Focus more on Casa deposits, govt tells public sector banks

The government has asked public sector banks (PSBs) to increase focus on attracting low-cost current account, savings account (Casa) deposits in order to contain their cost of funds. It will also enable them to maintain a softer interest rate regime.

The government has asked for specific Casa targets from public sector players, which have been provided by the banks as part of the discussion on statement of intent setting the targets for the current financial year. Bankers said that most public sector players had indicated a Casa growth of 17-20 per cent for the current financial year.

While the banks earlier focused on deposit growth, Casa deposits are coming into prominence for the first time. The move comes amid expectations of hardening of interest rates.

“The government wants banks to increase their Casa deposits. These low-cost deposits will help us to contain costs, which means that a softer interest rate regime can be maintained,” a banker said.

Over the last three years, the share of low-cost deposits for public sector banks has dropped from 39.95 per cent at the end of March 2006 to 32.66 per cent at the end of March 2009.

This year, Corporation Bank and Allahabad Bank have projected a 17-18 per cent growth in low-cost deposits. For Corporation Bank, the share of Casa in total deposits fell to 23.84 per cent in June as against 31.44 per cent at the end of March. The bank expected to close the current financial year with Casa deposits of 25 per cent.

Allahabad Bank’s low-cost deposit share was at 34 per cent and the bank would be looking to maintain the share, a bank executive said.

Punjab and Sind Bank is targeting a 20 per cent Casa growth in 2009-10. It would enable the bank to have a 30 per cent share of low-cost deposits in its total deposits. The Delhi-based bank’s Casa share was 27.7 per cent at the end of March 2009.

Even banks such as State Bank of India have witnessed a fall in the share of Casa to total deposits and have initiated steps to increase it. In case of SBI, the share of Casa in total deposits fell to 38.45 at the end of June this year as against 39.26 per cent in March due to a decline in current account balances. An increase in low-cost deposits would also help banks to improve their net interest margins (NIMs) which came under severe pressure in the first quarter. Repeated cuts in the benchmark prime lending rates since October-November last year also brought pressure on it.