Banking stocks market losers on 'failing' deposit test

Banking shares declined after deposit growth fell short of projections for the fiscal year ended in March, as the withdrawal of funds by customers coping with high inflation contributed to an acute liquidity crunch.

According to a report in the Business Line, the banking industry, for the first timei n seven years, failed to match fresh deposits in FY12. The decline in fresh mobilisation of funds has come despite rising interest rates.

Net interest margins in the sector could be hit as banks may have to raise the rates offered on deposits to retain customers, analysts said.

“There is a shift from financial assets to physical assets,” said Manish Ostwal, banking analyst at brokerage KR Choksey, adding there was less incentive for customers to invest in term deposits at the moment.

Also weighing on the sector, Finance Minister Pranab Mukherjee warned on Saturday that a slowdown in India’s economic growth could impact asset quality, adding banks would have to raise additional capital to comply with Basel III rules.

State Bank of India fell 1.8 percent. Chairman Pratip Chaudhuri expressed confidence the central bank will cut the cash reserve ratio this month, while separately, another executive predicted credit and deposits to grow 20-25 percent.

Private lender ICICI Bank fell 2.2 percent, while Axis Bank lost 1.9 percent.

Agencies