With loan growth outpacing deposit accumulation, how are Indian banks keeping up?
Facing margin pressures and tightening liquidity, lenders are increasingly focusing on retail deposits as a stable and cost-effective funding source. This shift underscores the strategic importance of individual savings in sustaining growth and ensuring resilience.
The Growing Importance of Retail Deposits
Retail deposits, encompassing savings and fixed deposits from individual customers, offer banks a reliable and lower-cost funding base. Unlike wholesale deposits, which can be volatile and expensive, customer deposits provide stability, enabling institutions to manage liquidity effectively. This security is crucial, especially when loan growth outpaces deposit accumulation.
Innovative Strategies to Boost Deposit Growth
To accelerate deposit growth, Indian financial institutions are implementing innovative strategies:
- Targeting Underserved Segments: The State Bank of India (SBI) is focusing on small deposits, particularly through the government’s “Jan Dhan” scheme, which provides financial services to low-income groups. The average deposit per account in this segment is around ₹4,500 ($53.61).
- Offering Attractive Deposit Schemes: To counter slowing deposit growth, they are introducing special schemes with competitive interest rates to attract depositors.
- Expanding Loan Securitisation: HDFC Bank plans to significantly expand its loan securitisation business to manage its balance sheet and create space for new loans without increasing the balance sheet size.
Technology’s Role in Deposit Mobilisation
Tech is revolutionising how banks attract and retain depositors:
- Enhanced Customer Experience: Digital banking platforms offer seamless and personalised services, catering to the evolving preferences of tech-savvy customers.
- Embedded Finance: Integrating financial services into non-financial platforms allows institutions to reach customers in their preferred digital ecosystems, facilitating convenient deposit options.
- Advanced Analytics: Utilising artificial intelligence and data analytics enables banks to tailor products and predict customer needs, thereby enhancing engagement and loyalty.
The Path Forward for Indian Banks
Here is how Indian banks can navigate the road that lies ahead:
- Diversifying Revenue Streams: Exploring new avenues beyond traditional banking services to mitigate profitability challenges.
- Cost-Cutting Measures: Implementing efficient operational practices to reduce expenses and improve profitability.
- Adapting to Customer Behaviour: Recognising and responding to the shift towards alternative investment avenues, such as real estate, gold ETFs, mutual funds, and stocks, which are attracting urban savers.
By focusing on retail deposits and leveraging technology, banking players can navigate current challenges and build a resilient future. Embracing innovation, understanding customer needs, and adapting to regulatory changes will be key to sustaining growth and maintaining long-term viability in the banking sector.
A future of Stability and Growth
As margin pressure and liquidity challenges persist, retail deposits will remain a crucial pillar for Indian banks. By embracing digital innovation, personalising customer engagement, and adapting to shifting market dynamics, they can strengthen their deposit base and ensure long-term strength.
Clayfin enables banks to achieve this with intuitive digital banking solutions that enhance customer experience and drive long-term growth. Our expertise helps financial institutions move forward with innovation and seamless engagement.
