SBI Study Reveals PSBs Emerging Out Of The Woods, Losing Deposits To The Markets

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SBI Study Reveals PSBs Emerging Out Of The Woods, Losing Deposits To The Markets
Yagnesh Kansara - 05 December 2019

Mumbai, December 4: In a study carried out by the State Bank of India (SBI)’s research team, there are two emerging trends on Indian banks. Public Sector Banks (PSBs) are coming out of the woods as there is a remarkable improvement in asset quality cycle and in the lower interest regime, quantum of term deposits with the banking system is shrinking with more and more money being deployed in the stock market by High Networth Individuals (HNIs) and retail investors.

Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI, who authored the report, said some of the large Indian Banks are now pushing their quarterly results to earlier dates. This could be construed as a leading indicator of an improvement in asset quality cycle.

“To establish such a correlation, we took the Q4 and Q2 results of the 12 PSBs that will remain after the recent merger announcements of the government. The time period considered for our study was beginning Q4 FY10 to Q4FY19. Our results show that the two are positively correlated with correlation coefficient of 55 per cent. As the asset quality review was initiated in 2015, the dates of bank result went well beyond their usual timing which usually used to be till 30 April for Q4 and 31 October for Q2,” the report found.

The recent movements in stock markets across economies, including India has confounded everyone.

“We believe, in the Indian context there could have been the flight of bank deposits to the equity markets as evident from increasing participation of retail investors from April 2019, albeit with some volatility. Interestingly, as we are transcending to a lower interest rate regime, we are clearly witnessing relatively lower pace of increase in time deposits compared to participation of individuals (retail and HNI) in the NSE cash market. We are now in a regime of lower interest rates with RBI cutting the rates steadily from Feb’19 till Oct’19. We however reiterate that the impact of declining interest rate regime since 2015 is also being felt by the depositors/ pensioners,” it said.

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