Small businesses struggling more than salaried as deposits decline



New Delhi

Small businesses are struggling more than the salaried as seen from current accounts versus savings accounts trends.

According to a report by Kotak Institutional Equities, the ownership data for deposits shows that deposit outflow seen by a few private banks in 4QFY20 has probably reflected in slower market share loss for PSUs with private banks losing market share in government deposits.

Private banks continue to do well especially on household deposits while foreign banks gained current accounts share for the third year in a row.

“Small businesses are likely struggling more than salaried as seen from current account versus savings account growth trends,” the report said.

The report highlights the variance in household current and saving deposit growth is a sign of dichotomy. Dissecting the current account deposit growth shows headline growth is driven by corporates whereas household sector (that is SME) with 35 per cent share declined 2 per cent year on year. In contrast household savings deposits (82 per cent of overall savings accounts) grew 10 per cent year on year compared to 9 per cent in FY2018-19, reflecting a steady rise in savings, a trend reflected in household term deposit growth (10 per cent year on year) as well.

Government sector deposit growth comprising of central, state and local governments has slowed considerably to -1 per cent and -3 per cent in FY2020 and FY2019 after growing at 9 per cent and 30 per cent in FY2018 and FY2017.

The slowdown is largely driven by term deposits whereas current and saving deposit growth has been flattish. As a result, the share of government deposits is at a multi-year low of 8 per cent (vs 10.5 per cent in FY2018). Further, private banks lost market share in FY2020,
after four years of gain. On their small base, SFBs have maintained market share.

The key insights from RBI’s ownership of deposits report show that Overall deposits grew 9% yoy (vs 10 per cent yoy in FY2019), driven by current account deposits growing by 8 per cent yoy and savings deposits by 10 per cent yoy, while term deposits grew 8 per cent yoy.

CASA ratio improved marginally yoy to 41.7 per cent with the share of savings deposits at a decade high of 32 per cent. The contribution from households was stable at 63 per cent, government sector declined to 12 per cent while private sector improved to 11 per cent. The regional distribution shows marginal loss for metro/urban areas.

Private banks continue to chip away retail deposits but lose share in current accounts. Private banks continued to gain market share in household deposits (albeit slower pace) to 24 per cent with significant headroom to grow as PSU banks still maintain 70 per cent share.

The pace of CASA market share shift away from PSU banks declined with private banks gaining a
small share but relatively bigger gains for foreign banks (~50bps vs 20bps yoy).

At the margin, the share loss was contained in both current and savings account, with private banks losing share in CA and gaining in SA while foreign banks gaining CA share for the third year in a row.

Small Finance Banks have started to make some inroads. They have gained market share, especially in the finance segment (4 per cent market share) leading to contribution from this segment at elevated levels at 37 per cent compared to 48 per cent for households.

Compared to the earlier strong deposit growth in central and eastern regions of India, there is a relatively more even household deposit growth across regions. Metro and urban centers control 75 per cent of deposit market share over the past five years, possibly reflecting challenges in rural/semi-urban focused deposit strategy, the report said.