high. But all said and done, is this really the reason why the rate of bank deposits is falling behind? SBI has dismissed this to be a “statistical myth”, and experts point out that since equity and fund houses also keep the cash in their respective bank accounts, there’s no cause for concern. So, is financialization really to be blamed for the trailing tempo of deposits? Or is something else happening behind the scenes? We take a closer look: <h2>First, are household deposits really slowing down? And is that a cause of concern?</h2>Data from Motilal Oswal suggests the contrary. Deposits grew by around 10.4% between March 2020 and August 2024. Data from RBI also highlights that as of August 9, 2024, bank deposits witnessed a YoY growth of 10.8%. The loan-to-deposit ratio for the retail segment, which indicates what percentage of its total deposits the banks lend out as loans, has stayed at 77.5%, above the 77% mark for the tenth straight month. <div type="image" title="Yes, household deposits (as % of total deposits) have dipped, but the drop is far from significant" msid="113663882" hostid="261" sizebytes="306706"></div> Also, we can’t forego the fact that the share of Indian households in bank deposits has indeed slowed down. However, data from Axis AMC shows that the dip is marginal—from 63% in 2022 to 62% in 2023 and 61% in 2024. What has slowed down even more considerably is the share of government deposits in the aggregate bank deposits, which has dipped from 14% in 2018 to 9% in 2024. So, it's not just household deposits, you see. Moreover, as of March 2024, the collective CASA ratio (current and <keyword id="114757" type="General" weightage="20" keywordseo="savings-account" source="Orion">savings account</keyword> deposits) of all commercial banks in India stood at 41.00%, down from 43.1% in March 2023 and 45.2% in March 2022, marking a nearly 5% point decline over the past year, while still staying over the 10-year average of 39.2%. This implies that Indian banks are relying more on higher-cost funds (savings accounts), which can limit their profitability. <h2>What is this financialisation of savings we are talking about?</h2>Then again, there is no doubt about the growing affinity of Indians towards mutual funds and stock markets. Recent data from CBDT (Central Board of Direct Taxes) highlights that India’s net direct tax collection surged by around 22%, driven exclusively by the significant uptick in the collection of Securities Transaction Tax (STT), which doubled to Rs 26,154 crore, from Rs 13,352 crore in the year-ago period. Why does this matter? STT is levied when you buy or sell equity shares on stock exchanges, sell <keyword id="6361918" type="General" weightage="20" keywordseo="equity-mutual-funds" source="Orion">equity mutual funds</keyword>, and trade in futures and options in the equity segment. Such taxes, including the multiple other taxes in equity market investments, are considered as leakages as the money moves out of the economy into government coffers. Data from a ValueQuest report explains that over the last 20 years, the markets have handsomely rewarded the investors, generating over $900 billion in incremental value for them. This is the major driver behind the dramatic rise in investment flowing towards the equity markets. There’s further proof of this budding romance, if you check the demat pudding. The number of demat accounts, which are a primary requisite for participating in the stock markets, also burgeoned by 42.3 lakh in August 2024, taking India’s total tally of demat accounts beyond 17 crore. To put this in perspective, this is almost equivalent to the population of just 8 nations in the world, including China, the US, Brazil and more. Vivek Iyer, Partner, Grant Thornton Bharat thinks it's rather important, as well. “Financialisation of household savings in India is an indication of deepening capital markets in the market, especially from a retail investor standpoint. Bank deposits with a modest rate of return are no longer the only option for savings for investors. Investors today have more avenues for wealth creation in the form of public capital markets, which have democratized wealth creation and provided equality of opportunity to retail investors”, he says. Yes, Indians are investing more and more in the markets, and in mutual funds. But is it a sin to look out for inflation-beating returns, which the stock markets offer, and vanilla bank deposits don't? After all, the allure of 12-13% annual returns offered by <keyword id="45369" type="General" weightage="20" keywordseo="equities" source="Orion">equities</keyword> can certainly pale the stability offered by good old deposits, which generally do not go beyond 9% when it comes to annual returns. But all of this is not what is behind the slowdown. India is still a toddler in the school of savings financialization, with less than 10% of the population holding a demat account, and less than 5% of us saving in equities. That's a drop in the ocean of deposits, far inadequate to trigger a tsunami. <h2>Tell me why lagging deposits have nothing to do with Indians investing more in mutual funds!</h2>Says Shweta Rajani, Head - Mutual Funds, Anand Rathi Wealth Limited, “Households' equity holdings composition grew from 11.1% in FY 23 to 14.7% in FY 24. This trend reflects a growing awareness of investment options, empowering individuals to take control of their financial futures. Despite this transition towards equities, banks still hold a significant share of household financial savings—33.5% in FY24 compared to 34.9% in FY23”. Also, household savings and their subsequent financialization do not have much to do with deposit creation, which is entirely made by banks. What actually drives increased deposits is credit growth or increased lending. When interest rates are eased, people tend to borrow more and spend more, which circulates more money in the economy. For the past 4 years, RBI has been tightening the screws on interest rates, which raises the cost of borrowings, and makes it more expensive to take loans, putting a dampener on credit growth, but effectively curbing inflationary pressures. The last time RBI cut the repo rate by 40 basis points was back in May 2020, 4 years ago. The lag in <keyword id="19998084" type="General" weightage="100" keywordseo="deposit-growth" source="keywords">deposit growth</keyword> we’re witnessing is almost 3 years old. Coincidence much, or just good old economics at work? But with the Fed recently setting a rate cut precedent by slashing 50 bps off its interest rate, RBI is expected to follow suit in the next MPC (Monetary Policy Committee) meeting, scheduled for November 2024. A rate cut would ease the aforementioned high cost of borrowing, and increase loan-taking for corporates and institutional investors, thereby stoking consumption in the economy. And then, deposit creation in banks is likely to return to its former glory. If not, then that would be a curious case to unravel! But that worry is for another day. Do you have insights or personal experience to share on your personal finances or money? Contact us at <a target="_blank" class="c-link" href="mailto:businessinsider@timesinternet.in">businessinsider@timesinternet.in</a>.

Simply Put: A Deposit Dilemma — What's the fuss about a crisis in Indian bank deposits? Are mutual fund investments to blame?

Indian banks are expected to have steady growth in earnings and returns over the next 3–4 years, according to a recent report by Jefferies. It expects a 13% compound annual growth rate (CAGR) in loan growth for banks between FY24 and FY27, helmed by a supportive environment and expected adjustments in interest rates. "We expect steady growth in earnings and stable returns, Over FY24-27, the banks we cover should see 13% CAGRin loans We factor 25-50 bps cut in rates, &amp; depending on timing, NIMs will move," the report said. Depending on the timing, these rate cuts could impact banks' <keyword id="20076541" type="General" weightage="20" keywordseo="net-interest-margins" source="keywords">net interest margins</keyword> (NIMs), which measure the difference between interest income generated and interest paid to depositors. The report also notes that banks' net interest income (NII), a critical metric that is reflective of how much a bank earns from its lending, could grow at a steady 12% CAGR, which would support overall earnings growth. <h2>Rate cuts probable next year</h2>Per SBI Mutual Fund's monthly outlook for November 2024, while markets were initially speculating possible rate reductions in December this year or February next year these chances now stand dampened due to two reasons. First, elevated CPI numbers in September, which stood at a nine-month high, underlined the stickiness of food inflation. Secondly, RBI governor Das recently highlighted his hawkish stance at a conference, stating that "rate cuts at this stage would be premature and risky’. The report further adds that February 2025, or even April, would be a better time to discuss repo rate cuts in India. Even <keyword id="19985925" type="General" weightage="20" keywordseo="bank-credit-growth" source="keywords">bank credit growth</keyword> has continued to outpace deposit growth for two years now. However, they seem to be inching closer in the recent past. For instance, in October 2024, while bank credit growth remained at 12.7%, the deposit growth rate followed closely at 11.8%. This also means that banks are witnessing an elevated bank credit-to-deposit ratio, standing at 77% in October. <h2>Risks in unsecured lending </h2>However, Jefferies noted some areas of caution that could influence growth in other revenue streams, particularly fees. Growth in fees may be at risk due to expected declines in the disbursal of unsecured loans, which generally carry higher interest rates and generate higher fees for banks. October saw stress and defaults rising in the unsecured lending space, prompting the RBI to intervene. As a result, unsecured loans by banks have only grown by 12.1%, the lowest since the pandemic. Despite these risks, the report expects banks' return on assets (ROA) and return on equity (ROE) to remain healthy, underscoring the sector's stable profitability potential. The report also highlights that while the Nifty Banks index has risen by 19% over the past year, it has still underperformed the broader Nifty index, which delivered 27% returns in the same period. BSE Bankex has been along similar lines, generating returns worth 19% over one year. While the Nifty banks' index has a YTD (yield to date) of 7.63%, it continues to trail Nifty's YTD of 11.30%

Indian banks to have steady growth in earning over next 3-4 years, fees from unsecured lending may dip, notes Jefferies report

<keyword id="22661695" type="General" weightage="20" keywordseo="Regulatory-moves" source="Orion">Regulatory moves</keyword> discouraging <keyword id="19972907" type="General" weightage="20" keywordseo="retail-investors" source="keywords">retail investors</keyword>' <keyword id="22661696" type="General" weightage="20" keywordseo="derivative-market-bets" source="Orion">derivative market bets</keyword> may help the <keyword id="59197" type="General" weightage="20" keywordseo="banking-system" source="Orion">banking system</keyword> garner the much-needed <keyword id="6496248" type="General" weightage="20" keywordseo="deposits" source="Orion">deposits</keyword>, <keyword id="46004" type="General" weightage="20" keywordseo="SBI-Chairman" source="Orion">SBI Chairman</keyword> <keyword id="1937145" type="General" weightage="20" keywordseo="Dinesh-Kumar-Khara" source="Orion">Dinesh Kumar Khara</keyword> has said. Khara said the budget announcements like the tweaks on the short-term and long-term capital gains will not lead to much gains from a deposit accretion perspective. "<keyword id="20031465" type="General" weightage="100" keywordseo="FO" source="keywords">F&amp;O</keyword> (future and options) kind of things are being discouraged for the retail (investor) by the regulator. Those who are resorting to such kind of an instrument, they might come back to the banking system," Khara told PTI over the weekend. It can be noted that concerns over losses incurred by 90 per cent of investors in the derivative trades have led to fears of household savings being blown in speculation rather than being deployed for productive purposes among policymakers. As per <keyword id="20033427" type="General" weightage="20" keywordseo="capital-markets" source="keywords">capital markets</keyword> regulator Sebi, retail investors lost Rs 52,000 crore in such activity in FY24 alone which necessitates a clampdown. Sebi has come up with a seven-point plan to reduce such trades, while some moves in the Union Budget are also targeted to reduce such activities. For the last three years, the deposit growth is unable to keep pace with credit expansion, and Khara said the money is going into alternative avenues like capital markets. He, however, stressed that the bank account is the primary avenue for parking the savings and continue to attract interest, and reminded that there was a phase of deposit growth trailing credit growth in 2011 as well witnessed by the banking system. At present, concerns are being raised about the wedge between the deposit and credit growth leading banks to go slower on granting loans, which can be be detrimental for the overall economic growth. <keyword id="19898108" type="General" weightage="20" keywordseo="SBI" source="keywords" meta.keywordsubtype="org" meta.entityname="SBI" meta.hostid="153" meta.entityid="SBI">SBI</keyword>, the country's largest lender which commands over a fifth of market share, is targeting a credit growth of 15 per cent in FY25 and a deposit growth of 8 per cent, Khara said. Stating that the bank will try to get the deposit growth at 10 per cent, he made it clear that the credit growth target can be achieved even with a slower pace of deposit growth of 8 per cent due to its liquidity position. The bank chose to deploy excess deposits in the past into its investment book and is currently unwinding the same as it caters to the credit demand, Khara said. He said the bank's liquidity coverage ratio stands at 128 per cent and it has decided to keep it over 110 per cent.

Discouraging retail play in F&O may help banks garner deposits: SBI Chairman

<keyword id="19922074" type="General" weightage="20" keywordseo="Reserve-Bank" source="keywords" meta.keywordsubtype="org" meta.entityname="Reserve Bank" meta.hostid="261" meta.entityid="Reserve Bank">Reserve Bank</keyword> Governor Shaktikanta Das on Thursday said surge in top-up <keyword id="21191532" type="General" weightage="20" keywordseo="housing-loans" source="keywords">housing loans</keyword> is not a system-wide issue but confined to few entities. Briefing media after the announcement of bi-monthly monetary policy review, Das said, "regulatory requirements in top-up housing loans are not being followed by certain entities and it is not a system-level problem." Such cases are being dealt at the supervisory level bilaterally, he said. Banks and <keyword id="19938300" type="General" weightage="20" keywordseo="NBFCs" source="keywords" meta.keywordsubtype="org" meta.entityname="NBFCs" meta.hostid="261" meta.entityid="NBFCs">NBFCs</keyword> have also been offering top-ups on other collateralised loans like gold loans. "Such practices may lead to loaned funds being deployed in unproductive segments or for speculative purposes. Banks and NBFCs would, therefore, be well-advised to review such practices and take remedial action," he said. Therefore, he said, banks should adhere to regulatory prescriptions relating to loan-to-value (LTV) ratio, risk weights and monitoring of end use of funds with regard to top-ups. Das further said that the divergence between loan and deposit growth may create asset liability mismatch or <keyword id="22712997" type="General" weightage="20" keywordseo="liquidity-management-issue" source="keywords">liquidity management issue</keyword>. It may potentially expose the banking system to structural liquidity issues, he said. He urged banks to mobilise deposits through innovative products and services by leveraging their vast branch network. On inflation, Das said, it is moderating but the pace of disinflation is uneven and slow. Pinning hopes on monsoon, which is 7 per cent higher than long-term average so far, the Governor said, it will have a good impact on Kharif output as well as Rabi because of improvement in moisture content in the soil. SEE ALSO:<a href="https://www.businessinsider.in/business/news/ola-wants-to-re-enter-the-quick-commerce-business-to-take-on-blinkit-and-swiggy-instamart/articleshow/112364583.cms" target="_blank"></a> <a href="https://www.businessinsider.in/business/news/ola-wants-to-re-enter-the-quick-commerce-business-to-take-on-blinkit-and-swiggy-instamart/articleshow/112364583.cms" target="_blank">Ola wants to re-enter the quick commerce business to take on Blinkit and Swiggy Instamart</a><a href="https://www.businessinsider.in/finance/banks/news/rbi-mpc-meet-cheque-clearing-time-reduced-upi-limit-increased-for-tax-payment/articleshow/112366099.cms" target="_blank"></a> <a href="https://www.businessinsider.in/finance/banks/news/rbi-mpc-meet-cheque-clearing-time-reduced-upi-limit-increased-for-tax-payment/articleshow/112366099.cms" target="_blank">RBI MPC meet – Cheque clearing time reduced, UPI limit increased for tax payment</a><a href="https://www.businessinsider.in/business/auto/news/tata-curvv-ev-with-up-to-585-km-range-launched-starting-at-17-49-lakh/slidelist/112342769.cms" target="_blank"></a> <a href="https://www.businessinsider.in/business/auto/news/tata-curvv-ev-with-up-to-585-km-range-launched-starting-at-17-49-lakh/slidelist/112342769.cms" target="_blank">Tata Curvv EV with up to 585 km range launched starting at ₹17.49 lakh</a>

Surge in top-up housing loans not system-wide issue, says RBI Governor

<ul><li>With an increase in <keyword id="6354680" type="General" weightage="20" keywordseo="credit" source="Orion">credit</keyword> offtake, the <keyword id="568129" type="General" weightage="20" keywordseo="credit-deposit-ratio" source="Orion">credit deposit ratio</keyword> reached almost 75.04% as of April 7, 2023. </li><li>In April, the banking system's liquidity changed from a deficit to a surplus due to government spending and the Reserve Bank of India's (RBI) foreign exchange intervention.</li><li>In the current environment of rising interest rates, the median 1-year MCLR for Scheduled Commercial Banks increased from 8.55% in March 2023 to 8.6% in April 2023.</li></ul>In March 2023, both lending and deposit rates rose, but the rate of increase was faster for the deposit rates than lending rates. Moreover, the rates for fresh business (new loan taken by a borrower) have increased at a faster clip when compared to rates for outstanding business (old loan that is yet to be repaid). March also witnessed a surge in <keyword id="632526" type="General" weightage="20" keywordseo="credit-demand" source="Orion">credit demand</keyword> due to growth seen in personal loans, working capital loans, and the participation of non-banking financial companies (NBFCs) resulting in double-digit growth, according to a BFSI Research report by credit rating agency CareEdge. <cmsannotation type="cmsannotation" annotationid="Credit deposit ratio reaches almost 75.04% on April 7" comment="subhead" text="Credit deposit ratio reaches almost 75.04% on April 7"><keyword id="5173780" type="General" weightage="20" keywordseo="credit-deposit" source="Orion">Credit deposit</keyword> ratio reaches almost 75.04% on April 7</cmsannotation> However, the mobilisation of deposits has been relatively low, and the credit offtake has increased, causing the credit deposit ratio to reach almost 75.04% as on April 7, 2023. At the beginning of FY23, the banking system had a surplus of ₹6.3 lakh crore in liquidity. However, it has reduced over time and eventually turned into a deficit towards the end of FY23. Hence liquidity had been injected into the system. In April, the banking system's liquidity changed from a deficit to a surplus due to government spending and the Reserve Bank of India's foreign exchange intervention. However, the liquidity infusion was somewhat offset by the redemption of long-term repo operation (LTRO) and targeted long-term repo operation (TLTRO). LTRO and TLTRO are monetary policy tools used by the RBI to inject liquidity into the banking system. <cmsannotation type="cmsannotation" annotationid="Weighted average call rate rises to 6.52% as on April 21" comment="subhead" text="Weighted average call rate rises to 6.52% as on April 21">Weighted average call rate rises to 6.52% as on April 21</cmsannotation> To maintain liquidity at a neutral level, the RBI may continue to conduct variable rate reverse repo (VRRR) auctions – a tool used by the RBI to manage liquidity in the banking system. There has been an increase in the short-term weighted average call rate (WACR) from 3.53% as of April 22, 2022, to 6.52% as of April 21, 2023. This rise in WACR can be attributed to a combination of higher policy rates and a reduction in liquidity within the system. The WACR is an indicator of the overall liquidity conditions in the banking system. <cmsannotation type="cmsannotation" annotationid="Lending rates on the rise" comment="subhead" text="Lending rates on the rise">Lending rates on the rise</cmsannotation> The weighted average lending rate (WALR) – which is the weighted average of all the interest rates that a bank charges on its outstanding loans – on fresh loans has continued to increase month-over-month (M-o-M). For public sector banks (PSBs) it’s up by 11 basis points (bps), for private sector banks (PVBs) by 21 bps, and for scheduled commercial banks (SCBs) by 8 bps. The lending rates on fresh loans for PSBs, PVBs, and SCBs have surpassed their levels in March 2020. In addition, the WALR on outstanding loans has also increased M-o-M across all segments – for PSBs by 7 bps, for PVBs by 4 bps, and for SCBs by 5 bps. Interestingly, foreign banks have experienced a decrease in their lending rates. The spread between the WALR on outstanding loans and WALR on fresh loans for PSBs and PVBs has continued to narrow M-o-M due to a higher increase in WALR on fresh loans than on outstanding loans. In the current environment of rising interest rates, the median 1-year MCLR (marginal cost of funds-based lending rate) for SCBs increased from 8.55% in March 2023 to 8.60% in April 2023. Despite the Monetary Policy Committee (MPC) taking a pause from rate increase at its last meeting, banks have continued to raise rates. This has had a faster impact on the lending rate of new loans, while older loans are re-priced based on specific repricing dates. As a result, the spread between the WALR for outstanding loans and the WALR for new loans is expected to narrow in the short term and stabilise in the medium term.

Deposit rates rise faster than lending rates in March 2023: CareEdge

Interest rates on deposits need to go up, say experts, as share of FDs in household financial assets drops

<keyword id="1397102" type="General" weightage="20" keywordseo="Public-sector-bank-stocks" source="Orion">Public sector bank stocks</keyword> have rallied more than 25 per cent post their stellar Q2 financial results with net profit jumping by 50 per cent. Union Bank of India stock price is up by 60.8 per cent over the last month among the PSU bank stocks. Bank of India is up by 56.1 per cent during the month while UCO Bank is up by 32.4 per cent. The Nifty PSU Bank index made a new 52-week high on Friday. The index was up by 21.35 per cent last month. Amber Pabreja, Founder and CEO of Trendlyne, said the Nifty PSU Bank index has rallied more than 25 per cent after public sector banks delivered strong Q2 results - a sign of investor confidence. Loan growth has jumped by double digits. "We should keep in mind, however, that interest rates are on the rise, and deposits are growing relatively slowly. This means more expensive loans and lower net interest margin growth in the coming quarters. It will be a riskier environment for the banks," he said. "Overall, PSU banks will need to keep a close eye on their asset quality, especially as we head into FY24. And investors will have to become more selective with their picks. I expect major banks to stay resilient. State Bank of India (SBI), for example, reported a net NPA ratio of less than 1 per cent (.8 per cent for September 2022 quarter), and its earnings are expected to grow by 33 per cent in FY23 as per Trendlyne's consensus estimates," Pabreja said. S&amp;P Global Market Intelligence said in a report that Indian banks will gain from tailwind of rising rates as credit growth stays steady. Rising interest rates will continue to help Indian banks in the rest of the fiscal year ending March 31, 2023, after high credit growth and stronger margins helped propel earnings. Five of the six biggest banks by assets in India reported an increase in net income for the fiscal second quarter ended September 30, the report said. Vinod Nair, Head of Research at Geojit Financial Services, said, "The rally of PSBs was triggered by the strong earnings growth announced in Q2 results. It provided a good set of number with high provision coverage and improvements in asset quality. Combined net profit of 12 PSBs is up by 50 per cent on a Y-o-Y basis to Rs 25,685 crore. " Nair said the upgrade in outlook demanded improvement in valuation. There was a strong arbitrage opportunity due to heavy disparity between the valuation of private and public sector banks. However, due to sharp rally, P/B ratio has increased to 0.9x from 0.5x, narrowing the valuation gaps and limiting the performance on a short to medium-term. Banks took advantage of the higher interest rate environment to bolster their net interest margins, while previous efforts to reduce their nonperforming assets resulted in lesser loan loss provisions, their recently released earnings reports showed, S&amp;P Global Market Intelligence said. The second quarter results of private sector, as well as public sector banks, were "picture perfect", said Tusharika Aggarwal, research analyst, Asia-Pacific dividend forecasting at S&amp;P Global Market Intelligence. "I remain fairly confident in the banks' earnings for rest of the year. The interest rate hikes, although the quantum will decline, would still benefit Indian banks. And because credit growth is increasing, so despite high-interest rates, net interest income will grow," Aggarwal said. While lending rates have increased on aggregate with growing demand, interest rates offered to depositors have risen more slowly, Aggarwal said, adding that the gap, along with lower credit loss provisions, has resulted in better return on assets for banks. Ajit Kabi, Banking Analyst at LKP Securities, said, "The outperformance of public banks was evident as the fundamentals are getting stronger. The recapitalisation had improved the capital requirement which led the banks to grow the balance sheet. The credit growth reported was the highest in the decade. The deposit growth was also above the market growth rate. The large public banks (SBI, BoB, Canara Bank) have gained market share." On the asset quality front, the GNPA/NNPA level reduced significantly with ample provision buffers. The contingent provision for the bank seems adequate and above regulatory requirements against the restructured pool. The outperformance across yardsticks and inexpensive valuation has driven the rally in recent times. The rally is likely to continue for public banks as their balance sheet is at a sweet spot to grow with minimum asset quality hiccups, Kabi said. S&amp;P Global Market Intelligence said bank credit growth picked up for both public and private sector banks in the first half of fiscal 2022-2023, according to Reserve Bank of India data released in September. Private sector banks' credit growth for the fiscal first half came to 20.4 per cent, compared to 13.9 per cent for public sector banks. The central bank expects gross domestic product growth at 7 per cent in the current fiscal year ending March 31, 2023, and to ease to 6.5 per cent in the next fiscal year, dampened by further monetary tightening in the central bank's fight to control inflation. Manoj Kumar Dalmia, Founder and Director, Proficient Equities, said PSU bank stocks have been in a rally recently pertaining to good quarters and increased credit uptakes due to festive demand. The banks are also poised well, having improved asset quality. Despite the rally, many PSU banks are available at a reasonable valuation ranging from 0.5-1.0 Price/BV and investors can accumulate them with a long-term perspective. Some PSU banks to look for could be Canara Bank and Union Bank of India. Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares and Stock Brokers, said, "With robust credit growth, improving net interest margin (typical during the early phase of a rate hiking cycle), adequate coverage ratios, and no major signs of asset quality deterioration, we are fundamentally positive on the banking sector. "However, with the overstretched credit-to-deposit ratio, either the credit growth rate or the net interest margin of the private sector banks are likely to deteriorate. With very significant excess investment in government securities over statutory requirements, public sector banks are better off which explains the recent strong rally." After a sharp fall in deposit and credit shares to private banks, there are signs that PSUs may get back a part of it. There has been relative improvements in the return ratios as well. Meanwhile, large valuation differences continue. These factors also seem to be driving the rally, he added. S&amp;P Global Market Intelligence said the key surprise in banks' fiscal second quarter results was a 25-basis-point quarter-over-quarter expansion in NIM. It added, however, that even as this trend is working favourably now, it will increase the procyclical nature of earnings and will be a concern later when rates begin declining. Most banks reported faster credit growth as they ride on rising demand for loans. However, deposit growth is lagging and may push up funding costs later, Nikita Anand, associate director at S&amp;P Global Ratings, said. "We note that deposit growth is lagging credit growth, leading to higher loans-to-deposit ratios, which is positive for margins. However, with higher term deposit rates, there is likely to be some movement of funds from savings deposits to terms deposits. This could lead to some rise in cost of funds," Anand said. Some bank chiefs said they have started looking at ways to keep NIMs intact. Dinesh Khara, chairman of State Bank of India, said the bank will continue to open more savings bank accounts to attract low-cost funds and offer remunerative rates on term deposits to customers. "We are very mindful in terms of increasing our interest rates on the term deposits. So, I think, hopefully our effort will be to sustain the NIM," Khara said during the bank's November 5 earnings call. State Bank of India reported a rise in fiscal second-quarter net profit to Rs 147.52 billion from Rs 88.89 billion, while Bank of Baroda's net profit for the period rose 56.8 per cent year-over-year to Rs 34 billion from Rs 21.68 billion. Punjab National Bank, however, reported that its net profit for the quarter fell 55.3 per cent to Rs 4.94 billion as the state-run lender increased provisions for nonperforming assets by 30.9 per cent year-over-year to Rs 35.33 billion. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/stock-market/news/sensex-nifty50-post-negative-returns-this-week-as-autos-drag-psu-banks-surge/articleshow/95607400.cms" style="">Sensex, Nifty50 post negative returns this week as autos drag – PSU banks surge</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/stock-market/news/three-out-of-seven-companies-out-from-trillion-dollar-club/slidelist/95607217.cms">Three out of seven companies out from trillion dollar club</a>

PSB stocks on 52-week high riding on record profits, double-digit loan growth

On November 12, the <keyword id="6354335" type="General" weightage="20" keywordseo="reserve-bank-of-india" source="Orion">Reserve Bank of India</keyword> (RBI) <a href="https://www.rbiretaildirect.org.in/">opened up a portal</a> through which small investors can directly buy government bonds. Since then, the Nifty Bank, the index of banking stocks, on the National Stock Exchange (NSE) has lost nearly 7% of its value. One could argue that a larger sell-off in Indian stocks is at play but banks have been the worst hit among all sectoral indices. Three straight weekly declines in the stocks of some of the country’s biggest lenders ⁠has led to huge wealth erosion. Private banking giants like ICICI Bank, HDFC Bank and the government-owned State Bank of India (SBI) are some of the most common names in mutual fund portfolios. Aside from the compulsions of the traders who rely on signals on the charts alone, there are some fundamental fears at play too. As it stands today, retail investors can get better long-term returns as well as a wider protection by directly investing in government bonds compared to fixed deposits at banks. Bank deposits are insured by the government up to an amount of ₹5 lakh whereas the entire amount invested in government bonds are guaranteed by the sovereign. And, the returns are relatively exciting too. The returns on some small savings schemes ⁠— some of the long-term ones even offer tax incentives ⁠— offered by the government had already outpaced bank rates. The retail direct platform selling government bonds will only add to the existing pressure. <table style="border-width: initial; border-style: none; table-layout: fixed; width: 468pt;"></colgroup><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Investment product </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Interest rates </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Remarks </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Fixed deposits with banks (Returns depend on lender and tenure. Senior citizens get higher rates) </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">2.5% to 6.2% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Longer the tenure, better the returns. But, interest is fully taxable. Deposits insured up to ₹5 lakh. </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Small savings schemes from the government </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">6.6% to 7.4% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">If the investment is unsold for over 3 years, the gains are eligible for indexation as well as a lower tax rate. </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Long-term government savings schemes like public provident fund </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">7.6% to 8.5% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">These investments can be used to claim tax rebates as well. </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Benchmark bond yield (tenure 10 years) </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">6% - 7.1% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Fully taxable. They come with sovereign guarantee. Direct investments, unlike going via debt funds, can reduce expense ratios. </td></tr></tbody></table> No wonder, reports suggest that big ticket investors like <a href="https://economictimes.indiatimes.com/markets/bonds/retail-bond-scheme-draws-strong-interest-from-nris/articleshow/87838650.cms">non-resident Indians</a> are getting wooed by the latest option of directly investing in government securities, which come with higher returns (compared to other fixed income products), a certainty in cash flow and without costs and commissions, and sovereign guarantee for the entire capital. The process may be a bit cumbersome for those without adequate patience for the infamous interfaces of India’s government websites. If the banks have to compete for deposits, the cost of funds will rise and eat into the profit margin. But that’s not the entire story For India’s banks, credit growth has improved but it is still far from the desired pace. Large corporations have still not ramped up investments and, therefore, borrowings have been tepid. This caps the lender’s ability to increase lending rates to cover the cost. Bank loans to industry at the end of September were lesser compared to six months earlier, according to RBI data. Most of India’s large companies and conglomerates are still in the process of repaying old loans and strengthening their balance sheets. Meanwhile, the growth in deposits moderated marginally to 10.1% in the 12 months to September, compared to 11% a year ago. These are a few points to consider for individual investors, including non-resident Indians, who are considering direct investments into India’s government bonds: Not all government securities are liquid. According to market watchers, only about 15 out of the 90 bonds available in the market are traded actively. The market is, currently, dominated by banks and institutional investors. Buying directly will be far easier than selling (before maturity) for smaller lots. After three years of holding, the return on investment in government securities via debt mutual funds is eligible for indexation (adjusting the cost to include impact of inflation) benefit while calculating capital gains. Direct investments are not eligible for the same. However, debt funds come with expenses which direct investments are free of. The money invested in these bonds now may lose its sheen once the interest rates start rising. Analysts at Goldman Sachs expect RBI to hike interest rates by 75 basis points in 2022. However, for now, there is enough headroom before the bank rates come at par with the bond yields. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/finance/banks/news/rbi-changes-ownership-and-corporate-structure-norms-of-private-banks/articleshow/87932161.cms">IndusInd Bank promoter Hinduja Group may raise stake in bank to 26% after RBI’s latest change in private bank norms</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/telecom/news/mukesh-ambani-led-reliance-jio-hikes-prices-of-its-plans-by-21/articleshow/87965329.cms">Mukesh Ambani-led Reliance Jio hikes prices of its plans by 21%</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/investment/news/facebook-microsoft-and-others-look-towards-the-1-trillion-dollar-metaverse-opportunity-but-that-contradicts-the-base-philosophy-behind-web-3-0/articleshow/87959802.cms">Facebook, Microsoft and others look towards the $1 trillion dollar ‘metaverse’ opportunity — but that contradicts the base philosophy behind Web 3.0</a>

You Searched For "loan to deposit ratios" and got 11 results

Loan-to-deposit ratio will subside on its own in coming months, notes Motilal Oswal report

Ira Alok Puranik

Lower money creation by RBI, substantial rise in banks profits behind decline in loan-to-deposits ratios in banks: Nomura

ANI

A Deposit Dilemma — What's the fuss about a crisis in Indian bank deposits? Are mutual fund investments to blame?

Ira Alok Puranik

Simply Put: A Deposit Dilemma — What's the fuss about a crisis in Indian bank deposits? Are mutual fund investments to blame?

Ira Alok Puranik

Indian banks to have steady growth in earning over next 3-4 years, fees from unsecured lending may dip, notes Jefferies report

BI India Bureau

Discouraging retail play in F&O may help banks garner deposits: SBI Chairman

PTI

Surge in top-up housing loans not system-wide issue, says RBI Governor

PTI

Deposit rates rise faster than lending rates in March 2023: CareEdge

Anagh Pal

Interest rates on deposits need to go up, say experts, as share of FDs in household financial assets drops

Rounak Jain

PSB stocks on 52-week high riding on record profits, double-digit loan growth

IANS

Banks in India may have to fight harder for deposits

Sriram Iyer

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