Private bank current account deposits growing at cost of PSBs

Private sector banks are ahead of state-run lenders in terms of current account. However, they are much behind their peers in state-run lenders in terms of savings deposits.

The reason is not far to seek. Private sector banks' focus has always been the urban areas, whereas, the state-run lenders, that are already burdened with lots of social banking activities like Pradhan Mantri Jan Dhan Yojana, have performed quite well on the savings front, which comprises CASA.

To elaborate it, private banks continue to gain share with gains much more in current as compared to term or savings deposits.

Interestingly, it is at a time when deposits are slowing across markets. A deep dive into annual analysis of deposits based on RBI's recent publication shows that growth has slowed across geographies and deposit providers.

Deposit growth through CASA has been higher than trend levels and ratios are likely to reverse as the push for gathering deposits accelerates. Private banks continue to gain share with gains much more in current as compared to term or savings deposits. Duration of term deposits continues to decline.

The RBI's recent release on deposits speaks volumes on this. Deposit growth has slowed to 10 per cent YoY with perceptible slowdown in all markets (metropolitan, semi-urban and rural India) with household savings being relatively weak. It is the second consecutive year with slow branch expansion at less than 1 per cent CAGR.

Private banks continue to gain market share, but their dominance is much more in urban markets as compared to rural and semi-urban markets. CASA deposit has slowed although the ratio has moved up higher to 45 per cent led by higher savings ratio in recent years. However, analysts are seeing this slowdown in all geographies. Private banks have increased their market share in current account and in the corporate segment, while public banks have been losing share steadily in the household and government sectors, and duration of term deposits continues to fall, especially post Covid and the share of non-individuals is quite high at 45 per cent of the overall term deposits.

CASA deposits have been growing at a much faster pace than term deposits partly driven by slower demand for deposits as loan growth has been slow or probably due to excess savings during the Covid period.

As loan growth recovers, we are likely to see a greater push towards mobilizing deposits, which implies that the competition would shift from CASA deposits to term. A Kotak study has observed that the tendency to hold in CASA has been higher in recent years across geographies, banks and by different deposit holders as well. This behaviour by depositors could change.

Finally, given the nature of deposits where non-individuals have a higher share in term deposits, the duration of these deposits has declined, but it raises concern as it is likely to be sensitive as interest rate reverses.