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Event Note : Savings bank deposit rates may be freed

Event: The Reserve Bank of India may soon set up a working group to look into
the issue of deregulation of savings bank interest rate.

Impact: Banks with lower CASA base may hike SB rate to lure more depositors.
Competition may eat up NIM by few basis point as it will make blended average
cost of funds to inch higher for banks. However if more depositors are to opt for
savings bank ac instead of putting their money in other asset classes, that may
act as a positive trigger for deposit growth which was lagging behind the credit
growth in the country for last couple of months. In another case, RBI may opt
for p
partial deregulation
g by
y fixingg a Cap
p & Floor on SB rate. Banks can also mop p
up slightly longer term funds by offering higher savings rate which is a positive
as it will increase the average duration of liabilities and will reduce ALM risk in
case the bank put more focus on long term financing like infrastructure
financing.

What is savings bank ac?

Savings bank account is the most common operating account for individuals and
others for non-commercial transactions. It helps people to put through day-to-
day banking transactions besides earning 3.5% return on the savings made.
Banks generally put some ceiling on the total number of withdrawals permitted
during specific time periods. Banks also stipulate certain minimum balance to be
maintained in savings accounts.

Credit demand slowing


due to higher base on a
Daily computation of fortnight basis. Due to
savings bank ac interest has rising interest rate and
been received well by the daily computation rule
depositors. Freeing up of bank deposits are
SB ac rate (if implemented) showing
h i the
h recent
is expected to help the growth.
depositors further.

Source: RBI, Microsec Research

Analyst – Abhisek Sasmal


033-3051-2000
asasmal@microsec.in Microsec Research reports are also available on Bloomberg <MCLI>

8th September’ 2010 Microsec Research


Banks with low CASA & reasonable CDR may go for higher Savings deposit rate

Lower CASA base impedes banks in generating higher spreads over its cost of funds.
Banks with higher CASA base usually deployed their incremental deposits towards higher
yielding advances. We believe that further improvement in NIM for banks with high CDR
( 70%) & high
(>70%) hi h CASA (>30%)
( 30%) would ld be
b difficult
diffi lt as banks
b k would
ld need
d to
t invest
i t a partt off
their incremental deposits to meet the NDTL requirement of 25%.

Public Sector Bank CASA ratio NIM% Cost of liabilities CDR


FY09 FY10 FY09 FY10 FY09 FY10 FY09 FY10
Allahbad bank 34.60 34.50 2.21 2.18 6.06 5.32 69.2 67.52
Andhra bank 31.00 29.43 2.38 2.43 6.17 5.17 74.32 72.23
Bank of Baroda 29.60 29.65 2.25 2.13 5.03 4.23 74.84 72.62
Bank of India 26.76 27.80 2.44 2.10 5.45 4.81 75.33 73.33
Canara Bank 30.00 29.00 2.15 2.15 6.40 5.40 73.96 72.2
Central Bank 33.40 34.60 1.51 1.40 6.23 5.77 65.12 65
Corporation Bank 31.44 28.60 1.95 1.98 5.55 5.00 65 68
D
Dena B
Bankk 34 80
34.80 35 60
35.60 2 20
2.20 1 91
1.91 5 53
5.53 5 66
5.66 67 69
IOB 30.55 32.55 2.37 2.42 6.35 5.91 74.8 71.3
IDBI Bank 14.80 14.60 0.72 0.97 6.80 6.21 92 82.4
OBC 23.75 24.97 1.77 2.12 6.77 5.87 69 69
PNB 38.50 40.83 2.85 2.87 5.74 4.82 74 75
UCO 24.11 24.65 1.47 1.69 6.33 5.60 69 67
Banks with Lows CASA Union Bank 30.17 31.00 2.37 2.15 5.66 5.26 69 70
base and low CDR ratio j y Bank
Vijaya 24.00 24.62 1.80 2.06 7.46 6.03 65 67
are sure to increase
competition if the Private sector bank CASA ratio NIM% Cost of liabilities CDR
proposal goes through. FY09 FY10 FY09 FY10 FY09 FY10 FY09 FY10
Axis bank 43.15 46.73 2.50 2.77 5.38 4.20 69.48 74
Bank of Rajasthan 27.41 32.79 2.19 1.94 6.57 6.80 51 55
City Union Bank 18.90 21.86 2.62 2.41 6.85 6.60 69 66
Development credit bank 31.00 35.40 3.32 2.31 8.97 6.17 70.5 72.3
Dhanalaxmi bank 24.30 21.86 2.16 1.74 5.77 5.50 64.3 70.53
HDFC Bank 44.40 52.00 4.05 3.77 6.12 4.48 69 75.2
ICICI Bank 28.70 41.90 2.21 2.23 7.30 5.94 99 89.7
Indusind Bank 19.24 23.70 1.66 2.51 7.72 6.00 71 77
ING Vysya Bank 27.00 32.50 2.04 2.45 5.66 4.75 67 72
J&K Bank 38.11 40.61 2.65 2.63 5.85 5.05 63.4 61.9
Karnataka Bank 19.95 23.26 2.07 1.24 7.10 7.09 58 61
Kotak Mahindra Bank 33 00
33.00 31 00
31.00 5 30
5.30 4 96
4.96 6 91
6.91 4 65
4.65 NA 87
Lakshmi Vilas Bank 16.88 17.22 1.85 2.40 6.82 7.15 71.3 69
South Indian Bank 23.80 23.13 2.57 2.23 6.35 5.94 65.5 68.8
YES Bank 8.73 10.52 2.22 2.20 8.13 5.40 76.7 82.7

Source: Bloomberg, Microsec Research

8th September’ 2010 Microsec Research


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