CASA share in banks's deposits falls in Q4 amid high term deposit rates

The CASA (current account and saving account) ratio, which measures the share of low-cost CASA deposits, declined year-on-year by 40-730 basis points (bps) for banks reporting their Q4 FY24 earnings. This decline occurred amid sustained high deposit rates due to tight liquidity conditions and robust demand for credit, particularly in retail and unsecured loans.

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%, impacting lenders’ margins.

Despite this, 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.

The matrix

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).

However, Yes Bank saw an increase in CASA ratio both year-on-year and quarter-on-quarter due to aggressive deposit mobilisation efforts. Most banks anticipate continued pressure on deposit mobilisation for at least two more quarters before normalisation 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. However, larger banks like ICICI Bank and Axis Bank managed to regain some lost share in the latter half.

Analysts anticipate 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%.