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Private banks’ low cost deposit share dips in Q3

Private sector banks share of low cost deposit in total deposit çame under pressure in the ended quarter December, mainly due to tepid growth in the current account segment and growth in overall deposit base.

Most banks that has announced their third quarter results, reported flat or marginal decline in current account and savings account deposits (Casa) ratio. ICICI Bank & HDFC Bank are yet to announce their third quarter results. Casa deposits are low cost deposits which help banks to keep their margins stable.

“There has been some pressure on the Casa front but I believe it is only cyclical. In the third quarter, there is some outflow of cash from the savings account on account of festival season. And there we have seen casa come under pressure in third quarter,” said Jairam Sridharan, Head-Payments & Lending at Axis Bank.

Banks also say that with the deposit rates trending downwards, depositors have also been shifting the money from savings account to fixed deposits. Some select banks had started making changes in different maturities in deposit rates in the October-December quarter.

Nitin Kumar, banking analyst with Prabhudas Lilladher explained, “The daily average CASA balance has been stable for private banks as they have been gaining market share from Public sector banks. But now private banks are also focusing on raising term deposits to support their balance sheet growth. Also, there is some opportunistic shift (from CASA to term deposits) as interest rates are expected to fall.”

Private sector lenders have been gaining share from the public sector counterparts by offering better customer service, product innovation and on account of branch expansion.

These banks have seen their Net Interest Margins (NIM) remain either flat or come under pressure on a sequential basis in the third quarter of this financial year as the share of Casa in overall deposits come down.

“CASA ratio has declined because our balance sheet growth has been faster than CASA deposits. Our customer deposits have increased by 37% and as a result the share of CASA in total deposits has come down. But there is still growth in our CASA deposits, around 18%. We expect the CASA ratio to return to 25% in next three years,” said Murali Natrajan, MD & CEO, DCB Bank.

Another reason for the muted  growth in casa as part of total deposits has been the slow growth in the corporate sector. With investments not picking up in several sectors bankers say that the quantum of money being kept in the current account by corporates has been fluctuating and that has also impacted growth. 

Credit demand has been decelerating and loans grew at its slowest pace in a decade in September, 2014. According to RBI’s latest data, the year-on-year growth in bank credit was 10.7% as on January 9, 2015.


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