Corporates' pie in deposit ownership widening

Corporates have deleveraged their balance sheets by raising money through bonds, equities, commercial papers and even cleared their bank loans. It is evident by the fact that within past couple of years alone, the corporates have raised funds to the tune of Rs 10 lakh crore - M Narendra, former CMD, Indian Overseas Bank

Mumbai: Ownership trends in deposits show that in terms of deposit ownership, corporates do better than households, says an RBI report. In the post-Covid period, deposits by the retail segment have grown slower than that of private corporates, similar to FY2020, private banks lost share on government deposits, but accelerated market share gains elsewhere, foreign banks lost CA share after three years of gains and small business segment within retail continues to show sluggish growth (5%), compared to overall retail (12%). Deposit growth supported by private sector, retail and government sector. Key highlights from RBI's ownership of deposits report state that overall deposits grew 12 per cent yoy (vs 9 per cent yoy in FY2020), driven by current account deposits growing by 20 per cent yoy and savings deposits by 17 per cent yoy, while term deposits grew 8 per cent yoy.

Current Account-Saving Account (CASA) ratio improved by 200 bps yoy to 43.4 per cent with the share of savings deposits at a decade high of 34 per cent.

Contribution from households was stable at 64 per cent, government sector declined to 12 per cents while private sector improved to 13 per cent. Though regional distribution showed marginal gain for metro/urban areas.

Talking to Bizz Buzz, M Narendra, former CMD of Indian Overseas Bank, said, "the corporates have deleveraged their balance sheets by raising money through bonds, equities, commercial papers and even cleared their bank loans. It is evident by the fact that within past couple of years alone, the corporates have raised funds to the tune of Rs 10 lakh crore."

Commenting on retail deposits, he said that people are not spending much these days due to the apprehension of third wave of Covid. They are only spending on essential items avoiding spending on luxury materials. It has resulted in CASA going up. 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. On the other hand, the reduced consumption expenditure should have ideally accelerated savings in households as we have seen in other geographies but the slower growth 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 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 self-employed segment and the need to have liquid balances was high given the medical emergencies on account of Covid," the Kotak report said. 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. Steady market share gains continue for private banks. PSU banks hold share in current accounts, says the report.