The best Indian banks face a worrying paradox – lending deposits of almost 9%, but lending to only 8.5%. The best banker and company leader Uday Kotak emphasized this mismatch in the X post, directly challenging the sustainability of the banking model in the middle of these inverted margins.
Kotak outlined the banks of the critical challenge that they are currently facing: “The leading bank takes 1 year of wholesale deposits to ~ 8%. It is translated into loaded limit costs for 9%+ after CRR (0 interest), SLR, deposits, priority sector.
He emphasized this contradiction and stressed that despite these high costs of deposit, “Banks issue housing loans to 8.5% of the floating rate. They borrow 9% and borrowed at 8.5! -0.5% spread.”
He stressed further concerns and asked Kotak rhetorically about operating costs and credit costs in the middle of this scenario: “What about OPEX/ credit costs? If the deposit tightness persists, it is a challenge for a bank business model.”
Kotak's criticism comes at a critical intersection for Indian banks, which recently noted significant moderation of loans. According to RBI data, loan growth in February slowed year -on -year to only 12%, compared to 16.6% in the previous year, with the exception of HDFC fusion. The slowdown is attributed primarily to stricter rental standards, which RBI imposed at the end of 2023, aimed at reducing the risks associated with personal loans and credit card debt.
Strict rules led to a sharp decrease in personal loans growth – from 19.5% earlier to 8.4% – while the growth of debt on credit card decreased from 31% to only 11.2%. Loans have also reduced non -bank financial companies (NBFC), which significantly influenced the overall availability of the loan and economic liquidity.
Although RBI has recently released some of these capital requirements according to Governor Sanjay Malhotra, analysts expect the benefits to take several months to take place. Meanwhile, Kotak's concern remains urgent. If banks continue to lend costs exceeding their loan rates, the banking sector faces increasing pressure on the margins and raises serious sustainability issues that institutions will have to deal with urgently.
