HDFC Bank, YES Bank, ICICI Bank, Axis Bank: Pvt bank deposit share at 35%; what trend suggests

Kotak Institutional Equities in its latest note said a comparison of current term deposit interest rates and the headline rates offered by banks suggests that the banking system is moving closer to peak deposit rates. The brokerage said there are a couple of quarters before rates peak but added competition to source deposits is likely to get intense, especially that is 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," it said.

Here are the target prices by Kotak Institutional Equities on private banks such as HDFC Bank Ltd, YES Bank Ltd, Axis Bank Ltd, ICICI Bank Ltd and IndusInd Bank and also on public sector banks such as State Bank of India, Bank of Baroda and Punjab National Bank (PNB), among others.

Kotak said the key takeaway post the RBI update on quarterly deposits was that the deposit market share split between public banks and private banks was 60:35 and that households dominated deposits at nearly 60 per cent. While public banks have 70 per cent share of their deposits coming from households, for private banks it is 55 per cent. Kotak said there is a marginal shift in government deposits to private banks, while the share in corporate and household remains unchanged.

"Our quarterly deep dive into deposits shows unexpected and unchanged trends in deposit flows across banks, regions and the nature of deposits mobilised. Individual deposits appear to be gaining some traction, but need a few more quarters before we can build on this thesis. Interest rates appear to be getting closer to peak levels, suggesting incremental pressure is lower," it said.

Kotak said private banks have 85 per cent of their deposits coming from metro and urban regions, while that for public banks it is 70 per cent. The share of individual and non-individual deposits is unchanged at 50 per cent. Individual deposits are higher for public and non-individual share is higher for private banks, Kotak noted. 

Public banks, it said  have 60 per cent share in deposits but have lost 200 basis points since Q4 largely to private banks. Deposit mobilisation by banks continued to remain skewed in the 1-3-year bucket and it continues to rise consistently. , it said.

Kotak said there is 10 percentage point jump in 7-8 per cent interest rate bucket, suggesting we are moving closer to headline deposit rates.

"Consumers continue to exhibit a strong preference to place deposits in the 1-3-year category. As highlighted previously, a part of it can probably be explained by the interest rates offered where the interest rate differential is probably pushing back consumers in placing longer term deposits. Lenders are also lot more comfortable in this bucket given that the linkages to loan yields are getting broken with the introduction of EBLR 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," Kotak said.