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Informist, Wednesday, Aug 21, 2024

 

MUMBAI – Dividend growth of Indian banks is expected to slow down in 2024-25 (Apr-Mar) as rising cost of deposits is expected to weigh on net interest margins and profits, S&P Global Market Intelligence said in a report today. "The anticipated slowdown comes as the rising cost of deposits and heightened competition for customer savings puts pressure on bank margins and profits," the report said.

 

"The increase in deposit rates, while intended to address the credit-deposit imbalance, is compressing banks' net interest margins," S&P Global Market Intelligence's Dividend Forecasting Analyst Tusharika Aggarwal said in the report.

 

Aggarwal said India's banking sector could face significant liquidity risks due to the widening credit-deposit gap, which is driven by households shifting their savings to higher-yielding other financial assets. The report highlighted that Indian banks are rushing to attract deposits through higher rates and other schemes amid growing concerns over the widening gap between credit and deposit growth rates.

 

State Bank of India, the country's largest bank by assets, is offering a 7.25% annual interest rate for deposits for 444 days since Jul 15 as part of its "Amrit Vrishti" scheme to enhance deposit growth. Similarly, HDFC Bank has offered new deposit products with interest rates of 7.35% per year for a 35-month tenor and 7.40% per year for a 55-month tenor.

 

While the higher rates and attractive deposit schemes help banks improve their liquidity and attract deposits, increased interest expenses associated with higher deposit rates could lead to compressed margins, the report said. "This pressure on net interest margins may negatively impact banks' overall profitability and constrain their ability to sustain dividend payouts," Aggarwal said.

 

S&P Global Market Intelligence's Dividend Forecasting shows dividends by six of India's largest banks by market capital are set to grow 9% in 2024-25, compared with 27% in the previous fiscal year.

 

Axis Bank and HDFC Bank are projected to cut dividends the most, at 15% and 9%, respectively, against previous forecasts, the report said.  End

 

Reported by Richard Fargose

Edited by Manisha Baxla

 

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