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Banks' Savings Deposits Plummet: Savers Chase Higher Yields
1 Dec
Summary
- Combined CASA for PSU and private banks dropped to 36.38% in Q2 FY26.
- Customers are actively seeking higher yields in term deposits and bonds.
- Experts believe the worst of CASA compression is behind banks.
The Indian banking sector has witnessed a broad-based compression in Current Account Savings Account (CASA) deposits over the last 8-10 quarters, primarily influenced by interest rate cycles. In Q2 FY26, the combined CASA position for 29 public sector and private sector banks averaged 36.38%, a notable decrease from previous years. This decline is attributed to customers actively chasing higher yields, moving funds from low-interest savings accounts to term deposits, equity markets, and mutual funds.
Experts attribute this shift to the "real financialisation of savings," where retail and affluent customers are no longer content with minimal returns on savings accounts. Instead, they are optimizing yields by exploring alternatives like bonds, which offer better visibility and higher returns. The current credit-to-deposit ratio further indicates that deposit growth is not keeping pace with lending, compelling savers to be more deliberate in their investment strategies.
While public sector banks generally maintain higher CASA ratios, both categories have seen compression. However, there are signs of recovery, with experts believing the worst is over as term deposit rates begin to correct. Banks are now focusing on innovative strategies to build sustainable liability franchises amidst increasingly savvy savers, anticipating a slow but upward trend in incremental CASA growth.
