Credit-deposit imbalance could pose significant liquidity risks for Indian banks: S&P Global Market Intelligence

The gap between credit growth and deposit growth at Indian banks is largely driven by households shifting their savings to relatively high-return investments, said Tusharika Aggarwal, a dividend forecasting research analyst at S&P Global Market Intelligence.

S&P Global Market Intelligence is a financial information and analytics firm.

Dividend growth at some of India's largest banks is expected to slow after surging in the financial year that ended in March 2024, according to S&P Global Market Intelligence analysis.

The increase in deposit rates by some banks, intending to address the current credit-deposit imbalance, is compressing banks' net interest margins, said Aggarwal.

"This compression is expected to lead to slower growth in dividend payouts and tighter profitability as banks deal with higher costs associated with attracting deposits."

A dividend is a portion of an entity's profit that is distributed to its shareholders, though not mandated.

According to the financial information and analytics firm, dividends at six of India's largest banks by market capitalization are set to grow 9 per cent in 2024-25 compared with 27 per cent in the prior fiscal year, estimates from S&P Global Market Intelligence's Dividend Forecasting show. Those banks it said are State Bank of India, HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, and IndusInd Bank.

Axis Bank and HDFC Bank, it said, are projected to cut dividends the most, at 15 per cent and 9 per cent, respectively.

Banks in India are aiming to bring in deposits through attractive schemes, amid concerns over the widening gap between credit and deposit growth rates. Customers who earlier used to park their hard-earned savings at banks are opting for high-yielding investment assets, including stock markets and mutual funds.

Finance Minister Nirmala Sitharaman, during her meeting with heads of public sector banks earlier this week, suggested that while the credit growth has picked up, the mobilization of deposits could further be improved to fund the credit growth sustainably. She asked banks to make concerted efforts to garner deposits by conducting special drives.

On August 10, Sitharaman asked the banks to focus on their core business and come up with innovative products to increase deposits. (ANI)