Loan Growth Surges Past Deposits
Lending activity surged across five South Indian banks in the March quarter, with credit growth consistently outpacing deposit expansion. This broad trend, reported by both state-owned Indian Bank and private peers like South Indian Bank, Karur Vysya Bank, Karnataka Bank, and Tamilnad Mercantile Bank, signals robust demand for credit in the economy.
Indian Bank led the charge, reporting a 13.6% year-on-year jump in gross advances to ₹6.68 lakh crore by the end of March. Deposit growth, while significant at 12.6% to ₹14.98 lakh crore, lagged behind its lending pace. The bank attributed much of its advance growth to the RAM sector—retail, agriculture, and micro, small, and medium enterprises—which saw a 15.7% increase to ₹4.06 lakh crore. The ratio of low-cost current and savings account (CASA) deposits to total deposits also saw a sequential rise to 39.86%.
Among private sector lenders, South Indian Bank announced a 15.66% year-on-year increase in gross advances to ₹1.01 lakh crore, against a 14.71% rise in deposits to ₹1.23 lakh crore. Karur Vysya Bank reported advances growing 16.87% to ₹97,052 crore while deposits grew 13.31% to ₹1.16 lakh crore. Tamilnad Mercantile Bank saw its advances climb 20.32% to ₹53,380 crore, outpacing a 14.94% deposit growth to ₹61,712 crore.
Karnataka Bank stood out with a more modest 6.9% advance growth to ₹83,337 crore, though its deposits still grew slower at 3.8% to ₹1.09 lakh crore. The performance indicates a strong push for lending, potentially boosting profitability from lending if loan rates rise faster than funding costs.
What This Trend Means for Banks
This sustained trend of loan growth outpacing deposits might suggest strained liquidity or a strategic push by banks to use higher-earning assets. Investors will be watching to see if banks can increase deposits to meet rising loan demand, which could affect future lending capacity and profitability.