Young private lenders like IndusInd Bank and YES Bank have very low gross NPA ratios, a decent net interest margins (NIM), but still the growth story for these banks has been bleak. There is still one big area which these banks need to develop, the current account savings account (CASA) deposits.
Banks generally prefer to keep a higher CASA than their total deposits. This is because the costs associated with such funds are lesser than other deposits like term deposits.
YES Bank's current CASA as a ratio of total deposits stand at 15%, while that of IndusInd is 27.30%. Compared with bigger private banks like ICICI Bank, which has a CASA ratio of 43.5%, HDFC Bank's 48.4% the numbers for the two banks don't sound encouraging at the moment.
But the deregulation of interest rates by RBI has given an impetus to smaller banks, YES Bank in particular, which was the first to announce a hike in its interest rates. The move has reaped in benefits for the Mumbai bank; it grew its CASA ratio from 11% to 15% in the last two quarters of FY11.
The move was also followed by four private banks including IndusInd Bank, but YES Bank bettered the interest rates offering again, and now offers maximum interest rate of 7% on deposits of Rs. 100,000 amongst Indian banks.
Hinduja Group backed IndusInd Bank saw a minor increase in its savings bank deposits, which increased from 8.6% to 11.1%, CASA remaining more or less same. YES Bank on the other hand saw its savings bank deposits increased by 206% over the year. The CASA ratio for YES Bank improved from 11% to 15%.
Opening of new branches is another important instrument to increase the CASA ratio, the banks, which will improve the distribution capacity. IndusInd plans to add 300 new branches to its current 450 by the end of FY13. YES Bank, which had initially a target of 750 by March 2015, has revised it to 900. The bank currently has 356 branches.