Bank savings deposits lose ground

Savers are now putting relatively less money into current and savings accounts (CASA) of banks, instead parking them in term deposits. This is limiting the ability of banks to raise low-cost resources. At present, commercial banks offer 4 per cent interest on savings accounts after the Reserve Bank of India raised the rate by 50 basis points in May. The revision came after eight years. On the other hand, term deposit rates are an attractive option having moved up around 250 basis points over the past six months in the one-three year maturity periods following regular interest rate hikes by the central bank. The State Bank of India, for instance, offers 9.25 per cent interest on deposits of one year to less than two years. With the rate gap widening, bankers have been witnessing a decline in demand deposits, while term deposits have shown a strong growth. Demand deposits are deposits that can be withdrawn quickly. This shift has affected the banks’ CASA ratio — the proportion of current account and savings account deposits in total deposits — during the first quarter of this fiscal. The ratio has been lower on a sequential basis. While some lenders such as Axis Bank saw only a marginal fall in their ratio, it was more pronounced for a few such as Corporation Bank and IDBI Bank. In IDBI Bank, the CASA ratio dropped even after the bank waived all transaction and service charges on current and savings accounts. Banks have been laying stress on CASA deposits because of their low costs — current account is non-interest bearing, while the 4-per-cent interest payable on savings accounts is less than half of what they pay on term deposits. Hence, a fall in the CASA ratio may affect margins at a later stage. This was evident in the first-quarter numbers of ICICI Bank, the SBI and some other banks where current account deposits showed a fall in absolute terms. Tough task Bankers now admit that mobilising more current account and savings account deposits will be a challenge given the fact that interest rates are likely to stay at higher levels for some more time. Others say that rates have peaked. IDBI Bank recently trimmed its CASA ratio guidance for the year to 17-18 per cent from an earlier estimate of 25 per cent, while ICICI Bank hopes to post an average ratio of around 40 per cent for the year.