Deposit ownership: Corporates do better than households
The strong deposit growth in urban markets suggests that the salaried segment has outperformed even more than the self-employed segment:
AKotak Institutional Equities research report shows trends in deposits: (i) in the post covid period, deposits by the retail segment have grown slower than that of private corporates, (ii) similar to FY2020, private banks lost share on government deposits but accelerated market share gains elsewhere, (iii) foreign banks lost CA share after 3 years of gains, (iv) small business segment within retail continues to show sluggish growth (5%), compared to overall retail (12%). Deposit growth is supported by private sector, retail and government sector.
CASA DRIVES DEPOSIT GROWTH
Key highlights from RBI’s ownership of deposits report are interesting. Overall deposits grew 12% y/y (vs 9% y/y in FY2020), driven by current account deposits growing by 20% y/y and savings deposits by 17% y/y, while term deposits grew 8% y/y. CASA ratio improved by 200 bps y/y to 43.4% with the share of savings deposits at a decade high of 34%. Contribution from households was stable at 64%, government sector declined to 12% while private sector improved to 13%. Regional distribution shows marginal gain for metro/urban areas.
SLOW GROWTH IN HOUSEHOLD
Slower growth in household segment is an area to watch out for. The key difference in this report as compared to the quarterly report is that this report gives a break-up of ownership of deposits while the quarterly report gives a geographical spread of business performance. The slower growth in retail deposits and solid growth in private corporate sector gives two opposing signals of the current economic condition. Private sector has accelerated deposit growth for the third consecutive year giving further evidence that the impact of the pandemic was not negative.
LIQUID BALANCE NEED HIGH
On the other hand, the reduced consumption expenditure should have ideally accelerated savings in households as has been seen in print suggests that the impact on account of covid has been painful. Further, the bulk of the retail deposit growth is within savings account suggesting either (1) interest rate differential (term and savings) was not material. There does not appear to be a shift in savings pattern (mutual funds, insurance or stock markets) that explains this behavior either. Note that the strong growth in urban markets suggests that the salaried segment has outperformed even more than the selfemployed segment and (2) the need to have liquid balances was high given the medical emergencies on account of covid.
It is probably a reasonable assumption to make that the wealth impact is currently within a smaller share of households that have witnessed limited income loss or which have a higher share of financial assets that has appreciated meaningfully and the corporate sector, which is benefitting from a deleveraging cycle or a commodity price expansion-led improved profitability but the rest of the households, are yet to show the much desired confidence that could result in a faster recovery in economy.
PSU BANKS LOSING SHARE
Steady market share gains continue for private banks; PSU banks hold share in current accounts (CA). Market share gains by private banks in household deposits continued to rise to 25% (+140 bps y/y). However, it has not been a fast journey with PSU banks losing and private banks gaining about 10 ppt of market share over the last decade. Private banks are closing the market share gap with PSU banks in CA, while continuing to gain share in SA (saving accounts). SFBs remains a small category but have made maximum impact in financial companies with 5% market share.
3 STATES HOLD 1/3RD DEPOSITS
Metropolitan branches of banks, which account for over half of total deposits, accounted for 59.6% of incremental deposits during 202021 (43.2% last year). Three major states (Maharashtra, UP and Karnataka) held onethird of total household sectors’ outstanding deposits and over 40% of its incremental deposits during 2020-21, according to RBI data.