"SFBs need to ramp up their deposit base quickly to replace grandfathered loans and gradually build granular deposits," India Ratings said in a report on Thursday.
The agency expects the share of granular deposits to continue to increase over the medium-term, aided by an increase in branches and banking points (to about 35,00 at end-FY19) and increase in deposit rates.
Granular deposits, which are current and savings deposits and retail term deposits, accounted for 48 per cent of total deposits in FY19 as against 42.5 per cent in FY18.
It said although the low-cost Casa deposits increased 76 per cent to Rs 9,760 crore in FY19, the ratio has seen a decline to 19.2 per cent, as traction in term deposits increased and savings deposits were converted to term deposits owing to the high rates offered by SFBs.
Total borrowings of SFBs declined steadily over the last two years to Rs 31,500 crore in FY19 from Rs 34,000 crore and Rs 36,000 crore in FY17, with a substantial, albeit expected, decline in bank borrowings and debenture funding.
Given the overall liquidity stress in short-term capital markets, elevated risk perception and risk aversion, especially for credits rated in the A category and below, SFBs might face challenges in tapping the capital markets, the report said.