FCNR boost for bank credit growth may be temporary, says Axis CEO Amitabh Chaudhry
Recent foreign currency deposits could provide a short-term uplift to the growth patterns in bank lending. With the narrowing of differentials, it's anticipated that domestic interest rates will rise soon. The banking sector is poised for accelerated consolidation in the upcoming years, favoring larger banks that leverage scale and technological innovation. In this landscape, Axis Bank is gearing…
Axis Bank CEO Amitabh Chaudhry stated that the record foreign currency non-resident bank (FCNR(B)) deposits could lead to a temporary surge in bank lending, potentially exceeding the usual growth rates. However, Chaudhry cautioned that the 18-19% credit expansion could gradually moderate as the economy absorbs the surplus liquidity. He cited 15-16% as the expected average for the year, explaining that the higher figures are likely due to a base effect caused by the recent influx of FCNR(B) deposits.
Chaudhry attributed the surge in foreign currency deposits to the central bank's special dollar-rupee swap facility, which has bolstered banks' funding positions and potentially provided additional liquidity for loan growth. He also highlighted the narrowing interest-rate differential between India and the US as a concern, expecting rate hikes in the near future, possibly in October or December.
The CEO emphasized the need for greater consolidation in the Indian banking sector, arguing that larger banks would be better equipped to compete through scale. He believes that consolidation should occur over the next four to five years as the differences in scale between lenders widen. Chaudhry reiterated Axis Bank's appetite for consolidation, predicting that scale will become even more critical as banks increasingly leverage artificial intelligence and customer data to offer personalized products and services.
He also noted that the gap between larger and smaller banks is likely to widen if smaller lenders fail to execute effectively.
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