Banks to increase profits plan to expand savings accounts biz

Commercial banks with of view to increase their profits and bottom lines have started moving towards CASA (current account saving account). Earlier the banks were only interested in big ticket high cost deposits.

The Indian bank has this year cut down in its high cost deposit portfolio significantly. MS Sundara Rajan, CMD, Indian Bank informed, "We have shed close to Rs 2,200 crore high cost deposits this fiscal and we would not be renewing high cost deposits that come up this month".

Out of the total deposits organized by bank for the last fiscal year (2007-08) the high cost deposits stood at 11%. However bank is trying to bring this down to less than 7% by the end of the current fiscal. Rajan explained, "The need of the hour is to bring down the cost of deposits. We have to reduce costs and improve yields".

Likewise, Indian Overseas Bank is also concentrating on CASA. YL Madan, ED pointed out, "When it comes to quoting rates on high cost deposits, banks are not that aggressive now". On high deposits 7.5%-8%, interest rate is offered while on saving accounts only3.5% interest is given. But bankers are of view that ultimately borrowers are going to be the achievers as lending rates are falling.

In metro cities people prefer terms deposit as compared to CASA. Therefore banks are seeing towards semi-urban and rural branches for attaining growth in CASA. For instance, Vijaya Bank has got approval for 89 new branches to be opened this year besides have 11 old licenses thus is expecting higher CASA contribution from new branches especially those in semi urban and rural areas.

Moreover the smaller banks whose big source of income comes from term deposits are also looking at CASA. VS Reddy, MD, Lakshmi Vilas Bank told, "While in case of term deposits, the asset liability management becomes easier on account of time period involved, CASA provides greater profitability even though it’s a violently fluctuating portfolio".

At present about 15% of the bank's total deposits is obtained by CASA and it is believed that this figure may move up to 18% by end of next fiscal (2009-10). With a view to strengthen its CASA base, Lakshmi Vilas Bank has launched two new savings bank and current account products.

Indian Overseas Bank has planned to expand its CASA base by making use of mobile and net banking and ATM facilities. Currently Indian Bank is increasing new accounts through a current and saving account campaign. Rajan informed, "We can't depend on walk-in customers anymore". From last month bank has introduced a HNI (high net worth account campaign) and has plans to mobilize one lakh new accounts soon. Though in the last quarter people when banks were offering 10% interest rate on FDs rates people had move their funds from savings account to FDs.