Small pvt banks likely to ride savings deposit deregulation | india | Hindustan Times
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Small pvt banks likely to ride savings deposit deregulation

Small- and mid-sized banks, which have low current-account savings account (CASA) ratios, may take the lead in hiking the rate of interest on saving deposits in order to attract low-cost funds, putting pressure on the big players to follow suit.

india Updated: Oct 25, 2011 23:15 IST
HT Correspondent

Small- and mid-sized banks, which have low current-account savings account (CASA) ratios, may take the lead in hiking the rate of interest on saving deposits in order to attract low-cost funds, putting pressure on the big players to follow suit.

Private sector Yes Bank was the first off the block, increasing the interest rate on its savings deposits by 2 percentage points to 6%. The rate was 4% before it was deregulated on Tuesday.

"We have offered interest rate that have real value for our customers,” said Rana Kapoor, founder and managing director, Yes Bank. “We want to increase our CASA ratio to 30% (from the present 11%) by the end of 2015,” he said.

In the near term banks are likely to link saving deposit rates to term deposit having maturity of 15 days-45 days, which yield about 5% interest now.

"Banks with low CASA ratio will be aggressive in hiking rate to get access to low cost funds,” said a senior official of a mid-size private sector bank.

Experts believe private banks will be in better position to absorb the higher cost of deposits. “Compared to public sector banks, the private ones will be less impacted by the hike in saving deposit rates because of their efficieny,” said Rajiv Mehta, banking analyst, India Infoline.

Rising saving deposit rates will put pressure on the profit margins of banks — especially on the big banks.
Showing the concerns, shares of big players that have high CASA ratio such as State Bank of India, HDFC Bank, Punjab National Bank, Bank of India, Bank of Baroda, Axis Bank fell around 2-4% on Tuesday on the Bombay Stock Exchange.

However, bankers believe the impact on their profit margins would not be significant.

“Even if the interest rate on savings bank deposits rises by 1 percentage point, the impact on profit margins would be less than 0.25 percentage points,” Aditya Puri, managing director, HDFC Bank told Hindustan Times.