PSBs raise term deposit rates to reclaim deposit market share

Mumbai: (PSBs) are raising fresh , even as private sector peers pare theirs, in a bid to arrest a decade-long erosion in their share of the deposit market, showed (RBI) data.

The weighted average fresh term deposit rate at public sector banks rose 15 basis points to 6.33% in May from 6.18% in April, bucking the broader trend as cut their rates by 5 basis points to 5.96% during this period.

A basis point is a hundredth of a percentage point.

PSBs have steadily lost over the past decade, with their share declining to 57% in March this year from 76% at the end of 2013-14. In contrast, private sector banks increased their share of system deposits to 36.4% from 19.4% during this period, as per RBI data.

“Public sector banks have realised that deposit market share is strategic. After losing ground for almost a decade, they are willing to pay up for liabilities rather than sacrifice franchise,” said , partner at consulting firm Gefion Capital. “The recent increase in deposit rates is a conscious effort to regain market share, even if it comes at the cost of near-term margins.”

The move comes at a time when continues to outpace . With the ‘s credit-deposit ratio remaining elevated at 82.5%, PSBs can ill afford to lose further ground in liabilities, making the current deposit rate strategy a competitive necessity. “On the deposit front, the outperformance gap between private sector banks and public sector banks continues to remain narrow,” said , head of India Financials at Bernstein. “The growth differential is around one percentage point, with PSBs reporting deposit growth of about 10% versus around 11% for private sector banks.”