Private sector banks cut rates for savings deposits

Having improved their ratio of low-cost current and savings accounts (CASA) in the past six years, new age private sector banks are now rationalising their deposit rates by steadily raising their deposit slabs, which is likely to help them improve margins from here on. IndusInd Bank, Yes Bank and Kotak Mahindra Bank have either fully or partially tweaked their savings rates since September after seeing a sharp rise in CASA ratio since the RBI allowed banks to set their own savings rate in October 2011. 


For example, effective September 1, IndusInd Bank cut its minimum savings bank rate to 4 per cent from 5 per cent. Deposits above 10 lakh, which were earning 6 per cent earlier, are now yielding 5 per cent, while only deposits above Rs 10 crore earn 6 per cent interest. “The rationalisation is linked to the lower interest rates,” said Sumant Kathpalia, head, consumer banking at IndusInd. “Our minimum rate at 4 per cent is still higher than the 3.5 per cent offered by large lenders. The only thing we ensure is that there is at least a 100 to 150 basis points difference between the fixed deposit rate and savings rate. So, if my one year fixed deposit is giving 6.50 per cent to 6.75 per cent, my savings rate should be around 5.25 per cent to 5.50 per cent. As a result, our average cost of funds is down 50 to 60 basis points.” 

One basis point is 0.01 percentage point. Lenders like IndusInd followed larger peers like State Bank of India, HDFC Bank, Punjab National Bank and Axis Bank, which reduced their minimum savings rate to 3.5 per cent from 4 per cent in August. 

Private sector Yes Bank also cut its savings rate of deposits up to Rs 1 lakh to 5 per cent from 6 per cent and for deposits above Rs 1 crore to 6.25 per cent from 6.50 per cent effective September 1. Kotak Mahindra, however, kept most rates unchanged, reducing the rate of savings bank deposits between Rs 1crore and Rs 5 crore to 5.5 per cent from 6 per cent, effective August 4. 



All these lenders have seen a sharp increase in their CASA ratio since September 2011. IndusInd’s CASA has increased to 42 per cent of deposits from 28 per cent in September 2011, Yes Bank’s CASA has increased to 37.2 per cent from 11 per cent while Kotak’s CASA is up to 47.8 per cent from 26 per cent. “All these banks had a target of achieving 40 per cent CASA, so it’s logical that they cut back now. However, what benefit they get on their margins will depend on many factors like competition, loan demand etc,” said Alpesh Mehta, analyst at Motilal Oswal. 
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