Why are Indian banks facing a CASA deposit shortage?

Savers are moving funds from low-cost CASA accounts to market investments offering higher returns in the current high-rate environment.

What are Certificates of Deposit (CDs) and why are banks using them more?

CDs are short-term borrowings banks use to fund loan demand when CASA deposit mobilization is slow, though they are more expensive than CASA deposits.

How does the declining CASA ratio affect Indian banks like HDFC Bank and ICICI Bank?

A lower CASA ratio increases banks' cost of funds, potentially impacting profitability as they rely on pricier borrowing methods.

Home / Business and Economy / Indian Banks Face Deposit Drain, Seek Costlier Funds

Indian Banks Face Deposit Drain, Seek Costlier Funds

20 Jan

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Summary

Savers shift funds from low-cost bank deposits to market investments.
Banks increasingly rely on expensive short-term borrowing like CDs.
CASA ratios decline as loan growth outpaces deposit mobilization.

Indian Banks Face Deposit Drain, Seek Costlier Funds

Indian banks are confronting a growing challenge as depositors increasingly move their funds from traditional savings and current accounts to market-driven investments that offer better returns. This migration away from low-cost CASA (current account-savings account) deposits is compelling banks to seek alternative, more expensive funding sources, such as Certificates of Deposit, to maintain their lending operations.

The decline in CASA ratios signifies intense competition for deposits and a structural shift in household savings preferences. Banks like HDFC Bank and ICICI Bank have reported decreases in their CASA ratios, reflecting sector-wide pressure. This reliance on costlier, short-term borrowing methods to bridge the gap between deposit mobilization and robust credit growth could impact overall profitability if deposit growth remains sluggish.