War for Deposits is on?
War for Deposits is on?
Which bank wins & why...
Back with this piece on the banking sector. In one of our previous posts on IDFC First Bank (read here), we made a point about how the bank is able to have the highest deposit growth in the country of ~44% YoY when the overall deposit growth in India stood at ~9% as on 31st December 2022. One of the reasons found was the significant increase in the number of branches the bank has which helps banks tap new areas & accelerate their growth in gathering new business. So this time we went a little deeper to test this phenomenon & here we are with our analysis:
How has Deposit growth been for all major banks in India?
Here’s a graph prepared by us. As of 31st December 2022 (the latest we could have via investor presentation/Q3 FY2023 results), we got a few common insights which we shall mention below.
As a well-known fact, the growth rate of gathering deposits is higher for private banks over public banks which has been the case for many years. PSU banks like Punjab National bank & SBI have the lowest growth rate in the industry. Private banking’s market share has been significantly increasing over the years as they get more aggressive to gain business. An exception in PSU bank basket is Bank of Baroda, which has a growth rate higher than private banks like ICICI & Axis banks, due to various reasons including aggressive repositioning in the market post-merger that has helped them gain good business.
Small Banks like IDFC First & Bandhan Bank have been gathering higher deposits by offering a higher rate of interest on their FDs(Fixed deposits) to their customers.
In the private banking space, where Kotak’s deposit momentum has slowed down, and Axis & ICICI bank continue to struggle for deposits, HDFC bank continues to significantly outperform. One key reason is the ~24% increase in the number of branches they have now over last year, driving the growth of their business.
How much of that is due to branch growth?
We now get to growth in the number of branches these banks opened in last one year (that is from 31st Dec, 2021 to 31st Dec, 2022). Have a look:
Key insights:
Outliers here, HDFC & IDFC First Bank, are also in the top 3 in terms of deposit growth, as shown in the previous chart. HDFC bank opened ~1,400 branches in just 2022, growing their number from 5779 to 7189 in just one year, seems like they went very aggressively post covid to gain the market share that PSUs are losing.
After the Top 2, the next 4 banks are also all private banks (ICICI, Kotak, Bandhan & Axis) where the growth has been in the range of 3% to 8% which is well below the top 2 banks. Axis & ICICI have been specifically focused more on the digital side post covid to drive their business. Bandhan bank hit the worst during covid due to the customer segment (micro banking/small ticket loans) they serve & have rebounded in 2022 as the same customer segment is quite strong now.
SBI, BoB & PNB all three have negligible growth in their branches, rather 2 of them (BoB & PNB) are downsizing. Interestingly, despite downsizing, BoB grew its deposits much higher than many private banks like ICICI, Axis & Kotak. Answer first here would be that they have aggressively repositioned themselves post their merger with Dena & Vijaya Bank before covid. And markets have already rewarded you if you are a shareholder of BoB, whose share price has gone from ~Rs 35 during covid to ~Rs 170 today, 5X you see!
Hence we see that branch growth does play an important role in getting more deposits, but many other factors like repositioning the bank in the market, offering a higher rate of return, digital acceleration, etc. can plan an important role in the same direction, as discussed above as well.
Hoping you enjoyed this post, will see you at the next one!
Disclaimers-
Personal & client investment/interest in the shares exist for banks mentioned above; this isn’t investment advice; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the Decision maker is responsible for any outcome.