Page 31 - BANKING FINANCE APRIL 2024

ARTICLE

Understanding the CASA Challenge: slower growth at 5.0%, Current account saw a robust
growth of 11.9%, however an uptick of 4.9% in savings
CASA is the lifeline for any bank, as it comprises the deposits
account slowed the overall CASA uptick to 6.4%.
in current and savings accounts, which typically carry lower
interest rates compared to fixed deposits. Public sector
banks in India often find themselves grappling with a lower Focus on Innovative Deposits for Low-

CASA ratio, leading to a higher cost of funds. The CASA Cost Funds:
challenge is multifaceted and can be attributed to factors
Finance Minister Nirmala Sitharaman has instructed state-
such as fierce competition, changing customer preferences,
run bank executives to concentrate on creative deposit
and technological disruptions in the banking sector.
mechanisms in order to raise lower-cost resources to meet
their financing needs, since public sector banks are losing
SCBs term account deposits rose 17.4% y-o-y in Q1FY24 vs.
market share in current and savings accounts. What has
8.2% in the year-ago period due to a rise in interest rates
compounded the problem for public sector banks is their
on deposits driven by elevated inflation. (This is the highest
decision to lower the interest rate on savings bank deposits
growth seen in the last 5 years) Term deposits outperformed
at a time when some of the private banks have opted to
other segments by a wide margin, impacted due to a rise in
offer higher rates to corner a bigger share of this business.
interest rates. In absolute terms, it increased by Rs.20.6 lakh
crore from June 2022 and reached Rs.185.3 as of June 30,
Public sector banks have recently lost out to their private
2023. Saving account deposits witnessed a moderate growth
sector competitors on salary accounts belonging to major
of 4.9 % y-o-y in Q1FY24 vs 10.5% over a year ago period.
corporations. The government's shift to "just in time" cash
In absolute terms, it increased by Rs.2.8 lakh crore in
release has contributed to the decline in the proportion of
Q1FY24 over Q1FY23 and reached Rs.59.6 lakh crore as of
CASA, and state-run players are attempting to offset this
June 30, 2023.
by pursuing current account balances of medium-sized firms.
Partnerships with exchanges and other sources have aided
The segment lost market share by 240 bps y-o-y in Q1FY24
private sector lenders like HDFC Bank in mobilizing a solid
and held a share of 32.2% of the total deposits as of June
base of CASA deposits.
30, 2023. Current and savings accounts reported lower
growth compared to the previous year in the same period.
PVBs deposits saw a healthy growth of 16.8% in Q1FY24 due Strategies to tackle CASA Challenge:
to aggressively increasing deposits from the market to meet Customer- Centric Approach:
the credit demand. In addition, offering higher interest rates Public sector banks need to adopt a more customer-centric
on saving accounts helped them to outperform PSBs (10.6%). approach to attract and retain account holders. Offering
Compared to Q4FY20, PVBs saw a huge outperformance due
to attractive Interest rates offered specially on CASA
deposits.

In terms of deposits market share, PVBs accounted for a
33.6% share gaining 122 bps y-o-y in Q1FY24, whereas PSBs
held a 60.6% share, losing 107 bps y-o-y. PVBs have been
continuously gaining market share due to aggressive
acquisition of clients and offering better services. In absolute
terms, CASA rose by Rs.4.6 lakh crore in Q1FY24 reaching
Rs.77.2 lakh crore as of June 30, 2023. PVBs and PSBs
expanded their CASA by Rs.2.4 lakh crore and Rs.2.2 lakh
crore, respectively during the quarter. SCBs CASA rose by
6.4% y-o-y primarily driven by PVBs. PVBs reported a CASA
growth at 9.9% y-o-y in Q1FY24, whereas PSBs reported a

28 | 2024 | APRIL | BANKING FINANCE