Banks’ current account and savings account (CASA) deposits declined by Rs 5,900 crore during the first nine months of the current financial year, compared to an increase of Rs 42,000 crore in the same period last year, as depositors shifted their funds into high-yield fixed deposits.
According to Reserve Bank of India data, low-cost CASA deposits fell from Rs 83.50 lakh crore at the end of March 2024 to Rs 83.44 lakh crore in December 2024. In contrast, CASA deposits had risen from Rs 78.27 lakh crore at the end of March 2023 to Rs 78.69 lakh crore by December 2023.
Meanwhile, fixed deposits grew nearly 10% in the first nine months of the current fiscal as banks increased interest rates to attract customers amid a liquidity crunch.
“A behavioural shift is witnessed because of higher interest rates that term deposits offer,” said Vinay Tonse, managing director, SBI. “And it is observed that whenever there is a gap between the savings bank interest rate and term deposits because of the higher interest-rate scenario, naturally there is a shift, there is a temptation for the balance holders to shift to term deposits. That is exactly what we are seeing.”
While banks are struggling to mobilise CASA deposits, they have registered a healthy growth in fixed deposits as customers chase higher rates. Fixed deposits have increased to Rs 134.2 lakh crore as of December 2024, from Rs 122.6 lakh crore as of December 2023. Last year, fixed deposit grew by 14% to reach Rs 117.6 lakh crore as of December 2023.
Over the past one year, banks have seen the CASA ratio declining as depositors moved their funds to high-yield fixed deposits. With liquidity being tight, banks have hiked fixed deposits rates to mobilise funds to drive the credit growth. In the third quarter results, most of the banks witnessed year-on-year declines in CASA deposits.
Banks prefer to keep a high level of CASA as these are sticky and a cheap source of funds for them.
Experts expect improvement in deposit mobilisation in the next financial year. “Banks are expected to see an improvement in CASA mobilisation starting next financial year as we enter a rate-cut cycle. The interest rate gap between CASA and fixed deposits will narrow as banks are likely to lower rates,” said the head of liabilities of a private bank.
The RBI cut the repo rate by 25 basis points in February. The central bank is seen reducing rates further by 50-75 bps in the next financial year. This will lead to a reduction in interest rates offered on fixed deposits by banks.