Call it the Casa contradiction. Banks chasing current and savings accounts (Casa) for cheaper funds are caught in a bind by the sudden change in the environment. Casa deposits have become critical after the series of RBI rate hikes that tightened liquidity for banks.
Bankers say their cost of funds have gone up significantly and it can be managed only by mobilising either savings deposits, where they pay low rates or current accounts, where they dont pay interest.
However, analysts point to the many roadblocks bankers face in their rush for low-cost deposits and a big contradiction in the whole process.
According to them, the banking industry, which has an average Casa deposit of 35-40% of total deposits, might have reached a saturation point and would find it difficult to progress further.
Since banks now pay higher deposit ratesthat too for shorter tenuressavers may put their funds in such deposits for better returns than keeping them in savings accounts that fetch just 3% interest. Banks now pay about 10% interest on a one-year fixed deposit.
Making matters worse is the ongoing economic slowdown, which will have fewer SMEs deploying their surplus funds in bank current accounts. So, another avenue of cheap resources is disappearing for banks. In the days of tight money, SMEs tend to depend more on their own fundswhich effectively means withdrawing money from banksto avoid high cost borrowings.
The first signs that banks are already facing a saturation of Casa deposits are visible in statements of bank bosses.
Said KC Chakrabarty, chairman & managing director, Punjab National Bank: As of now, our Casa stands at 41% and we want to maintain it at the same level even at the end of the fiscal, too.
Even the countrys largest bank, State Bank of India, which has around 10,000 branches and a Casa level of 43%, plans to raise it only by three percentage points to 46% by the end of the fiscal.
Union Bank of India, among the top six state-run banks, which has a Casa ratio of 34.5%, wants to increase it by only 150 basis points to 36% by the end of the fiscal.
As the hunt for Casa gets tougher, some banks have begun incentivising their staff to get more such accounts.
A senior Bank of India official admitted to FE that the bank has launched a campaign that rewards staff who mobile Casa deposits with cash and gold deposits. Even with