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Retail deposit growth to drive revenue
November 17, 2022
“Retail deposit rates have gone up in the past six to nine months. The bulk of the increase happened last month when the State Bank of India took up deposit rates by 60-80 basis points. Deposit rates will have to go up further. Over the next few months, banks will gain on margins further. The full impact of the rate hike will reflect in FY24,” Kariwala said in an interview with CNBC-TV18.
According to Kariwala, structurally, whenever interest rates rise, banks benefit on margins. Interest rates are going up because growth is looking better. That also means banks will cut down on risk aversion and grow the unsecured and higher-margin segments faster. Banks will retain a lot of the margin expansion that we’ve seen, he said.
“The Indian banking sector has been seeing significant margin expansion,” he said. “Two years down the line, the margins will be higher than what they were two quarters ago.”
Speaking about the key aspects that will drive the re-ratings for financials, Kariwala explained that when banks come out of events like a recession or a slowdown, re-rating is based on two legs asset quality level and revenue growth. He added that revenue growth is a function of two things loan growth acceleration and margins.
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