Current, savings deposit chase tougher 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 don’t 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 rates—that too for shorter tenures—savers 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 funds—which effectively means withdrawing money from banks—to 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

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