Banks face extended period of deposit pain as customers change saving habits
Indian banks, grappling with a deepening deposit crunch even after offering higher interest rates in some categories to lure the savings of customers, appear to be resigned to a new normal. With credit growth outpacing deposit growth despite higher interest rates, and a structural shift in the savings habits of customers - who now prefer higher-yielding investments - the proportion of current and savings account (CASA) deposits at banks has shrunk, a situation that may persist for some time.
Amitabh Chaudhry, chief executive officer of Axis Bank, noted during the earnings call that as deposit rates remain high, credit growth is expected to converge with the level of deposit growth of about 13% in FY25. As savers flock to higher-yielding investments, credit growth has outpaced deposit growth.
The share of low-cost current and savings accounts (CASA) deposits for most banks that have declared their fiscal first quarter results has fallen by up to six percentage points year-on-year and three percentage points sequentially to range from 29% to 43% as of 30 June. One percentage point equals 100 basis points (bps).
State Bank of India managing director Ashwini Kumar Tewari said last week that though the system-level CASA ratio is about 40%, the actual share of low-cost deposits with banks just over 30%, considering the sweep facilities (where funds are automatically transferred from one account to another) and high savings rates on certain deposits. This, he added, puts pressure on banks to meet their funding requirements.
A robust CASA ratio is crucial for banks and signifies access to funds at lower cost—essential to offer competitive loan rates while maintaining healthy interest margins. While current account deposits do
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