Just when banks need them the most amid rising cost of funds, low-cost deposits may not come to their rescue.
Rising fixed deposit rates have prompted depositors to shift their funds from savings deposit accounts. At the same time, the share of current account balances in total deposits have also started shrinking, as companies and businesses don’t want their funds lying idle in these accounts.
This is likely to cap any increase in the share of low-cost current account savings account (Casa) deposits for banks and foil the scope for margin improvements in the near term.
“I don’t think for the banking sector as a whole the Casa ratio will go up. There is a larger differential between the savings and fixed deposit rates. The customers are much more conscious now and don’t want their deposits earning lower rates in savings deposits,” Chanda Kochhar, managing director and chief executive of ICICI Bank, told Business Standard.
“Even in current accounts, with the cost of money going up, people don’t want to leave idle cash balances. They are using it for projects, investments and working capital requirements. Whether it is the individual or the corporate, they are managing money more efficiently,” she added.
The country’s largest private sector bank closed the April-June quarter with a Casa ratio of 41.9 per cent. Kochhar expects the share of Casa to remain at around 40 per cent in the coming quarters.
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While higher rates offered on fixed deposits led to 7.8 per cent growth in term deposits since the start of this financial year, demand deposits have narrowed by 12.6 per cent since April, latest data from Reserve Bank of India shows. On an annual basis, term deposits have grown 21.6 per cent and demand deposits have shrunk 7.6 per cent.
“Mostly current accounts are used for settlement purposes in capital market transactions. Currently, markets are dull, so there is not much transactions in these accounts. As of now there is not much growth in current account deposits,” R K Bansal, executive director and group head, retail banking at IDBI Bank, said. He expects the expansion of current deposit accounts for the public sector bank to be slower this year than the usual annual growth of 15-20 per cent.
While many banks have started offering attractive schemes like waiver of minimum balance requirements and the option of insurance cover to mobilise savings deposits, lenders are now exploring options to take similar initiatives for current account deposits.
“Growth in current account as of now is static. We are thinking of offering customers some incentives to open current accounts from the next month. We are aiming to grow our current deposits by 10 per cent by March,” Ashok Dutt, executive director at Dena Bank, said.