Deposit rates could peak over the next two quarters as the re-pricing cycle is still not fully complete, according to a Kotak Securities Ltd (KSL) report.

“Comparison of current-term deposit interest rates and the headline rates offered by banks suggests that we are moving closer to peak deposit rates for the system. It is still not complete and we probably have a couple of quarters before rates have peaked,” said KSL analysts M B Mahesh, Nischint Chawathe, Ashlesh Sonje, Abhijeet Sakhare, Varun Palacharla and Sidham Jain, in the report.

However, there is likely to be intense competition to source deposits, especially since there is a lot more retail in nature given the linkages to LCR (liquidity coverage ratio).

“A higher share of non-individual that is non-operational in nature tends to have negative implications in deploying it. We are likely to see NIM pressure for banks overall but we do believe that we have factored the same in our estimates,” opined the analysts.

Per their assessment, which is based on RBI’s update on quarterly deposits, deposit mobilization by banks continued to remain skewed in the 1-3-year bucket and it continues to rise consistently.

“The trend of this window being preferred is fairly uniform across regions. Fifty per cent of the deposits are still in the seven-eight per cent interest rate bucket. This has seen a 10 percentage points increase in Q1 (April-June) FY24,“ the analysts said.

They observed that one of the reasons for consumers to contine to exhibit a strong preference to place deposits in the 1-3 year bucket can probably be explained by the interest rates offered where the interest rate differential is probably pushing them back in placing longer-term deposits.

“Lenders are also a lot more comfortable in this bucket given that the linkages to loan yields are getting broken with the introduction of EBLR (external benchmark-linked lending rate)-linked loans.

“This is the first cycle of the current interest rate regime and we perhaps need a bit longer to understand the implications of the nature of liabilities that is getting originated by banks,” the analysts said.

Sixty per cent of the term deposits (individual) are in the ₹15 lakh-1 crore ticket size. Eighty four per cent of the term deposits (non-individuals) are in the above ₹1 crore ticket size.

Public banks have about 60 per cent share in deposits but have lost about 200 basis points since Q4 (January-March 2023) largely to private banks, the report said.

Private banks have a marginally higher concentration of deposits in metropolitan markets compared to public banks.

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