Banks : Private banks accelerate gains on CASA : Deeper study into deposit profile of banks for FY2016 - Kotak

Private banks accelerate gains on CASA. The recent release from RBI highlights the following: (1) market share of deposits and loans improves further in rural and semi-urban, (2) branch expansion as productivity ratio has declined, (3) SA share shift to private banks has accelerated by 130 bps, (4) relationship between interest rates and deposit growth is not well-defined and (5) North leads branch expansion but negligible change in its share of deposits while the share of deposits in South is at a decade high.

Resilience in rural and semi-urban markets; private banks continue to expand share

Despite a slowdown in the rural and semi-urban economy led by weaker farm incomes and lower infrastructure-led investments, the growth in deposits remains quite impressive. Urban markets, which were expected to show an improvement as investments in alternate instruments such as gold or real estate slowed, did not see this materializing. Weak growth in deposits/branch even in semi-urban and rural markets is an area of concernPrivate banks have 25% share in deposits in urban/metro, the highest post the global financial crisis, and they continue to improve their share in semi-urban and urban India although a much lower presence can be argued as the reason for their current share.

The J curve in savings account market share

After the global financial crisis, which had some ripple effects in India, we have again started to see acceleration in market share gains in savings account by private banks. FY2016 saw an improvement of 130 bps yoy as compared to 100 bps in FY2015, 80 bps in FY2014 and 70 bps in FY2013. It is going to be extremely challenging to reverse these gains as the decline is being driven from public banks with SBI maintaining a healthy share. The private banks have ~30% share in North, West and South India and they are steadily penetrating in Central India, which is a large market for savings deposits.

Behavioral pattern of deposits and interest rates is not straightforward

As against the expectations of a strong inverse correlation between savings deposit growth and interest rates and a positive correlation between growth in term deposits and interest rates, the data too are not playing out in India. Urban/metro region shows this relationship in savings but not term. Rural and semi-urban shows in term deposits but not in savings. We believe that a combination of new depositors coming to the fold, especially in rural and semi-urban as well as weak performance by non-households, especially in urban markets, could explain this contradiction.

Branch expansion slows; North remains an area of interest for banks

After witnessing a reasonably aggressive pace of branch expansion over the past few years, we have seen a sharp fall in fresh branch expansion, which we believe is a function of weak growth in deposits/branch and focus on cost-efficiencies considering the extent of pain banks are taking in their balance sheets for bad loans. However, expansion continues in North India although the incremental gains in market share of branches are not resulting in gains in deposits, both in CASA and term deposits. South remains impressive with its share of deposits at a decade high.

Source : Equity Bulls

Keywords