Analysts are baffled with a particular set of numbers reported by two private sector banks — IndusInd Bank and YES Bank — during the fourth-quarter earnings.
Banks have reported that the average cost of savings bank account deposit is higher than the maximum interest rate being offered by these banks on such deposits. According to analysts, this is mainly due to higher rates offered to corporates on their high-value deposits.
IndusInd Bank, for example, offers an interest rate of 5.5 per cent for deposits up to Rs 1 lakh and six per cent for above Rs 1 lakh in the savings account. However, the bank’s weighted average cost of savings bank deposit is 6.6 per cent. While answering a specific question on the issue during the post-earnings analyst call, Sumant Kathpalia, head of consumer banking at IndusInd, said: “Our weighted average cost of savings account SA (savings account) is 6.6 per cent on the whole float.”
Anish Tawakley of Barclays said in a research note on IndusInd Bank: “Savings account growth of 41 per cent year-on-year was strong. However, average savings account cost (6.6 per cent) is high. Large part of savings account appears to be the “negotiated rate” savings account (IndusInd Bank’s ‘card rate’ is six per cent, the 60-basis point difference with average rate indicates that large portion of SA is at negotiated rates).”
Romesh Sobti, managing director and CEO of IndusInd Bank, however, refused to disclose the maximum interest rate the bank pays per account. “Cannot disclose. This is not material. What really matter is the blended cost. That is a competitive issue. No bank will disclose that number to you,” Sobti said in the analyst conference call. Similarly, YES Bank offers six per cent for savings accounts deposits below Rs 1 lakh and seven per cent for above Rs 1 lakh. However, its weighted average cost of savings account balance is in the range of 7.1-7.2 per cent, as mentioned by the bank’s chief financial officer Rajat Monga in the post earnings analyst conference call.
However, Monga denied that the bank negotiates while offering interest rates on savings bank deposits. “There is no negotiated rate at all that we do. We have slabs and money comes at those slabs,” he said, while adding that only five to eight per cent of the savings bank deposits are offered more than seven per cent rate.
Market participants explain this is because in a bid to increase current account and savings account deposits (Casa) — known as low-cost deposits — banks are offering higher rate of interest on large corporate accounts. People familiar with the development explain that in certain cases, the interest rates being offered to corporates is as high as up to even nine per cent. Both IndusInd & YES Bank declined to comment.
Private sector banks have been expanding their branches aggressively and improving their customer service to increase their Casa share and have even piped public-sector counterparts. After the deregulation of the interest rate on savings bank account, a majority of banks decided not to increase the rate from four per cent and only some smaller banks are offering higher rate.