The Hindu Business Line : Banks witness fall in low-cost deposits’ share in Dec quarter

Mumbai, Feb. 3 Most banks saw a fall in the ratio of low-cost deposits to total deposits in the December-ended quarter. The higher interest rates on term deposits and the unpredictable equity markets saw retail investors turning to bank fixed deposits as a safe and risk-averse investment.

In the third quarter of the current fiscal, most banks saw a fall in CASA ratio compared with both the previous sequential quarter and the corresponding quarter last year.

The CASA (current account savings accounts) is a source of cheap funds for banks. A higher share of CASA helps banks to cut costs.

According to Mr T.S. Narayanasami, Chairman and Managing Director, Bank of India, when credit grows banks need volumes and, therefore, have to depend on bulk deposits to raise resources. As a result, the CASA proportion goes down. This is the case for the industry as a whole. While CASA helps in cutting costs, it does not create volumes.

Similarly, for Union Bank of India, the share of CASA was the only parameter in which the bank saw a slowdown in the third quarter, said Mr M.V. Nair, Chairman and Managing Director.

In the just ended quarter, the average rates on bank fixed deposits were in the range of 8.5-9.5 per cent, with some banks offering rates as high 10 per cent and more. This was a main reason of migration of CASA balances to bank FDs.

Mr Paresh Sukhthankar, Executive Director, HDFC Bank, said, “Fixed deposits grew by 80 per cent. With the turmoil in the market there was flight of funds to quality investment. So, the CASA share saw a slowdown.”

According to a banking analyst, it was a system-wide fall in CASA because of the arbitrage in the interest rates. “In a high interest rate scenario the incentive to shift to term deposits is high. We are now at a scenario of peak deposit rates at 8-8.5 per cent. But as banks start reducing deposit rates, the peak rates will settle at lower levels of 7-7.5 per cent. Then the incentive to shift to term deposits will be lesser,” he said.

The fourth quarter could see CASA ratios picking up as banks focus on deposit mobilisation towards the year-end. But only by the June quarter of the next fiscal would the CASA share reach the earlier high levels, as deposit rates begin to ease, the analyst added.