Banks in India, particularly public sector institutions, are intensifying efforts to attract low-cost Current Account and Savings Account (CASA) deposits to tide over fund crunch and avoid raising funds through higher rate term deposits. They are employing innovative methods, such as deploying direct selling agents, providing incentives to employees, and introducing relationship manager concepts for saving account holders, who get interest rates starting from 3.5% on their deposits. On the.other hand, the rate for term deposits is touching 8% for several banks.
State Bank of India (SBI), for example, has been focusing on gaining more current accounts, particularly from the trade and commerce sector and various trusts. Other banks, including Canara Bank and Bank of Baroda, have also initiated strategies to boost their CASA deposits, according to reports.
Deposit growth
Bank credit growth has outstripped the increase in deposits in the first five months of the current fiscal year, potentially causing bank deposit rates to rise further. According to Reserve Bank of India (RBI) data, during April to August 2023, bank deposits saw a growth of 6.6%, reaching Rs 149.2 lakh crore, while bank credit increased by 9.1% to Rs 124.5 lakh crore over the same period. These figures include the merger of HDFC with HDFC Bank, which contributed to the widening credit-deposit gap due to the lower deposit base of the housing finance company.
In absolute terms, banks added Rs 11.9 lakh crore in deposits, while their loan books expanded by Rs 12.4 lakh crore. The divergence between credit and deposit growth has been managed through banks’ surplus investments in government securities.
Gaining prominence
CASA has regained prominence as its share in overall deposits had been declining. Data indicates that while leading private and public sector banks reported double-digit growth in overall deposits in the quarter ending June, the CASA ratio decreased among most lenders.
SBI’s overall deposits increased by 12% year-on-year to Rs 45.31 lakh crore as of June, but its CASA ratio declined from 45.33% to 42.88% compared to a year ago. Consequently, banks are exploring new approaches to expand their CASA portfolios.
Before the pandemic, the CASA ratio in the banking system was around 40%, increasing to 44% during the pandemic and stabilising at approximately 42%-43% post-pandemic.
Despite the CASA ratio approaching pre-pandemic levels, there is a notable shift of savings accounts transitioning into fixed deposits, potentially due to higher interest rates offered by some private sector banks. Experts anticipate a continuation of CASA moderation in the second quarter of fiscal year 2024, with increased focus on fixed deposits.
Additionally, it’s expected that net interest margins (NIMs) in the banking sector will gradually return to historical trends, potentially below 3%, as a result of the shift towards fixed deposits and repricing of liabilities.
