The CASA ratio, which measures the share of low-cost CASA deposits, experienced a decline year-on-year by 40-730 basis points (bps) for banks reporting their Q4 FY24 earnings. This decline occurred despite sustained high deposit rates due to tight liquidity conditions and robust demand for credit, particularly in retail and unsecured loans.
Here are some key points:
- Private Banks vs. PSU Banks:
- As of December 2023, private banks saw a year-on-year decline of 393 bps to 38.7% in CASA ratios, while PSU banks declined by 187 bps to 38.5%. This decline impacted lenders’ margins.
- Sequential CASA ratios remained stable or slightly improved in the final quarter due to increased deposit accumulation and proactive efforts by banks to attract granular deposits.
- Kotak Mahindra Bank recorded the highest year-on-year decline of 730 bps in CASA ratio, driven by increased term deposits and adoption of the ‘ActivMoney’ liability product.
- HDFC Bank also saw a significant decline of 600 bps due to the merger with erstwhile HDFC in July 2023.
- Mid-sized banks such as Federal Bank and IndusInd Bank experienced a quarterly decline in CASA ratios, while smaller banks like South Indian Bank and DCB Bank maintained steady CASA ratios by moderating loan growth given stretched loan-to-deposit ratios (LDR).
- Yes Bank saw an increase in CASA ratio both year-on-year and quarter-on-quarter due to aggressive deposit mobilization efforts.
- Challenges and Outlook:
- Most banks anticipate continued pressure on deposit mobilization for at least two more quarters before normalization in the latter half of the fiscal year.
- The decline in CASA ratios accelerated in the first half of the financial year as investors shifted towards higher-yielding term deposits and alternative investment avenues.
- Analysts expect potential rate cuts later in the year, which could drive funds back into the banking system and improve CASA ratios to some extent.
- Deposit growth for FY25 is projected at 13.0-13.5%, with credit-to-deposit ratio exceeding 81%.
In summary, the decline in CASA ratios reflects the challenges faced by banks in balancing term deposits and low-cost CASA deposits. As the banking landscape evolves, strategies to attract and retain granular deposits will play a crucial role in maintaining healthy CASA ratios.
Remember that CASA deposits are essential for banks as they provide stable funding and contribute to overall profitability. The dynamics of CASA ratios will continue to be closely monitored by industry experts and policymakers.