The financial services sector in India has seen significant capital outflows totaling Rs 23,000 crore in the last month as foreign portfolio investors pull money out on concerns over the widening gap between bank credit growth and deposits.
According to data from the National Securities Depository Ltd, foreign investors sold off stocks worth Rs 8,119 crore from July 16th to 31st and another Rs 14,790 crore between August 1st and 15th from companies in the financial domain. Analysts note that slowing deposit accumulation compared to the rapid rise in loans has become a cause for worry as it can negatively impact the profitability of lenders over time.
While credit offtake has increased 14% year-on-year lately, bank deposits are only growing at 11% according to the latest Reserve Bank of India figures. This trend is raising apprehensions that margins may come under pressure if the imbalance prolongs. Experts say overseas funds have been exiting financial shares and the sector chiefly on this growing imbalance. Other sectors also seeing outflows include metals and mining, automobiles, and energy.
Despite withdrawals from the financial sector, foreign investors continued purchasing stocks in consumer goods, healthcare, and utilities where valuations appear relatively attractive. The Union government and central bank have repeatedly stated their intent to encourage healthier deposit growth through new product innovations. With inflation staying elevated and a potential economic slowdown overseas, analysts will watch if the credit-deposit gap can be bridged to restore stability in the banking system.
