With fixed deposit schemes offering 9.25-9.5 per cent for even one to two years, banks are seeing a slowing of current account/savings account (Casa) deposits. Since the latter are their low-cost anchor, this has them worried and, as a result, banks are now offering free services to increase this share, to protect their margins.
While banks do not have to pay interest on current accounts, savings account deposits attract only four per cent interest. Yet, even behemoth State Bank of India is now offering seven per cent for six-month deposits. According to the Reserve Bank of India, demand deposits fell two per cent as on July 2 over a year, while term deposits grew 21 per cent in the period.
The result is alarm. Public sector lenders IDBI Bank and UCO Bank, which have a lower share of Casa in total deposits, have launched a drive to get low-cost deposits. Mangalore-based Corporation Bank will do so, too, by launching a scheme next week to mobilise Casa.
“We are planning to launch the programme due to the rising cost of deposits. Casa deposits will allow us to meet our needs at a low cost,” said chairman and managing director Ramnath Pradeep. The scheme will run at least for a month, he added. The bank’s Casa ratio is around 21 per cent, much lower than its peers.
In addition to waiving charges, the bank will also offer accident insurance cover of up to Rs 1 lakh. Bank employees will be given incentives to work on the drive. The bank is also working on add-ons for customers agreeing to invest in recurring deposit schemes of up to a year.
A senior official of a large public sector bank said more banks were expected to announce such schemes as the competition intensifies to attract low-cost deposits.
The Casa ratio of Development Credit Bank fell to 33 per cent in the first quarter of this financial year from 36 per cent in the same period a year before. “Whenever term deposit rates go up, there is pressure on the low-cost deposits, which we are facing now. Our aim is to maintain the Casa ratio above 30 per cent, which we have done,” said Murali Natarajan, managing director. He said instead of giving freebees, the bank prefers to offer tailor-made services to clients and cross-sell products according to need and convenience.
Does it work?
Analysts feel such schemes merely help. “To get higher Casa, banks need to reinvest a number of times in brand building. There is no point in launching such campaigns if they do not contribute to brand recall,” said an analyst with a domestic brokerage.
UCO Bank, whose Casa ratio is 24 per cent, had launched a similar campaign on Monday. It aims to increase Casa share to 30 per cent by end-December. “We might consider extending the scheme or even close it before December 31 if our Casa deposits shoot up significantly,” said a senior official. According to a Fitch Ratings report, 51 per cent of the bank’s deposits had consisted of high-cost ones, including certificates of deposits, as on March 31. “We have shed high-cost bulk deposits in the first quarter, as there was no need,” said the official.
Public sector IDBI Bank had launched low-cost deposit mobilisation drive in September 2010. Its Casa ratio was 14 per cent, much lower than the industry average of 30 per cent, since the bank was converted into a commercial one from a development and finance institution just seven years earlier. As on March this year, its Casa ratio had improved to 21 per cent.
