How RBI’s possible rate cut today could add pressure on PSU banks’ deposit growth ?

Deposit rates of public sector banks are already significantly lower than that of private banks; they may not be able to pass on a rate cut that easily

Deposits rates of PSU banks, which have been significantly lower than most private banks over the past year, has been a key reason for the muted show in their deposits. With credit growth also weak, they have been less pressured to contain the flight of deposits to private sector banks. Instead, PSU banks have been selling their excess holdings in government securities over the past year to raise funds.While PSU banks have been enjoying a chunk — over 65 per cent share in overall deposits — they have been losing market share over the past year. PSU banks have grown deposits by a modest 4-6 per cent through most of last year, even as private sector banks retained a tidy 18-20 per cent growth.

Term deposit rates in the one year and above bucket for state-owned and private sector banks have seen the widest divergence. While leading private sector banks have been offering 7-7.3 per cent (few even close to 8 per cent), most state-owned banks have been offering 6.5-6.75 per cent for such deposits.

The bank has been relying on its excess investments in government securities to fund its credit growth (still muted though when compared to private sector banks)

The latest cut in deposits rates can continue to add pressure on deposit growth for the bank. It could continue relying on its excess SLR investments to fund growth; though the leeway has reduced significantly over the past year.

For full report please click on the following  link: How RBI’s possible rate cut today could add pressure on PSU banks’ deposit growth

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