Banks are stepping up efforts to grow current account and savings account (CASA) deposits, in a bid to protect margins amid a competitive deposit environment. Data collated from Capitaline show that the average CASA ratio of 28 banks rose marginally to 36.27% in the July–September quarter, from 36.04% in the previous quarter. In the year-ago period, the ratio stood at 37.45%.
In post-earnings calls, most bankers indicated that margins might have largely bottomed out. They said margins are likely to improve in the coming quarters as deposit costs begin to stabilise and get repriced. CASA deposits — being low-cost in nature — help reduce the overall cost of funds and support better net interest margins (NIMs).
Federal Bank, for instance, consciously rationalised its wholesale and financial sector deposits to improve the quality. “That’s a conscious choice to strengthen the quality and not just the quantity of deposits,” said KVS Manian, managing director and CEO, during the post-earnings analyst call. The bank’s average CASA ratio improved by over 120 bps year-on-year and by 100 bps sequentially.
IndusInd Bank continued to focus on retail deposit mobilisation while reducing its dependence on wholesale funds. “We let go of a lot of wholesale deposits during the quarter to accelerate our retailisation journey and focus on low-cost deposits,” said Rajiv Anand, managing director and CEO, during the post-earnings media interaction.
Of these 28 banks, 17 are private and the rest are public sector banks (PSBs). For private sector banks, the CASA ratio inched up to 34.83% as on September 30, from 34.33% a quarter ago. For PSBs, however, the ratio eased slightly to 38.49% from 38.68%.
Data show that the average net interest margin (NIM) of the 28 banks moderated by 7 basis points (bps) sequentially to 3.46% in Q2. The NIMs of private sector banks declined 9 bps to 3.82%, while PSBs reported a 5-bps fall to 2.90%.
With several banks rebalancing their deposit mix and improving CASA accretion, analysts expect net interest margins to stabilise and gradually improve in the coming quarters as the impact of deposit repricing tapers off.
“As repricing effects normalise, margins are expected to stabilise, supported by significant equity infusion, extraordinary gains, improving liquidity conditions and a gradual easing in funding costs,” CareEdge Ratings said in a recent report.