The share of current account (CA) and saving account (SA) deposits as a share of total deposits fell for most banks during FY24, amid intensified pressure for retail deposit mobilisation and increased reliance on term and bulk deposits.
CASA ratio, or the share of low-cost CASA deposits, declined by 40-730 bps year-on-year for banks that have declared their Q4 FY24 earnings so far. This is despite the fact that deposit rates have remained elevated through FY24 owing to tight liquidity conditions and sustained demand for credit, especially retail and unsecured loans.
Banks are currently offering rates of up to 7 per cent on certain high value savings accounts of over ₹2 lakh and up to 7.5 per cent on saving account balances between ₹5-10 lakh. Rates offered by some small finance banks are even higher.
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The decline was much faster in the first half of the financial year as banks witnessed a shift in investor behaviour to higher-yielding term deposits and other investment avenues. However, most large banks such as ICICI Bank and Axis Bank managing to recoup at least some of the lost share in the second half.
As of December 2023, CASA ratios of private banks were 393 bps lower y-o-y and 57 bps q-o-q at 38.7 per cent, and those for PSU banks declined 187 bps y-o-y and 25 bps q-o-q to 38.5 per cent., weighing on lenders’ margins.
Sequentially, CASA ratios were largely unchanged to slightly better on the back of traditionally higher deposit accretion in the last quarter of the financial year and on accelerated efforts by banks to pursue granular deposits.
Yes Bank, an outlier
Mid-sized banks such as Federal Bank and IndusInd Bank saw a decline on quarter as well, whereas smaller banks such as South Indian Bank and DCB Bank saw steady CASA ratios led by conscious slowing down in the loan book given stretched loan to deposit ratios (LDR).
The highest decline of 730 bps y-o-y was seen by Kotak Mahindra Bank which in turn saw a significant increase in term deposits and its flexible ‘ActivMoney’ liability product. HDFC Bank too saw a steep decline of 600 bps, largely owing to the merger of erstwhile HDFC with the bank, effective July 2023.
On the other hand, Yes Bank was the outlier, seeing an increase in its CASA ratio both y-o-y and q-o-q on the back of a lower base and aggressive deposit mobilisation by the bank. Most banks expect deposit mobilisation to remain under pressure for at least another two quarters before starting to normalise in the second half of the current financial year.
“With rate cuts anticipated in the later part of FY25, some amounts might flow back into the banking system thereby improving the CASA ratios to a certain extent,” CareEdge Ratings said in a note pegging deposit growth for FY25 at 13.0-13.5 per cent, and the credit-to-deposit ratio at over 81 per cent.