 "banking sector")
The current account savings account (CASA) deposit ratio of private sector banks declined more than that of public sector banks (PSBs) in the past year due to a stronger demand for credit and an increased preference for term deposits.
According to data from CareEdge Ratings, the share of CASA deposits to total deposits of private sector banks contracted to 39.9 per cent at the end of December 31, 2023, compared to 44.5 per cent on December 31, 2022. For PSBs, it slipped to 40.5 per cent from 42 per cent.
The overall CASA ratio of the Indian banking system declined to 40.1 per cent from 42.8 per cent during the same period.
“Aggregate deposit growth was primarily attributable to growth in term deposits, which have transitioned to a higher rate. However, CASA growth remained lethargic across the industry. Private banks’ CASA ratio has contracted at a sharper level compared to PSBs. The chase for deposits is likely to continue as overall deposit growth continues to drag credit growth, and banks continue to shore up their deposit base,” said Sanjay Agarwal, senior director, CareEdge.
In a recent interaction with Business Standard, K Satyanarayana Raju, managing director and chief executive officer of Canara Bank, said that the bank has started special campaigns for deposits, including CASA, to boost the growth of such deposits.
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According to the latest Reserve Bank of India (RBI) data, credit growth of the sector rose by 20.3 per cent year-on-year (Y-o-Y) to Rs 159.7 trillion for the fortnight that ended on January 12, 2024, whereas, deposits grew by 13.1 per cent Y-o-Y to Rs 199.8 trillion.
The CASA ratio of Indian lenders has been under pressure since the first quarter of 2022-23 because of increased preference for term deposits by customers due to better rates.
According to Subha Sri Narayanan, director, CRISIL Ratings, “The CASA deposit ratio of the banking system dropped by over 200 basis points (bps) from a five-year high of 43.7 per cent as of March 2022 to 41.6 per cent as of March 2023. It is noted to have further dropped to 40.5 per cent as of September 2023, and has seen a further decline for several banks until December 2023.”
A higher CASA ratio is important for banks to maintain a lower cost of funds, which, in turn, helps net interest margins.
Banks started to offer higher interest rates on term deposits due to increased demand for loans amid liquidity tightness in the system as a result of monetary policy tightening.
According to RBI data, the term deposits in the Indian banking sector were Rs 177.18 trillion as of January 12, 2024.
“Buoyant credit growth has compelled most banks to increase their term deposit rates to ensure healthy deposit accretion to support this growth,” noted Dnyanada Vaidya, equity research analyst, Axis Securities.
The RBI had increased the policy repo rates by a cumulative 250 bps to 6.5 per cent from May 2022 to February 2023.
Analysts expect the share of CASA deposits to remain under pressure owing to an elevated share of term deposits for a few more quarters with a reversal expected only after the RBI begins to loosen liquidity in the market through the easing of monetary policy.
“We can expect the CASA deposit ratio to improve only when the monetary policy rate cuts commence and banks also start cutting the term deposit rates. However, despite a rate cut, in case the credit growth remains strong, the term deposit rates may stay elevated, and in such a scenario, the CASA ratio can only improve if the banks hike the rates on savings deposits,” observed Anil Gupta, senior vice-president and co-group head-financial sector ratings, ICRA.
Furthermore, Karan Gupta, director and head of financial institutions, India Ratings & Research, noted that despite policy rates being at their peak, the central bank is not likely to cut rates until the second half of 2023-24 (FY24), and hence the CASA deposits of banks are likely to stay under pressure for the entire calendar year of 2024.
