The 50-stock Nifty index has given returns of over 25% in the past one year, but the banking sector (represented by the 12-share Bank Nifty) has lagged behind with a growth of only around 12%. This underperformance stems from investor nervousness about the sector’s profitability.
Concerns about bank profitability have emerged due to a mismatch in deposit and credit growth. Data from the Reserve Bank of India (RBI) shows a significant imbalance. By mid-March, deposits in the banking system grew at a moderate pace of around 13% to ₹205 lakh crore. However, lending grew at a much faster rate of 20%, reaching ₹164.3 lakh crore. This has pushed the credit-to-deposit (CD) ratio to a 10-year high of 80%, up from 75% in fiscal year 2012-22. The rise in loans is primarily driven by personal loans and the services sector.
A high credit-to-deposit (CD) ratio indicates banks are lending a larger portion of their deposits. This increases liquidity risks because there is less buffer to handle unexpected withdrawals. Currently, attracting new deposits is expensive for banks. To save margins and maintain profitability, banks ideally want to raise interest rates on loans. However, this might be difficult in the current economic climate. The other option is to limit loan growth, which could hinder future expansion and disappoint investors.
THE CONTEXT
هذه القصة مأخوذة من طبعة April, 2024 من Beyond Market.
ابدأ النسخة التجريبية المجانية من Magzter GOLD لمدة 7 أيام للوصول إلى آلاف القصص المتميزة المنسقة وأكثر من 8500 مجلة وصحيفة.
بالفعل مشترك ? تسجيل الدخول
هذه القصة مأخوذة من طبعة April, 2024 من Beyond Market.
ابدأ النسخة التجريبية المجانية من Magzter GOLD لمدة 7 أيام للوصول إلى آلاف القصص المتميزة المنسقة وأكثر من 8500 مجلة وصحيفة.
بالفعل مشترك? تسجيل الدخول
Young Or Old? Find Your Ideal Health Plan
Age doesn't define you: find your ideal health coverage at any stage! Choose individual or family plans that fit your needs
IMPORTANT JARGON
The phase-wise voting in India for general elections began on 19th April.
BACK IN BUSINESS
Buoyed by post-pandemic travel trends and rising disposable incomes, India's hotel industry is expected to maintain its growth momentum, going forward
SCOOPING UP SUCCESS
Investments are hot, but innovation and competition are the next scoops to conquer for ice cream companies
DIG DEEPER
Investors chasing high-growth should prioritize near-term EPS explosion to justify high PE ratios, but also verify long-term business health and management before taking the plunge
SOARING AMBITIONS
Bolstered by cost advantages and government support, India's Electronics Manufacturing Services industry sets its sights on a $100 billion slice of the global market by 2026
TARGET IN SIGHT
Government policies and private sector involvement have propelled India's defence exports to new heights, putting the seemingly ambitious $5 billion target firmly within reach
PLAYING THE LONG GAME
Small and mid-cap surge in India raises regulatory concerns, but long-term investors with risk strategies may benefit from these volatile stocks given positive economic and interest rate forecasts
MAGNIFIED PRESSURE
While the asset quality of banks is anticipated to remain largely stable, challenges persist in the form of mobilizing deposits and peaking profitability
OPPORTUNITY KNOCKS, BUT CHALLENGES AWAIT
INDIA'S BOOMING PE MARKET ATTRACTS INVESTMENTS IN CONSUMER AND INFRASTRUCTURE, BUT CHALLENGES LOOM. CAN FIRMS PRIORITIZE VALUE CREATION TO NAVIGATE THE RISKS?
