Muted deposit and credit growth sends PSB stocks into a tailspin

Shares of state-owned bank stocks were under pressure on Monday due to muted deposit and credit growth numbers reported by these lenders in the October-December quarter (Q3) of 2024-25 (FY25). The Nifty PSU Bank index was down 4 per cent, with Union Bank of India emerging as the biggest loser as its shares fell 7.5 per cent to close at Rs 114.7, followed by a 5.7 per cent drop in shares of Bank of Baroda (BoB) to Rs 228 and a 4.7 per cent slide in shares of Bank of India to Rs 99.8 on the National Stock Exchange. 

“Mixed sets of provisional business updates, with a few heavyweights like HDFC Bank and public sector banks like Union Bank, reported weaker growth during Q3FY25. Some banks, like Punjab National Bank (PNB) and IDFC First, reported good advances growth. Most banks reported weaker growth in deposits compared to advances, and the market is discounting that net interest margins will continue to remain under pressure,” said Sunny Agrawal, deputy vice-president of fundamental research at SBI Securities. While state-owned Union Bank of India reported a 2.2 per cent sequential growth in advances in Q3FY25, its deposits shrank by 2 per cent during the same period. Similarly, Indian Bank reported a 1.5 per cent growth in advances and a 1.3 per cent growth in deposits sequentially in Q3FY25. BoB’s deposits grew by 2.1 per cent, while advances grew by 2.5 per cent sequentially in Q3FY25. 

 

Meanwhile, Pune-based Bank of Maharashtra posted a marginal 1 per cent rise in deposits, but its advances rose by 5.13 per cent sequentially. PNB’s deposits grew by 4.9 per cent in Q3FY25 compared to a 4.7 per cent rise in advances. “Banks that reported their Q3 provisional numbers have seen some slowdown in the pace of both credit and deposit growth compared to Q2FY25. For most banks, credit growth has outpaced deposit growth during the quarter, weighing on the loan-to-deposit ratio,” said Dnyanada Vaidya, research analyst, Axis Securities. 

Similarly, among private sector banks, IndusInd Bank posted a 0.75 per cent drop in deposits and a 2.8 per cent rise in advances, while YES Bank’s growth in deposits was almost flat sequentially and advances grew by 4.22 per cent. Meanwhile, RBL Bank’s deposits dropped by 1.11 per cent, compared to a 3.3 per cent decrease, while Bandhan Bank’s deposits grew by 2.02 per cent, against a 1.06 per cent drop in advances. 

“From the provisional updates released so far, credit growth appears to have tapered to 12-13 per cent. Deposit growth also appears to have decelerated quarter-on-quarter for certain banks,” Vaidya said. 

Looking ahead, deposits and advances are expected to grow in tandem with gross domestic product (GDP) in 2025-26 (FY26), further supported by the repo rate cut by the Reserve Bank of India. “We believe advances and deposits may grow in line with nominal GDP growth in FY26, and once the central bank ado­pts an easing monetary policy stance, both retail and corporate advances growth will accelerate during FY26. If the equity market remains volatile for the next three to six months, we can expect an acceleration in the adoption of bank deposits as a financial tool, leading to faster deposit mobilisation in the first quarter of FY26,” he added.