The anatomy of fall in bank deposits—and how to arrest it

livemint.com:

Subscribe to enjoy similar stories. As India’s economy grows, the banking sector faces a pressing question: is the sluggish growth in Current Accounts & Savings Accounts (CASA) and deposits just a temporary dip, or the beginning of a deeper, long-term trend? With the country’s credit demand rising, the slowdown raises red flags for profitability and financial stability. Read this | If deposits are stuttering, how will banks manage the credit boom? Understanding the reasons behind this shift and implementing systemic measures to reverse the trend is crucial for the banking sector’s future.

CASA balances are shaped by gross inflows versus outflows, with the velocity of these flows being a key factor. Economic activity also heavily influences deposit growth, with more money routed through banking channels during economic upcycles. This typically leads to more accounts being opened at the grassroots level.

Encouraging savings as a habit, particularly when the economy is growing steadily, can further fuel this growth. In today’s digital age, savings accounts mirror current accounts in terms of transactions, driven by technologies like RTGS, NEFT, IMPS, and UPI/QR-based banking. Some banks are actively pursuing higher CASA growth to gain market share, while others are struggling to attract new depositors.

Several factors contribute to the current slowdown, with a key trend being the shift in saving and spending habits. More here | Growth in bank deposits has been slow because RBI wants it to be slow Customers, particularly Gen Z and millennials, are shifting their capital toward riskier investments and personal credit, resulting in lower savings balances. This trend is further compounded by deregulated savings interest rates