Corporates accounting for more deposit shares in banks: Kotak Equities

After falling for five years, corporate deposits started rising up in share in the total bank deposits in financial year 2015, as companies generated more cash and salaried class in urban areas went slow on savings, according to a report by Kotak Institutional equities.

In financial year 2015, the share of private corporate deposits in total deposits stood at 10.1 per cent, up from 9.9 per cent a year ago. Back in financial year 2010, the share was at 14.8 per cent, but fell steadily every year till financial year 2015. While the corporate deposits need not be high priced bulk deposits that banks take in time of need, the rise in the share may indicate that Indian companies have started generating cash.

"The data does suggest that the corporate sector is recovering gradually, but a firm trend would be visible only in the next two years," the brokerage wrote in a note to clients, analysing deposit patterns in Indian banks.

The pattern showed that trend was reversing across most segments, with the rising share of corporate deposits coinciding with slowdown in overall savings and improvement in current account deposits.

According to the data analysed by the brokerage, in fiscal 2015, current account deposits posted the strongest growth in recent years at 15 per cent y-o-y; savings deposits slowed to eight per cent y-o-y and term deposits grew at 11 per cent y-o-y. While private sector deposits increased, deposits from financial companies declined.

Metro and urban markets, comprising top 200 cities, declined 80 basis points yoy to 75 per cent of total deposits.

A large share of the slowdown was on account of the salaried segment, which was disappointing, the report said.

Household and small business segment accounted for 46 per cent of the total current account segment, driving the growth of these accounts where banks don't have to pay any interest to the depositor.

The corporate sector contributed 25 per cent of the share, witnessing a 5 per cent yoy growth after two years of decline.

"While this improvement does give greater confidence that the broader economy is probably getting into shape, we would probably need to wait a bit more to get confirming trends it," the report said.

According to an analyst with another brokerage firm, the cash generated by the private corporate sector was mainly due to private equity and foreign investments in Indian companies and not necessarily improved corporate performance.

"Profitability has not increased in companies, but cash has, which shows that the cash is some sort of investments in new age companies like e-commerce and not cash from operation," the analyst said, wishing not to be quoted in some other company report.

Slowdown in savings deposits was "entirely driven by the household segment, but the growth in government deposits was impressive at 18per cent yoy."

"Private banks had a volatile year with strong performance in household deposits and foreign sectors, weakness in the financial sector and surprisingly, lack of progress in the government sector. However, what is comforting is that the share of volatile deposits for these banks is on a decline with the share of the household segment contributing to 55per cent of overall deposits as compared to less than 50per cent in FY2012," the report said.

State Bank of India's deposit profile remained stable, witnessing strong growth in households and corporate sector but showing some marginal weakness in the growth of government deposits.