Icra Sees Deposit Growth Inching Up To 10-11% In FY’17

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Mumbai: Rating agency Icra has said bank deposit is going to see a modest growth of 10-11 per cent in 2016-17 helped by realignment of small savings schemes but warned that there could likely be some redemption pressure of FCNR-B deposits maturing later in the year.

“Considering the realignment of interest rates on small savings schemes that compete with bank deposits, as well as the expected redemption of FCNR (B) deposits mobilised in September-November 2013 for a three-year tenure, we expect bank deposits to expand by 10-11 per cent in 2016-17,” its senior vice president and co-head for financial sector ratings Karthik Srinivasan, said in a report today.

The report expects system-wide non-food credit to expand by 11-12 per cent in this fiscal, with private sector banks to continue record faster growth.

“The extent of pick-up in credit growth will largely be dependent on the magnitude of off-take in credit-intensive sectors as well as easing of supply-side constraints, specifically for public sector banks pertaining to capital requirements and for addressing weak asset quality
indicators,” he added.

Bank deposits and non-food credit rose by a modest 9.2 per cent and 10.9 per cent, respectively, between March 20, 2015 and March 18, 2016. For the fiscal ended March 2016, deposit growth at 9.9 per cent had hit a 53 year low.

It further said while interest rates in the money markets are softer than banks’ base rates in 2015-16, the implementation of the marginal cost of funds based lending rate (MCLR) from April 1 could improve banks’ competitive position and boost bank credit growth to an extent.

The issuance of Uday bonds, however, will continue to exert downward pressure on bank credit growth in 2016-17.

Compared to the year-on-year growth of 29.4 per cent in April 2015-February 2016, the agency expects FDI inflows to register an annual growth of 20-25 per cent in the current fiscal.

In particular, several foreign joint venture partners have announced that they would increase their stakes in their respective insurance JVs after the easing of FDI norms last fiscal, which Icra expects would generate a surge in FDI inflows into this sector in the next couple of quarters.

The agency expects the magnitude of incremental FII inflows in the equity segment to largely be guided by the improvement in corporate earnings which, in turn, would take a cue from the evolving monsoon dynamics and the strength of resurgence in rural demand.