Chart of the Day: CASA deposits to make banks sweat

Low-cost CASA deposits of banks

CASA ratio of banks in Q1 have plummeted

If the first quarter results of banks are anything to go by, low-cost deposits would be hard to come by for lenders. Of the eleven odd banks that have released their quarterly performance, ten reported a fall in current account and savings account (CASA) deposits. Banks of all sizes, big, mid-sized and small, reported a fall in CASA deposits. A loss of low-cost deposits spells trouble for margins in the coming quarters. To be sure, banks had anticipated the fall. Bankers have said that customers have migrated their balances from CASA to term deposits, given that the latter offered higher interest rates. The gap between the interest rate on CASA and a term deposit has widened as deposit rates have been hiked to attract funds.

Though banks of all sizes were hit, the size and heft did matter. Small banks showed a steep fall in CASA ratio while large lenders such as HDFC Bank and ICICI Bank showed a modest reduction. As a result of this, banks have indicated that margins may come under pressure in the coming quarters.

One bank reported an increase in its CASA ratio—Axis Bank. What helped the lender is its acquisition of Citibank’s retail business. Cross sell opportunities to Citibank credit card customers seems to have netted Axis Bank some much needed deposits. It remains to be seen whether the lender would be able to sustain this.

At the industry level though, the first quarter was bad news for banks in terms of low-cost deposits. While some lenders have taken measures to attract CASA such as launch of specialised products, others have offered a tiered interest rate structure wherein higher balances in savings account pay higher interest rates. For banks to continue expanding the asset side of their balance sheet without hurting margins, the growth in CASA is critical. But the next two quarters look painful on this front.