Public sector banks are demonstrating resilience in their loan-to-deposit ratios despite industry-wide concerns about rising credit growth relative to deposits. According to The Economic Times, Yuvraj Choudhary from Anand Rathi Institutional noted that PSU banks maintain a credit-to-deposit ratio that is 10% lower than private banks. The example of State Bank of India (SBI) underscores this point, with the bank operating at a credit-to-deposit ratio of 73-74%, significantly lower than the industry average. As reported by The Economic Times, while credit growth has been faster than deposit growth across the banking sector, PSU banks face less severe challenges compared to private banks in managing their loan-to-deposit ratios.
The deposit mobilisation challenge for PSU banks appears to be improving, with deposit growth beginning to catch up with credit expansion in recent quarters. According to The Economic Times, Choudhary highlighted that while PSU banks' deposit growth was previously lower than credit growth, the gap is narrowing as deposit growth has started to pick up. This trend is particularly important for PSU banks' ability to sustain their credit growth trajectory, as deposit growth remains a critical metric for maintaining healthy loan-to-deposit ratios. The improved deposit momentum suggests that PSU banks are better positioned to manage their credit expansion without facing structural liquidity constraints.
PSU banks are outperforming private banks across three critical parameters: asset quality, loan growth, and return on equity. As reported by The Economic Times, PSU banks' gross slippages are 60 basis points lower than private banks, demonstrating significantly better asset quality management. On loan growth, PSU banks have been outperforming private banks for multiple quarters, while generating return on equity closer to 15%, which is 200-300 basis points higher than private banks. This superior performance across these key metrics suggests that PSU banks are better positioned for sustained growth and profitability in the near term.
The microfinance sector, which has undergone significant stress over the past year and a half, is showing clear signs of stabilisation. According to The Economic Times, collections have improved to near-normalised levels in recent quarters, while disbursements have started to pick up across the sector. This recovery in microfinance fundamentals suggests that the worst of the asset-quality stress may be behind the sector, potentially opening the door for potential rerating over the coming quarters. The improving trends in microfinance collections and disbursements indicate that the sector is beginning to normalise after its prolonged difficult cycle.
Addressing concerns about PSU bank profitability being dependent on non-core income, Choudhary provided data showing that underlying operations remain robust. As reported by The Economic Times, SBI generates an ROA of 80 basis points on normalised operations without including treasury and recovery income. The analysis shows that SBI's income from recovery pool averages 10 basis points over the last 10 years, while treasury income has generated 10-15 basis points over the last 25 years. This data suggests that while treasury gains and recoveries support earnings, the underlying return metrics remain healthy even after stripping out these components, indicating that PSU banks' profitability is supported by sustainable core operations rather than temporary factors.