Banking system low-cost deposits could decline further, says SBI chairman Setty

Mumbai: The share of low-cost deposits in the banking system could decline further and go below the levels seen before covid-19 on the back of efficient cash management by the government, the chairman of India’s largest lender State Bank of India (SBI) C.S. Setty said.

Setty was referring to current and savings account (Casa) deposits of banks which typically are priced less than term or fixed deposits. To be sure, current account deposits do not earn interest. In the past few years, the government—a major source of current account deposits—has changed the manner in which it releases funds for various schemes, moving to a model where funds are sent only when they are required.

“I was just looking at our (SBI’s) numbers again which is a proxy to the Indian banking system. The pre-covid level Casa ratios were at 40%, whereas it built up to 45% post-covid; obviously, it is going back to 40% and it may further go down if the efficient cash management, just-in-time cash management of the government comes into picture," Setty said at an event in Mumbai.

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According to Setty, who took over as SBI charman after Dinesh Khara retired last month, a lot of small businesses would still like to be formalized and become part of the banking system, which is an opportunity for the lender. “They may be keeping cash…,” said Setty.

Casa ratio

SBI’s Casa ratio stood at 40.7% as on 30 June, down from 42.9% from the same period last year. Its loan book expanded by a robust 15.4% year-on-year, outpacing deposit growth of 8.2% in the June quarter.

On 1 August, Mint reported SBI managing director Ashwini Kumar Tewari saying that although the system-level Casa ratio is about 40%, the actual share of low-cost deposits with banks is just over 30%, considering the sweep facilities (where funds are automatically transferred from one account to another) and high savings rates on certain deposits.

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Banks have been battling a deposit crunch as credit growth continues to outpace deposit growth. However, the gap between the two is now narrowing. Mint reported on 16 September that the difference between non-food credit and deposit growth shrank from 311 basis points on 26 July to 275 bps on 23 August, latest data from the Reserve Bank of India (RBI) showed. While credit grew 13.6% year-on-year as of August-end, deposits expanded 10.8% in the same period.

On deposit growth, Setty said that one must not look at data for the last one or two years but go further back.

“The challenge came when credit growth overtook deposit growth. It is not that deposits are not growing. If you see in absolute numbers, the deposits had a 58% growth in the last five years, while credit grew 56%,” said Setty.

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