The anatomy of falling bank deposits—and how to arrest it

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Understanding the reasons behind this shift and implementing systemic measures to reverse the trend is crucial for the banking sector’s future.

Factors affecting CASA and deposit growth

CASA balances are shaped by gross inflows versus outflows, with the velocity of these flows being a key factor. Economic activity also heavily influences deposit growth, with more money routed through banking channels during economic upcycles. This typically leads to more accounts being opened at the grassroots level. Encouraging savings as a habit, particularly when the economy is growing steadily, can further fuel this growth.

In today’s digital age, savings accounts mirror current accounts in terms of transactions, driven by technologies like RTGS, NEFT, IMPS, and UPI/QR-based banking. Some banks are actively pursuing higher CASA growth to gain market share, while others are struggling to attract new depositors.

Decoding the slow growth in CASA and deposits

Several factors contribute to the current slowdown, with a key trend being the shift in saving and spending habits. 

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Customers, particularly Gen Z and millennials, are shifting their capital toward riskier investments and personal credit, resulting in lower savings balances. This trend is further compounded by deregulated savings interest rates and higher customer acquisition costs, making savings accounts less attractive.

In addition, banks have not focused enough on innovating deposit products, instead directing resources towards enhancing their digital payment systems, leaving savings products behind in terms of appeal.

Reversing the decline: Systemic solutions

Even as fewer people visit branches, physical bank locations are still seen as necessary. To engage customers, banks, therefore, need to offer more tailored products and services. This could involve improving the in-branch experience, redesigning digital banking interfaces for better user experiences, and enhancing digitally-enabled interactions.

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To stem the outflow of CASA customers, banks should focus on easing KYC processes, improving grievance redressal mechanisms, and continuously innovating products. Regulatory support could also be pivotal, with suggestions including Priority Sector Deposits aimed at senior citizens, women, and semi-urban and rural markets, as well as incentivizing banks to meet granular deposit targets.

Other potential remedies include:

Deregulating the savings interest rate

Raising the Deposit Insurance and Credit Guarantee Corporation (DICGC) cover to ₹10 lakh for CASA accounts

Reviewing fiscal provisions on TDS and increasing the threshold for tax-free interest on deposits

Banks should also focus on encouraging longer-term deposits, as frequent fixed deposit (FD) rollovers place a heavy burden on customers. Protecting depositors from interest rate fluctuations tied to REPO or short-term FD rates is essential. The industry must shift from offering product variants to creating segment-specific programmes that address pricing, product features, service architecture, relationship management, and value-added services.

Learning from mutual funds

Much like the domestic Mutual Fund (MF) industry has thrived by offering Systematic Investment Plans (SIPs) and Systematic Withdrawal Plans (SWPs), the banking sector could benefit from making CASA deposits more attractive. 

Also read | Domestic MFs gain ground, FIIs losing the plot

A particular focus on savers—such as senior citizens and women—could be key to driving growth. Structural reforms and a strategic shift are needed, but these changes could lead to the next wave of deposit growth across India’s banking landscape.

(The author is country head, SME Banking, Business Equipment & Healthcare Finance, Yes Bank)