Indian banks to witness record profitability in FY24: SBICAPS report

It added that the repo rate is expected to remain at current levels until late in FY24

Owing to the retailisation of loans and a constant rise in deposits, Indian banks are expected to have a record year in 2023-24 (FY24) in terms of profitability, SBI Capital Markets said in its "Report on the Banking Sector".

Retailisation happens when the number of individual loan takers rise as compared to companies and other groups.

It said that the retailisation of credit is helping drive up the demand for personal loans. Consumer credit now accounts for one-third of all loans as compared to less than one-fifth a decade ago. Personal credit is expected to outpace industry and services.

"With increasing financialisation, formalisation, per capita income, and favourable demographics, we expect the trend to be unabated in the future. This would mean personal loan growth would remain strong at 18-20 per cent year-on-year (YoY) in FY24," it added.

The overall credit growth has been pegged at 12-14 per cent YoY.

For deposits, the growth remained around 10 per cent in FY23. The growth was led by term deposits, especially in the 1-3 year segment. SBICAPS added that the withdrawal of Rs 2,000 notes added "much-needed" deposits to the system. The merger of HDFC Bank and HDFC also led to a jump in deposits so far in FY24.

"We expect deposits to grow at 11-13 per cent YoY in FY24," it said.

The current account growth has been constrained owing to the digitisation and "prudent management of finances by government arms". In savings accounts, the growth remains moderate due to low rates offered to depositors and the advent of innovations like sweep facilities and online FDs.

In the case of term deposits, the growth has been high due to inflation and reduced granularity. As interest rates rose, the share of term deposits by rate was higher in the 6-8 per cent bucket, reversing the trend in FY22.

The growth rate of deposits as well as credit, however, continues to be lower than the pre-pandemic year that ended on March 31, 2019.

According to the report, the capitalisation is ample, and the public sector banks (PSUs) are "set for an FY24 with no government infusion".

Moreover, it added that the repo rate is expected to remain at the current level (6.5 per cent) until late in FY24.