With a surge in loan growth outpacing deposit inflows over the past year, banks are grappling with a shortfall in deposits. The average credit growth stands at an impressive 15-16%, primarily propelled by personal loans and loans to shadow lenders, while deposits have lagged slightly at around 12-13%. To counter this trend, many banks have increased interest rates on deposits, but credit deposit ratios (CDR) are reaching unprecedented levels.
In the December 2023 quarter, HDFC Bank reported a remarkable 62% year-on-year surge in advances, overshadowing a modest 28% year-on-year growth in deposits. This discrepancy poses challenges, particularly as savers increasingly favor term deposits, causing banks to lose out on the cost-effective current account and savings accounts (CASA).
Union Bank of India experienced a moderation in the CASA ratio to 34.4% in Q3FY24, down from 34.66% in Q2FY24 and 35.35% a year ago. Nidhu Saxena, Executive Director at Union Bank, noted heightened competition for CASA, with a discernible shift from CASA to fixed deposits and a migration of funds from bank deposits to stocks.
Addressing the evolving landscape, Sandeep Batra, Executive Director at ICICI Bank, acknowledged the industry-wide trend of slower CASA growth and anticipated its trajectory over the next year as monetary policy eases.
To counter the deposit challenges, banks are actively working to expand their retail deposit franchises. HDFC Bank, for instance, has successfully encouraged nearly 65% of its new mortgage loan customers to open a CASA account. Union Bank is strategically focusing on its salaried customer base to enhance the low-cost CASA book, employing agents to engage with clients and mobilize deposits.
Consultants are being brought on board to encourage customers to maintain higher balances with the bank. HDFC Bank has undertaken a significant branch expansion strategy, adding 908 branches in the last 12 months, with plans to add nearly 1,000 branches annually, aiming to grow its branch network from around 8,091 to over 13,000 branches in the next three to five years. RBL Bank is also concentrating on granularizing its deposit base by leveraging its extensive branch network and business correspondent branches for retail deposit mobilization.
