In a surprising move, leading non-bank company Bajaj Finance has decided to lower deposit rates by 20 basis points on its highest rate slab, defying the industry trend. This decision comes at a time when several banks are facing challenges in garnering public deposits, making Bajaj Finance's move all the more noteworthy.
Navigating the Shifting Deposit Landscape
Deposit Rate Reduction Amid Robust Growth
Bajaj Finance's decision to lower deposit rates comes on the heels of a 26% year-on-year growth in deposits, reaching a staggering Rs 62,750 crore as of June-end. This impressive growth, up from Rs 49,944 crore a year ago, suggests that the company has been successful in attracting a significant amount of public deposits, even with the impending rate cut.The finance company will now offer 8.40% per annum from July 16, down from the previous rate of 8.60% for a 42-month maturity period. Senior citizens, on the other hand, will receive 8.65% instead of the current 8.85%. This reduction in rates, while bucking the industry trend, is a strategic move by Bajaj Finance to manage its liquidity position and maintain a healthy balance sheet.
Intense Competition for Deposit Garnering
The deposit market has become increasingly competitive, with capital markets drawing significant funds from savers and mainstream lenders offering higher deposit rates to attract customers. State Bank of India, for instance, raised deposit rates in May by 25-75 basis points in a bid to woo customers.Non-banking finance companies (NBFCs) like Bajaj Finance have traditionally offered higher deposit rates than their banking counterparts. Even after the rate reduction, Bajaj Finance's 42-month deposit rate will remain the highest offer among both regular and senior customers.
Liquidity Position and Net Interest Margin Considerations
Bajaj Finance's decision to lower deposit rates may have been influenced by its strong liquidity position and concerns over net interest margin (NIM) compression. In a regulatory filing, the company stated that its liquidity position remained robust, with a net surplus of about Rs 16,200 crore at the end of the first quarter of the fiscal.The company had previously indicated that its NIM had been moderating throughout the fiscal year 2024 due to an increase in the cost of funds and a gradual shift in the composition of its assets under management towards secured assets. Bajaj Finance expected its NIM to moderate by 30-40 basis points over the June and September quarters from the March quarter's 10%, with its cost of funds peaking by July and August.
Industry Outlook: Pressure on NIMs to Continue
Industry experts expect the pressure on NIMs for financial sector companies to persist in the coming quarters, as the impact of rising deposit rates takes time to be fully reflected. The repricing of deposits at higher rates is an ongoing process, and the industry is likely to face challenges in maintaining profitability amidst this dynamic environment.Bajaj Finance's decision to lower deposit rates, while bucking the industry trend, appears to be a strategic move to manage its liquidity position and mitigate the impact of NIM compression. As the competition for deposit garnering intensifies, other players in the non-banking finance space may closely monitor Bajaj Finance's approach and consider similar measures to navigate the evolving landscape.
