Private sector banks have outpaced their public sector counterparts in attracting deposits in FY25, according to a report by IIFL Capital. The report, released on March 3, highlights how private banks have successfully expanded their deposit base due to aggressive marketing strategies, deeper penetration into semi-urban and rural areas (SURU), and the declining influence of government-related banking business.

Contents

Private Lenders Gain Market Share as PSU Banks Struggle to Attract Deposits Private Banks Lead Deposit Mobilization, IDFC First Bank Tops the List PSU Banks Lose Market Share as Deposit Growth Slows Liquidity Crunch and Rising Competition for Deposits Private Banks Face Higher Credit-to-Deposit (CD) Ratio Risks Highlights: How the Deposit Battle is Shaping Up Outlook: Will Private Banks Continue to Dominate?

The data shows that private banks recorded a deposit growth of 5-29% in Q3FY25, while PSU banks lagged behind with a growth range of 4-15%. The slower pace of deposit accumulation has resulted in PSU banks losing market share by 10-70 basis points (bps) year-on-year, further widening the gap between private and public sector lenders.

Private Banks Lead Deposit Mobilization, IDFC First Bank Tops the List

According to ACE Equities, IDFC First Bank emerged as the top performer, registering a 29% YoY growth in deposits during Q3FY25. It was closely followed by CSB Bank, DCB Bank, and Bandhan Bank, which all saw deposit growth in the range of 20-22%.

Other notable performers include:

Kotak Mahindra Bank, Karur Vysya Bank, HDFC Bank, and RBL Bank, all of which registered over 15% YoY growth in deposits.

On the other hand, state-owned lenders such as Punjab National Bank (PNB), Bank of India, Bank of Maharashtra, and Bank of Baroda (BoB) reported just over 10% growth in deposits during the same period.

A weaker deposit mobilization has led to a notable decline in PSU banks’ market share, according to the IIFL Capital report.

State Bank of India (SBI) and Axis Bank saw their deposit market share decline by 20-75 bps year-on-year.
In contrast, HDFC Bank and ICICI Bank gained between 5-25 bps in market share, reflecting their strong deposit growth strategies.

Additionally, in the Current Account and Savings Account (CASA) segment:

SBI, Axis Bank, and Kotak Mahindra Bank lost 7-65 bps of market share.
ICICI Bank emerged as the biggest gainer, increasing its CASA market share by 49 bps, followed by HDFC Bank (7 bps) and Bank of Baroda (5 bps).

Liquidity Crunch and Rising Competition for Deposits

The report attributes the declining deposit growth among PSU banks to:

High government balances with the RBI – This has limited the availability of funds within the banking system.
Liberalized Remittance Scheme (LRS) outflows – Increased overseas remittances have drained liquidity from the system.
Systemic liquidity deficit – Despite recent liquidity-boosting measures from the Reserve Bank of India (RBI), banks continue to struggle with funding constraints.

As a result, competition for deposits remains intense, pushing banks to offer higher interest rates and introduce new deposit schemes to attract customers.

Private Banks Face Higher Credit-to-Deposit (CD) Ratio Risks

The report also highlights that while PSU banks have reported better Credit-to-Deposit (CD) ratios, private banks continue to operate at higher risk levels.

PSU banks’ CD ratios ranged between 68-82% in Q3FY25, indicating a relatively stable lending-to-deposit balance.
Private banks, however, exhibited higher CD ratios, ranging from 73-97%, raising concerns over potential asset-liability mismatches.

Among private banks, HDFC Bank, Axis Bank, IDFC First Bank, and Bandhan Bank recorded CD ratios exceeding 90%, signaling high reliance on borrowed funds to support lending activities.

Highlights: How the Deposit Battle is Shaping Up

Private banks are growing deposits faster than PSU banks, with some lenders reporting over 20% YoY growth.
PSU banks have lost market share, while ICICI Bank and HDFC Bank have gained ground.
Liquidity constraints and aggressive competition have led banks to offer attractive deposit rates.
Private banks’ higher CD ratios indicate potential liquidity risks and a need for better deposit mobilization strategies.

Outlook: Will Private Banks Continue to Dominate?

Going forward, private banks are expected to maintain their lead in deposit growth, driven by expansion in rural markets, superior digital banking services, and competitive interest rates. However, PSU banks may attempt to regain lost ground by introducing new deposit schemes and leveraging government-backed initiatives.

With the RBI focusing on managing liquidity, banks—both public and private—will need to strike a balance between deposit growth and loan expansion to mitigate potential risks in an evolving financial landscape.