Private banks are facing a notable drop in their current account-savings account (CASA) ratios for the first quarter of the current financial year. Private banks experience decline in CASA ratios by up to 370 basis points quarter-on-quarter, driven by a shift towards fixed deposits (FDs) due to increased interest rates. Year-on-year, the decline has been even more pronounced, with ratios falling by up to 600 bps. This trend reflects a broader industry challenge as customers seek higher returns from term deposits, prompting private banks to adjust their strategies to attract and retain deposits.
Challenges and Responses
Private banks experience decline in CASA ratios, and this pressure is expected to persist in the coming quarters, as experts foresee no immediate relief for lenders. “We have seen the ongoing stress in low-cost deposits. This is an industry-wide phenomenon, and we continue to develop strategies to counteract it,” said Ashok Vaswani, CEO of Kotak Mahindra Bank, during an analyst call. Among private banks, Bandhan Bank experienced the steepest decline in its CASA ratio, falling 370 bps to 33.40%. Kotak Mahindra Bank also saw a significant drop of 210 bps to 43.40%. In contrast, ICICI Bank and Karur Vysya Bank reported modest improvements, with their CASA ratios increasing by 70 and 30 bps, respectively.
Future Outlook
Banks are under mounting pressure to mobilize deposits to meet high credit demand, which suggests that fixed deposit rates will likely remain elevated for the foreseeable future. Shyam Srinivasan, Managing Director and CEO of Federal Bank emphasized the importance of balancing credit growth with deposit mobilization, stating, “We have made general criteria that we don’t want to grow credit too far ahead of deposits.” He noted that banks are focusing on attracting client deposits rather than large-category or bulk deposits. The CASA ratio remains a critical metric for banks as it reflects the cost of funds and overall financial health. Rahul Malani, Deputy Vice President of Fundamental Research at Sharekhan by BNP Paribas, highlighted that the CASA ratio has been under pressure since early 2022 due to the rising preference for term deposits. He added, “A reversal in CASA ratios is expected only after the RBI begins to ease liquidity through monetary policy adjustments.” Despite potential rate cuts, strong credit growth could keep term deposit rates elevated, maintaining the pressure on CASA ratios and net interest margins.
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