Axis Bank confirms systemic deposit and credit growth to converge in fiscal 2025

Mumbai: Private lender Axis Bank on Wednesday reiterated that it expects credit growth in the system to slow down and shift to deposit growth, reflecting the system-wide challenge of bridging the gap between demand for loans and people’s willingness to park their funds in deposits.

“We expect deposit growth to remain a driver of advances growth in the near term,” Amitabh Chaudhry, chief executive officer (CEO) of Axis Bank, told reporters after the June quarter results were announced. “We maintain our view that interest rates will remain elevated for a longer period of time and expect systemic credit growth to converge towards deposit growth of around 13% during the fiscal.”

The gap between loan and deposit growth rates recently prompted the banking regulator to raise concerns about structural changes in people’s saving habits. Reserve Bank of India (RBI) Governor Shaktikanta Das said last week that households and consumers who used to park their funds in banks are increasingly turning to capital markets and other financial intermediaries. As of June 28, bank deposits were up 11.1% year-on-year, lagging behind the 17.4% growth in loans. Banks are raising deposit rates to attract customers who appear to have found other investment opportunities.

While Axis Bank’s total deposits grew by 13% year-on-year (YoY) to ₹10.62 trillion and loans increased by 14% ₹9.8 trillion as of June 30. The increase in deposits came mainly from term deposits, which increased by 20% year-on-year to ₹6.18 trillion.

Deposits in the bank’s current and savings accounts (Casa), a key source of cheap funds, rose by 4% to ₹4.44 trillion, of which a slight decrease in the balance of receivables was recorded in savings accounts and amounted to ₹2.94 trillion as of June 30 compared ₹2.95 trillion compared to the same period last year. Current account deposits increased by 12% to ₹1.49 trillion. The Casa measure — current and savings accounts as a percentage of total deposits — shrank 400 basis points (bps) year-on-year to 42%.

“If we look at our deposit franchise over the last 12 months, especially the current account franchise, we have continued to grow the deposit franchise in terms of its quality. We have improved the quality over the last 12 months and improved the granularity of deposits,” said Subrat Mohanty, Executive Director, Banking Operations and Transformation, Axis Bank, adding that some of the constraints on deposit growth are system-wide.

Mint reported on July 19 that increases in deposit rates outpaced increases in lending rates as deposit growth continued to lag behind credit growth. The weighted average lending rate on fresh rupee loans rose by 153 bps from 7.86% to 9.39%. Meanwhile, the weighted average deposit rate on fresh time deposits rose by 226 bps from 4.21% to 6.47%.

The bank believes that liquidity in the system has improved somewhat and is hopeful that with the announcement of the Union Budget, government spending should return. Moreover, given the competitive environment, the bank would like to remain competitive on interest rates.