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Scheduled commercial banks' dependence on bulk deposits may increase: Ind-Ra

India Ratings and Research (Ind-Ra) in its latest report has stated that if credit growth is higher than deposit, scheduled commercial banks' reliance on bulk deposits may increase. This could lead to a higher cost of funds along with increasing volatility in the asset-liability structure of banks. According to the report, the system level credit growth of 12.9% year-on-year continues to outpace deposit growth at 9.3%, thereby intensifying competition for deposits among banks. This is based on Reserve Bank of India's (RBI's) quarterly statistics on deposits and credit of scheduled commercial banks for December 2018.

In third quarter of 2018-19 (Q3FY19), state-owned banks have seen credit growth of 8.4% and deposit growth at 4.9% as compared to the year-ago period, implying that they could also compete to recoup some of the deposit market share loss that they have conceded to private banks over the years. On the private banks, the rating agency said they are likely to solicit deposits even by offering higher rates, with continues strong credit growth at 22% year-on-year in Q3FY19.

During April-February 2018-19, deposits raised by banks were up 24.6% as compared to the year-ago period even as the outstanding amount was up only 3.6% at Rs 1.78 lakh crore. Ind-Ra said the longer term trend of market share shift from public sector banks (PSBs) to private banks continued to play out in the last 12 months. Private Banks saw an increase of 235 bps to 26.2% and 234 bps to 31.4% in market share in deposits and credit, respectively, in the last one year, while PSBs saw a 274 bps decline to 65.7% in deposits and a 253 bps decline in credit to 60.9%.

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