Share of low-cost money in bank deposits dips in FY23 amid clamour for FDs

Ease of movement of funds on digital platforms and deployment of money by businesses from current accounts also played a role in pruning the share of CASA money

The share of low-cost money in total deposits continued to take a knock at the close of FY23 as banks engaged in intense competition by offering higher interest rates on term money to garner funds amid tight liquidity conditions.

The share of current accounts and saving accounts (CASA) in total deposits declined by 2-4 per cent by end of March 2023 from March 2022 figure, according to BSE filings by private banks.

The ease of movement of funds on digital platforms and the deployment of money by businesses from current accounts also played a role in dwindling the share of CASA money.

From a macro-economic standpoint, there was a correction in CASA share. Prior to Covid-19, the share of low-cost money in total deposits was about 40 per cent, and rose to 44-45 per cent during the pandemic (2020 and 2021). This changed in 2022, as the use of resources went up and some money moved to other avenues such as mutual funds.  

Bank executives said the interest rate differential between savings accounts and term deposits has widened in FY23. Individuals, firms and even government institutions have become more conscious about managing money.

For example, the interest rate on one-year term deposits was in the range of 5.0-5.6 per cent around the end of March 2022. It moved up to 6.0-7.25 per cent by March 2023. However, the saving deposit rate remained in the range of 2.7-3.0 per cent in March 2022 and March 2023, according to RBI data.

The robust credit offtake influenced banks. Also, the change in RBI’s policy stance on liquidity and increase in policy repo rate by 250 basis points since May 2022 to contain inflation played a key role in shaping the dynamic banking system.

The gap between year-on-year growth of credit and deposits widened in FY23. It was less than one per cent in March 2022 and rose over five per cent in March 2023, RBI data showed.  

In its outlook for the banking sector for FY24, Crisil said whether deposit growth can keep pace and support bank credit growth needs to be seen. For the past several months, bank credit growth has outpaced deposit growth, with banks utilising the surplus liquidity that they had built up to support growth.

With excess liquidity normalising, banks have started raising deposit rates, especially since the third quarter of fiscal 2023, in an attempt to increase deposit growth.