MUMBAI: Banks are unlikely to get any respite from declining current account-savings account (CASA) ratio in the first half of the current calendar year. Bankers do not expect any improvement in CASA ratio in near term as high interest rates on fixed deposits will keep attracting funds from current and savings accounts.
“The gap between interest on term deposits and saving accounts has increased too much. So, a part of the amount lying in savings account has moved to term deposits,” said Atul Kumar Goel, MD and CEO, Punjab National Bank, in an earnings call. “Customers who do not need funds immediately would like to move some money from savings account to term deposits, so the pressure is expected to remain on CASA ratio,” he added.
Banks prefer to keep high level of current and savings accounts as these are sticky and cheap source of funds for them. Investors also keep a close watch on banks’ CASA ratio as a higher ratio indicates that the cost of funds of a bank is lower, which helps in boosting its earnings.
Tight liquidity conditions in the banking system coupled with high demand for loans compelled lenders to offer high rates on FDs. Faced with high credit demand and tight liquidity, banks tried to attract depositors by offering high-interest rates on FDs. Smaller banks gave stiff competition to mid-size and large banks by hiking FD rates. As a result of a fierce competition among banks, the interest on FDs crossed the 9% mark last year.
Experts say that banks are under pressure to mobilise deposits to fund high credit demand which means that FD rates are unlikely to decline anytime soon. Funds will continue to move from low-paying CASA to high-yielding FDs, say bankers.
“The Reserve Bank of India has kept the liquidity tight in the banking system. We do not expect any significant improvement in liquidity unless the central bank sees sustained decline in inflation,” head of retail banking of a private bank told FE.
“Amid this tight liquidity banks, there will be stiff competition among banks to raise deposits. I do not expect any chances of FD rates coming down in next two quarters,” he added. He added that the credit demand will be high in fourth quarter and the first quarter of the next fiscal, which will put additional pressure to raise deposits to fund their loan growth.
Source: The Financial Express
