Bank Nifty is trading near lifetime highs, reflecting the fortunes of lenders, which pulled themselves out of the quagmire of bad assets generated by the last round of bankroll capacity expansion. Still, the bank’s profitability, now at its highest in a decade, faces the risk of starting a downward journey once again as the hunt for deposits forces lenders to pay more to savers. Reduces net interest margin (nim,

Over the past few weeks, lenders such as HDFC bank, ICICI Bank And state Bank of India ,State Bank Of India) have raised them deposit rates up to one percentage point to raise more deposits so that they can lend to borrowers across all segments – institutional, retail or small-business owners.

Suresh Ganapathy, associate director, Macquarie Capital, said, “With deposit growth running well below loan growth and deposit rates rising sharply, margins will peak by the December quarter and start declining from the March quarter.” “A deposit rate war is clearly underway. The gap between deposit growth and loan growth is wide and it is only a matter of time before deposit rates start rising sharply.

Macquarie Research Shown HDFC Bank deposit rates have climbed 210 basis points to 7% in the last two years in the key 1-3 year bucket, which accounts for the bulk of deposits. Deposit rates for the bank are at a 3-year high. One basis point is 0.01%.

SBI also hiked deposit rates by 15-100 bps, with the maximum increase being for bulk deposits. The increase in the critical 1-3-year bucket was 50-65 bps. For SBI, the deposit rates in the one to two year bucket are 6.75%, while for ICICI it is 6.40%. Kotak Mahindra Bank Offering an interest rate of 7% in buckets of 390 days.

Credit offtake grew 17.2% year-on-year in the period ended November 18. The growth is driven by NBFCs, retail loans, inflation-led working capital demand and a lower base. At the same time, deposits witnessed a slower growth of 9.6% during the same period.

Liquidity is typically trending down with the central bank draining surpluses from the system to manage inflation. liquidity surplus in banking The system has narrowed down to around Rs 1.5 lakh crore from Rs 6.3 lakh crore at the beginning of the financial year. The central bank has already raised the repo rate by 225 bps to 6.25% in FY2023, and further hikes are unlikely in the upcoming policy-review meetings.

Ankit Jain, Senior Analyst, India Ratings & Research, said, “The credit-deposit gap is likely to narrow in FY24 on the back of a moderation in credit demand and an improvement in the balance of payments account.”