High Indian banks face a troubling paradox — borrowing deposits at almost 9% however lending at solely 8.5%. High banker and enterprise chief Uday Kotak highlighted this discrepancy in a publish on X, instantly questioning the sustainability of the banking mannequin amid these inverted margins.
Kotak outlined the crucial problem banks at present face: “Main banks are taking 1 yr wholesale deposits at ~8%. Interprets to loaded marginal deposit value of 9%+ after CRR (0 curiosity), SLR, deposit insurance coverage, precedence sector. Excluding opex.”Â
He underscored the contradiction, stating that regardless of these excessive deposit prices, “banks are issuing house loans at 8.5% floating price. Borrow at 9% and lend at 8.5! -0.5% unfold.”
Highlighting additional issues, Kotak requested rhetorically about operational bills and credit score prices amid this state of affairs: “What in regards to the opex/ credit score prices? If the deposit tightness persists it’s a problem to the banking enterprise mannequin.”
Kotak’s critique comes at a crucial juncture for Indian banks, which have skilled important mortgage development moderation not too long ago. In keeping with RBI knowledge, credit score development slowed to only 12% year-on-year in February, in comparison with 16.6% the earlier yr, excluding the HDFC merger impression. The slowdown is attributed primarily to stricter lending norms imposed by RBI late in 2023, aimed toward decreasing dangers related to private loans and bank card debt.
The stringent guidelines led to a pointy decline in private mortgage development—from 19.5% a yr earlier down to eight.4%—whereas bank card debt development dropped from 31% to only 11.2%. Lending to non-banking monetary firms (NBFCs) additionally lowered, considerably impacting total credit score availability and financial liquidity.
Though the RBI not too long ago relaxed a few of these capital necessities below Governor Sanjay Malhotra, analysts count on the advantages to take a number of months to materialize. In the meantime, Kotak’s issues stay urgent. If banks proceed borrowing at prices exceeding their lending charges, the banking sector faces rising stress on margins, elevating critical sustainability questions that establishments might want to urgently tackle.
