Banking Future

7/28/2019 Banking Future

1/33

1

Executive Summary

RBI in its monetary policy on 25th Oct 2011 deregulated the Savings Bank Account Interest rate

with immediate effect. Till 24th Oct 2011 the interest rate on Saving Account was fixed at 4%.

The deregulation could have significant impact on banking industry and particularly the banks

with high Current Account Saving Account (CASA) ratio, as the cost of funds are bound to go

up because of rise in interest rates on Savings Account.

Smaller banks with lower CASA ratio will try to mop up deposits by offering higher rates on

Savings Account to customers as a result of which the larger banks will also follow the suit to

keep their customers intact. This study is carried out to do the comparative analysis of saving

account interest rate deregulation impact on small private sector bank i.e. Yes bank, Kotak

Mahindra &Indusind Bank with other commercial bank like Axis bank.

From the study I got to know that Quick actions of banks who have lower casa ratio to increase

saving interest rate to attract new depositors and improve casa ratio will have significant impact

for short term but once the casa ratio will increase such with Industry level then such move will

not positively impact and according to conducted research the high Interest rate is not primary

factor for the customer to open an account with the bank but Banks Brand, Trust , influence from

family members are some of the major factors customer will look in bank to be long term

customer of the bank.


2/33

2

Indian Banking Industry:

The banking industry plays a major role in representing the financial system in India. It works as

an intermediary between individuals, the government, financial institutions and other

stakeholders who directly or indirectly get affected by the industry. During 2011-12, the Indian

banking industry faced major concerns in regards to deteriorating asset quality, with gross non-

performing assets (NPAs) of banks registering a sharp increase in different sectors such as

aviation, infrastructure and power.

However, in 2012-13 banks have started focusing on lending to more profitable segments such as

retail and small and medium (SMEs), improving risk management policies and effective

monitoring In the near the future, the Indian banking industry is expected to see consolidation in

the wake of future economic growth, changes in banking regulations and increase in competition

from foreign banks Technological innovation and especially mobile banking have paved the way

for dramatic growth in the industry in the coming years

The growth story of banking during the last decade has been spectacular and beyond the

consistent double digit growth. The key trends were strong regulatory framework, use of

multiple channels and technology, strong customer oriented banking services and a growing

economy Although the past couple of years have witnessed a slowdown in the face of high

domestic inflation, depreciation of the rupee and the after-math of the crisis in US and Europe,

the sector still performs better in India vs. in many other developing countries in terms of

growth, profitability, capital adequacy and asset quality etc.

2013 expected to be a good year for India. Although a series of challenges like the overall

slowdown in the economy impacting credit growth, deteriorating asset quality and rising NPAs,accompanying financial inclusion and Basel III implementation are all lingering issues, the

sector is well cushioned with factors like a positive demographic dividend, increasing investment

in infrastructure, innovation in technology and most importantly constructive regulatory policies.


3/33

3

Structure of Indian Banking Industry:


4/33

4

Important Milestones of the Banking Industry:


5/33

5

Factors Affecting the Industry:

Political Factors

Monetary Policy

Regulatory Framework Budget & Budget Measures

Changes in Interest rates

Economic factors

More savings

More capital Formation

Increase in production of goods and services

Banking channels

Social Factors

Increase in population

Changes in Lifestyle

Easy way of lending money

Exploring banking facilities in rural areas

Technological Factors:

Internet Banking IT services & Mobile banking

Credit cards Improvement in efficiency


6/33

6

Michael Porters 5 forces Analysis about Indian Banking Industry:


7/33

7

Current Industry Performance:

The Indian banking industry has its foundations in the 18th century, and has had a bouncy

evolutionary growth path since then. The industry in recent times has recognized the

importance of private and foreign players in a competitive scenario and has moved towards

greater liberalization. Indian banks have mobilized around 80% of funding from deposits, thus their ability to win

market share profitably is key to stock returns.

In todays scenario, Current and saving accounts (CASA) are the banks lifelines for

profitable growth, but during FY2012 high interest rate choked them of such deposits,

slowing expansion to a five-year low of 7% Credit growth of the Scheduled Commercial

Banks (SCBs) slowed down to 18.10%1 onFY2012, which was 22.90% in FY2011 on

account of the slowdown of the general economy.

It is expected that the credit growth in FY2013 will be in the range of 16-18%2 as there is

increasing demand for working capital loans and refinancing of forex loans by Indian

corporate.

The growth of total deposits of the (SCBs) stood at 14.92%1 on FY2012, Vs 18.31%1 in

FY2011. The deposit growth is expected to moderate to 14-17%2 over FY 2013-15 with

stable Net Interest Margins (NIM). NIM of SCBs in FY2012 was 2.90%1 on average.

In the present competitive scenario, Private Banks are targeting the faster growing retail

loans and also improving the growth rate in fee income by increasing transaction fees,

whereas Public Sector Banks are targeting to push for higher recoveries and upgrades in

Non-Performing Loans (NPL) and also improving their deposits mix by reducing the share

of bulk deposits.

Indian banks consist mostly of Scheduled commercial bank (SCBs), which includes bothPublic Sector Banks, and the Private Sector Banks. In Public Sector Banks, the government

must retain a 51% stake.

Old Private sector banks are those banks which were not nationalized at the time of bank

nationalization that took place during 1969 and 1980. Most of the old private-sector banks

are closely held by certain communities and their operations are mostly restricted to the

areas in and around their place of origin. e.g Federal Bank, Dhanalaxmi Bank, ING Vysya

Bank.

New private sector banks include those that were established in the past twenty years such as

Yes Bank, Axis bank and existing institutions that were converted into commercial banks,

such as the former development institution ICICI and specialized lenders such as HDFC.

Cooperative banks are small-sized units registered under the Co-operative Societies Act.

That essentially lend to small borrowers and businesses. Eg. Punjab & Maharashtra Co-op.

Bank Ltd., New India Co-op. Bank Ltd.

Regional Rural Banks are mainly focused on the agro sector. These banks are in every

corner of the country and extend a helping hand in the growth of the country. Eg. NABARD,

Haryana State Cooperative Apex Bank Limited, etc.


8/33

8

Situation Analysis and Problem Definition:

The Indian banking system has growing in size as well as in quality. The current market place for

banking industry is highly competitive. Each bank is expanding its business and, market share in

comparison to their competitors.

For more than a decade, there was just one mantra for every Indian banker that is CASA. It

delivered loads of profits forprivate sector banks.

For banks, the major part of their income is generated from the interest rate differences between

the lending rate and deposit rate. Hence it serves banks to keep the deposit rates low. Banks

define a term called CASA deposits which stands for current account, savings account deposit.

This is usually known as low interest deposit which banks can lend to borrowers at a high

interest rate. The interest rate on current account is zero anyway. The contribution of CASA in

banks profit is very big. Any increase in the CASA rates will reduce banks profit. As per anestimate, CASA deposits are about 30%-50% of the total deposits of a bank.

For a long time, interest rates on saving account were mandated at 3.5%, which was paid on the

minimum deposits that were parked in six months. But in the past couple of years, the Reserve

Bank of India made three changes:

Payment of Interest on saving account on a daily basis

Increased the rate to 4%

Unregulated the rates

Deregulating saving accounts deposit rates may result in innumerable transactions and high costto banks. In current scenario, when the interest rate is almost at peak and bank credit is steadily

going down, this will be another blow. Increasing the interest on savings deposit which is a big

portion of banks deposits will further increase the cost and thus impact the margin of banks.

This changed the way banks looked at CASA. Private Banks like Yes Bank, Kotak Mahindra

Bankand IndusInd Bank, with low CASA base, began offering higher rates to attract depositors.

But public sector banks and the top-three large private banks HDFC Bank, ICICI

Bankand Axis Bankwhich have sizable share of CASA deposits, refrained from raising the

interest rate from 4%. The reason for these private sector banks to increase the interest rate are-

(1) Relatively new players

(2) Fewer Saving accounts

(3) Do not have a strong retail portfolio.
http://economictimes.indiatimes.com/topic/private%20sector%20bankshttp://economictimes.indiatimes.com/topic/Reserve%20Bank%20of%20Indiahttp://economictimes.indiatimes.com/topic/Reserve%20Bank%20of%20Indiahttp://economictimes.indiatimes.com/kotak-mahindra-bank-ltd/stocks/companyid-12161.cmshttp://economictimes.indiatimes.com/kotak-mahindra-bank-ltd/stocks/companyid-12161.cmshttp://economictimes.indiatimes.com/indusind-bank-ltd/stocks/companyid-9196.cmshttp://economictimes.indiatimes.com/icici-bank-ltd/stocks/companyid-9194.cmshttp://economictimes.indiatimes.com/icici-bank-ltd/stocks/companyid-9194.cmshttp://economictimes.indiatimes.com/axis-bank-ltd/stocks/companyid-9175.cmshttp://economictimes.indiatimes.com/axis-bank-ltd/stocks/companyid-9175.cmshttp://economictimes.indiatimes.com/icici-bank-ltd/stocks/companyid-9194.cmshttp://economictimes.indiatimes.com/icici-bank-ltd/stocks/companyid-9194.cmshttp://economictimes.indiatimes.com/indusind-bank-ltd/stocks/companyid-9196.cmshttp://economictimes.indiatimes.com/kotak-mahindra-bank-ltd/stocks/companyid-12161.cmshttp://economictimes.indiatimes.com/kotak-mahindra-bank-ltd/stocks/companyid-12161.cmshttp://economictimes.indiatimes.com/topic/Reserve%20Bank%20of%20Indiahttp://economictimes.indiatimes.com/topic/Reserve%20Bank%20of%20Indiahttp://economictimes.indiatimes.com/topic/private%20sector%20banks


9/33

9

Objective:

As the Increase in Interest rate will increase the cost of funds for bank as well as liquidity

because it will increase the saving deposits. The impact of this on Banks total earning, lending

rate, Asset Liability mismatches, Quality of the Assets and so on.

The main purpose of the study is to find the impact of interest rate deregulation of these small

private sector banks with other commercial bank. It will give me a holistic view about how such

change of banks impacted on their CASA share of total deposits and also will such strategy have

long run positive impact for banks or not. By doing a comparative study between YES,KOTAK ,

INDUSIND and AXIS Bank I will be able to know that how such type of drive have impacted on

Small private sector bank and large private sector bank.


10/33

10

Literature Review:

International Journal of Research in commerce and Management

[VOLUME NO. 3 (2012), ISSUE NO. 7 (JULY)]

Contemporary Issue on Deregulation of Saving account Interest rate

This research paper is based on regulatory framework provided by RBI regarding deregulation of

Deposit interest rate in India. The main objective of this study is to understand need of

deregulation, the effects of deregulation on banks and investors and what are the advantages and

disadvantages of deregulation of savings bank deposits interest rate in India

Basic concept:

Interest rate is the price for loan able funds. Like every other commodity price, interest rate is

determined by the forces of demand and supply for loan able funds. Among the other factors that

determine interest rates are savings, investment, inflation, government monetary policy, and

taxation. Savings represents the major supply of credit while investment represents the demand

for credit. Whenever savings falls, while investment remains constant, there is pressure on

interest rate to rise. Similarly, a fall in investment with savings remaining constant usually

pushes up interest rate. Inflation is another factor that influences interest rates. Expectation about

inflation influence interest rates movements. Government monetary policy is another factor that

influences interest rates. An expansionary monetary policy which increases credit in circulation

would pull down interest rate while contra dictionary monetary policy usually pushes up interest

rates. Interest rates deregulation is an economic term used to refer to a situation where by forces

of demand and supply are allowed to determine the value of interest rates rather than its value

being administered directly by monetary authorities. Interest rates deregulation in seen as a

deviation from financial repression. It has been advocated by many economists that interest rate

deregulation helps to enhance savings, boost investment and consequently help to enhance

economic growth.

The major factors which have forced Deregulation to happened are need to strengthen the

competitive forces, Improve efficiency of resources, Product Innovation, transparency of

monetary policy and price discovery.

Increase in competition, Increase in interest rate, Reduction in Net Interest Margin if not

balanced by increase in landing rates, these are some of the major effects of deregulation on

banks and even large Public sector banks like Punjab National Bank are examining ways how to

offset the increase in Savings Bank Account, the bank has SB deposits aggregating Rs 1 lakh

crore.


11/33

11

IMPORTANT ASPECTS REGARDING DEREGULATION

New banks can now offer a higher interest rate to persuade customers to move away from

their old banks. But as can be visualized, the interest rates paid by all banks on their

savings accounts will rise. This will adversely affect banks profitability.

If banks have to remain profitable, they have two options.

Increase the lending rates to ensure the same profitability in spite of paying a

higher savings account rate.

Cut costs related to savings accounts.

After increasing interest rate at the same time, banks will be forced to remain competitive

with moves such as an increase in the minimum balance requirements wherein better

rates are offered to customers with a larger balance and imposing a charge for issue of

cheque books and so on.

The banks which have hiked the interest rate are:

Yes Bank

Kotak Mahindra Bank

IndusInd Bank

The main purpose behind this was relatively new players, comparatively less saving

accounts and not strong retail portfolio. But SBI has not hiked the savings deposit

rates. The banks which have raised savings deposit rates lack reach.

ADVANTAGES AND DISADVANTAGES OF DEREGULATION OF SAVINGS BANK

DEPOSITS INTEREST RATE IN INDIA

ADVANTAGES

To increase the share of savings account in total deposit: The savings rate was fixed at

3.50% from March 2003 to May 2011.

due to huge gap between savings and term deposit rates, the ratio of savings deposit in

total deposit fluctuated mainly in rural areas, so the deregulation would make such

accounts more attractive in rural areas. RBI policies would become more effective: As savings accounts constitute around 22%

of the total bank deposits, it provides a source of low-cost fund to banks. After

deregulation, it is expected that savings rate would move in cycle with the RBI monetary

policy, thus, making the policy more effective.


12/33

12

Competition- But after deregulation, it is expected that banks would try to lure customers

by offering higher interest rates along with other innovations and flexibility to get as

many accounts as possible.

DISADVANTAGES

It may lead to asset-liability mismatches

Could impact small households because banks would not be in a position to compensate

savers properly if there is enough liquidity in the system.

Unhealthy competition and systematic risk

FINDINGS AND CONCLUSION OF THE REPORT:

The interest rate for the savings bank account was 3.5% for long time and recently only it

has been increased to the 4.0%. Also, there were changes in the how the interest rates are

calculated. First 10 days of the balance will not be taken for the calculation, also in the

remaining days only the minimum balance will be taken for the interest rates calculation.

This would result in very less benefit to the customers.

This will benefit the salary bank account holders who maintain the lump sum amount in

the saving bank account.

Not all the banks would increase the interest rates immediately. Indias largest bank State

bank of India (SBI) has announced that they would not revise the interest rates

immediately and it would affect the profitability of the bank.

Yes Bank responded to the RBI deregulation move by increasing the interest rate on all

SB deposits by 200 basis points to 6 per cent. The bank also upped the Base Rate by 25basis points to 10.5 per cent.

Most banks are not in a hurry to hike the interest rates on SB deposits as liquidity is

comfortable. So they would not be very keen or desperate to raise the rates and lose the

cost advantage this as per the opinion of Mr.Pratip Chaudhuri, Chairman, State Bank of

India.

As SB rate deregulation is introduced in India in the present tight liquidity conditions,

there is a possibility of an unhealthy rate war among banks, giving way to heightened

volatility in their resource profile.


13/33

13

Article: Saving rate- Impact on you!

By BankBazaar.com Desk on 18, May, 2012

Reserve bank of India deregulated saving a/c interest rate on deposits and this step has increased

competition among banks and gave choice to the depositors to find out the highest rate and go

for it. This rate is low in todays huge inflationary era. A matured economy cannot afford to have

such difference in the market rate and saving account rate. Globally many developed countries

deregulated saving account interest rate like Canada, USA, Singapore, UK and many other

countries. And this helped them to form efficiency in the system. So Indias this move is

appropriate.

Why Banks are not in favour of this- Banks want to deposit rate low as major part of their

income is generated from the difference between interest rate and lending rate. An Increase in

CASA rate will decline the banks profit. And Current economic condition is not good for

because of volatility of the market situation as this may result in innumerable transactions and

high cost to banks.

Impact on Depositors expects better interest rate, their cash will have more value, good

impact on rural and semi-urban depositors who do not have much knowledge about fixed

deposits and have been actually losing their money because of high inflation. So, this will bring

relief to such people who use their saving account for their savings as well as transactions.

Impact of Bank-with the financial reform the RBI deregulated saving rates too and this is big

blow to their profitability, this have already increased the prospect of NPAs impacting the

margin of banks and it will further increase the cost of banks. Everyone is not unsatisfied withthis move because the new private sector bank that want to penetrate the market with this which

most potent tool to attract customers.

There are concerns with this move- that India is still a poor country where the deposits of

majority people are very less in the bank. Deregulating savings account rate will offended the

poor people most as the banks will give them even lower interest while the well-offs can get a

better interest rate. And it may not help the saving a/c holder as intended. Because bank will

devise some ways to cover increased cost from the customers in the form of other charges on

Transaction, ATM usage, and Cheque delivery.


14/33

14

NEWS PAPERS COMMENTS ON SAVING BANK INTEREST RATE

DEREGULATION

Business Standard,11 OCT, 2012

INDUSIND BANK, YES BANK VIE FOR TOP-3 SLOT BY IMPROVING CASA

RATIOS

When the Reserve Bank of India (RBI) deregulated the interest rate on savings deposits in

October, 2011, the private lender was the first bank to announce a hike in its rates. IndusInd

Bank and three other private banks imitated the move, only for YES Bank to increase its savings

deposit rate for the second time. Currently, YES Bank offers the maximum rate of interest on

savings deposits (7% on deposits of Rs 100,000 or more among all banks in India). CASA ratio

improved to 15 per cent at the end of March from 11 per cent six months earlier. The rate hike

has also helped IndusInd Bank to improve its savings deposit base even though its CASA ratio

did not improve significantly. The share of savings deposits in total deposits rose to 11.1 % as of

March, 2012 from 8.6 % at the end of October, 2011.Branching out is the process of expansionwhich involves strengthening of the low-cost deposit base, means that both banks will also be

blanketing the country with their branches. According to their move their branch network will

provide us the platform to scale up our businesses.

Reference:

Business standard news paper

BankBazaar.com

www.ijrcm.org.in


15/33

15

RESEARCH METHODOLOGY

Background of the study:

The objective behind this study is to understand the impact- advantage and disadvantages of

change in CASA interest rate in different banks. This topic is based on the study of increasing

the interest on savings deposit which is a big portion of banks deposits will further increase the

cost and thus impact the margin of banks. How this is impacting for new privet sector

commercial banks compare to other commercial banks.

The scope and coverage of the study is Indian Banking sector as a whole. The Indian banking

sector is segregated in different group includes Public sector banks (19 Nationalised bank, State

bank of India group & other public sector banks), Private sector bank (around 27 banks), Co-

operative banks, Foreign Banks.

Data collection:

The primary data is collected from the Bank customers located in the area Malad to Borivali

regarding their basic perception and view on the saving interest rate impact on their saving

account in the bank.

The study will be based on primary data collected through survey as well as secondary data

Collected from different newspapers, websites, journals and banks quarterly and yearly

Financials which includes balance sheet, Profit and loss a/c.etc. The questionnaire will be

developed and on the basis that collected information the analysis will be completed.

Research design:

The Research design type is Descriptive Research design Data will collect through survey with

structured data collection method i.e. a formal questionnaire will be prepared with questions in a

given format and sequence.

Sample Size:

The Sample for the primary research is location specific that is any Bank customer situated from

Malad to Boriwali. The sample size is for the research is 120 to 150 Customers.

Research Technique:

No any specific Statistical tool or technique is used for Data analysis. Collected data is analysed

using Percentage method and supported with bar diagram & charts.


16/33

16

Analysis of Primary Research Data

Descriptive Statistics:

Total no of Respondents-120

Average age of Respondent - between 21- 30 years Location of RespondentBoriwali to Malad

The primary research is conducted to analyse the customers behaviour regarding saving account

interest rate differential. The deregulation of Interest rate is really an impactful tool or not to

attract new customer for saving account or it is just increasing cost of fund raising for the banks.

The Primary research data includes the customers opinion about Preferable bank type for the

Customer, important factors they considered about bank to open a saving account, Interest

rate differential will attract or force them to change bank or not , if No then why they will

prefer not to change bank for saving account and which is preferable new bank for them to

open saving account.

The collected information is mentioned below in the form of Descriptive Statistics:

Preferable bank type for respondent customer:

Out of 120 respondent majority i:e 73% Customers Public Sector Banks are most preferable

bank type. Around 24% customers prefer Private sector bank and Very less that is only 3% will

prefer Foreign bank. This indicates that Majority of the customers preference is for Public sector

bank than any other sector.

73%

24%

3%

Public sector Private Sector Bank Foreign Bank


17/33

17

Type of Account respondent customer has with their current bank:

Widely held 95% of Respondent customers have saving account with their current bank and only

5% of respondents are Current account customers.

Important factors Customers prefer for choosing a bank for saving account:

95%

5%

Respondants type of account withcurrent bank

Saving Account Current Account

0

5

10

15

20

25

30

35

40

45

1 2 3 4 5

Better Interest rate

No. of respondents prefer

Better Interest rateprovided than other

competitor Bank


18/33

18

0

10

20

30

40

50

1 2 3 4 5

Recommendations by family members or

friends

No respondents prefer

Recommendations by family

members or friends

0

5

10

15

20

25

30

35

40

45

50

1 2 3 4 5

Service provided by Bank

No. of Respondents prefer



19/33

19

0

5

10

15

20

25

30

35

40

1 2 3 4 5

Location of branch and ATMs

No. of respondents prefer

Location of branch and

ATMs

0

10

20

30

40

50

60

70

80

1 2 3 4 5

Known bank staff

No of respondents prefer

Known bank staff


20/33

20

As per the above graphical data description ranking of the factors by the respondent customer is

as follows:

Mainly 59 % respondent customers have ranked Known Bank staffas 1st

most important

factor they would consider for choosing a bank for saving account.

36% Respondents have ranked Recommendations by family members or friends as 2nd

important factorthey would consider for choosing a bank for saving account.

With majority 39% of respondents have ranked Service provided by Bankas 3rd

most

important factorthey would consider for choosing a bank for saving account.

Approximately 35% of the Customers have ranked Better Interest rate provided by the

bank than any other competitor bank as 4th

important factor they would consider for

choosing a bank for saving account.

And Nearly 29% of respondents have ranked Location of branch and ATMs as

4th

important factor they would consider for choosing a bank for saving account.

No of respondents feel interest rate differential will force to change bank for saving

account

Past good experience, fully satisfied with services of current bank, old relationship with bank and

staff, trustworthiness are some of the reasons for the respondents why they would prefer not to

change bank account due to Interest rate differential.

Yes

81%

No

19%


21/33

21

Preferable New bank for Respondent customer

With majority 87 respondents (72%) will prefer any other commercial bank as new bank to open

a saving account, while 18 respondent (15%) and 14 respondent (12%) will prefer Kotak

Mahindra and Yes Bank Respectively . And only one respondent is in the Favour of Induslnd

Bank as a new bank to open a saving account.

12%

15%

72%

1%

Yes Bank

Kotak Mahindra

other comercial bank

Induslnd Bank


22/33

22

Secondary data Analysis

Comparative analysis of Banks Financial Performance:

Source: www.moneycontrol.com

The above table shows financial performance of Top Private Sector and Small private sector

banks in Indian Banking Industry. Wherein the HDFC Bank Stands 1stamong them as per the

market capitalisation and ICICI bank stand 1stas per Net Profits and Total assets. The following

data would help to do the comparative study of their financial performance in order to

understand the impact of saving account Interest rate deregulation on these banks. Two major

factors have been considered for comparison- Saving Interest rate and CASA ratio, also the trend

of CASA deposits from Year 2010-11 to 2012-13.

Name Market Cap. Net Interest Net

Profit

Total

Assets(Rs. cr.) Income

HDFC Bank 1,48,694.21 27,286.35 5,167.07 3,37,909.49

ICICI Bank 1,20,580.79 33,542.65 6,465.26 4,73,647.09

Axis Bank 60,837.36 21,994.65 4,242.21 2,85,627.79

Kotak Mahindra Bank 48,738.26 6,180.24 1,085.05 65,666.46

IndusInd Bank 21,168.32 5,359.20 802.61 57,596.07

Yes Bank 15,381.31 6,307.35 976.99 73,662.12
http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/hdfcbank/HDF01http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/icicibank/ICI02http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/axisbank/AB16http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/kotakmahindrabank/KMBhttp://www.moneycontrol.com/india/stockpricequote/banksprivatesector/indusindbank/IIBhttp://www.moneycontrol.com/india/stockpricequote/banksprivatesector/yesbank/YBhttp://www.moneycontrol.com/india/stockpricequote/banksprivatesector/yesbank/YBhttp://www.moneycontrol.com/india/stockpricequote/banksprivatesector/indusindbank/IIBhttp://www.moneycontrol.com/india/stockpricequote/banksprivatesector/kotakmahindrabank/KMBhttp://www.moneycontrol.com/india/stockpricequote/banksprivatesector/axisbank/AB16http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/icicibank/ICI02http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/hdfcbank/HDF01


23/33

23

Impact of Interest rate Deregulation on CASA Ratio of the YES Bank

YES Bank

Q 1June

FY 10 -

11

Q2Sep

FY10 -

11

Q3

Dec FY

10-11

Q4Mar

FY 10-

11

Q 1June

FY 11-

12

Q2Sep

FY11 -

12

Q3Dec

FY 11-

12

Q4Mar

FY 11-

12

Q 1June

FY 12-

13

Q2Sep

FY12 -

13

Q3Dec

FY 12-

13

Interest

rate 4% 4% 4% 4% 4% 4% 7% 7% 7% 7% 7%

CASA ratio 10.50% 10.10% 10.20% 10.30% 10.90% 11.00% 12.60% 15.00% 16.30% 17.30% 18.30%

CASA

deposits 3179.9 4052.8 4036.9 4750.9 4,764.4 4838.8 5913.5 7392.1 8170 9030 10340

The graph of CASA Ratio shows the trend between Interest rate and CASA ratio of the Bank

Before deregulation and after deregulation. As it clearly explains that the CASA ratio was

relatively stable with Regulated interest rate (4%) till Q2 of 2011 and after deregulation it

impacted positively as there is relatively increasing trend in the CASA ratio with Interest rate.There is consistent growth in CASA ratio from 11% Q2 2011-12 to 18.3% in Q3 2012-13.

Yes Bank, our CASA is just about 11%, but more importantly only about 2% of the 11% is

savings with the rest being current account balances, which are very lucrative and not impacted

by todays proposition. The 2% savings, approximately about Rs 700 crore of deposits in our

bank, will have minimalistic impact as far as cost of funds is concerned.

0%2%4%6%8%

10%12%14%16%18%20%

Q 1

JuneFY 10

-11

Q2

SepFY10

- 11

Q3

DecFY

10-11

Q4

MarFY

10-

11

Q 1

JuneFY

11-12

Q2

SepFY11

- 12

Q3

DecFY

11-12

Q4

MarFY

11-

12

Q 1

JuneFY

12-13

Q2

SepFY12

- 13

Q3

DecFY

12-13

YES Bank

CASA Ratio

Inetrest rate

CASA ratio


24/33

24

Impact of Interest rate Deregulation on CASA Ratio of the IndusindBank

The CASA ratio trend of Indusind bank with its interest rate is relatively moving in same

manner. There is no massive difference in CASA ratio before and after deregulation as it was

around 28.2% in Q 2 2011-12 and currently28.70% in Q3 2012-13.This shows that the Interest

rate deregulation is not much on CASA ratio of Total Deposits.

0%

5%

10%

15%

20%

25%

30%

35%

Q 1

JuneFY 10

-11

Q2

SepFY10 -

11

Q3

DecFY 10-

11

Q4

MarFY 10-

11

Q 1

JuneFY 11-

12

Q2

SepFY11 -

12

Q3

DecFY 11-

12

Q4

MarFY 11-

12

Q 1

JuneFY 12-

13

Q2

SepFY12 -

13

Q3

DecFY 12-

13

Indusind Bank

Casa Ratio

Interest rate

CASA ratio

Indusind Bank

Q 1

JuneFY 10 -

11

Q2

SepFY10 -

11

Q3 DecFY 10-

11

Q4Mar FY

10- 11

Q 1

JuneFY 11-

12

Q2

SepFY11 -

12

Q3 DecFY 11-

12

Q4Mar FY

11- 12

Q 1

JuneFY 12-

13

Q2

SepFY12 -

13

Q3 DecFY 12-

13

Interest

rate 4% 4% 4% 4% 4% 4% 6% 6% 6% 6% 6%

CASA

ratio 24.30% 25.40% 26.80% 27.20% 28.20% 27.70% 26.50% 27.30% 27.90% 28.00% 28.70%

CASA

deposits 6,663 7,959 8,214 9,331 9,946 10,627 10,757 11,563 12,557 13,365 14,651


25/33

25

Impact of Interest rate Deregulation on CASA Ratio of the KotakMahindra

Bank:

Kotak Mahindra BankQ 1

June

FY 10

-11

Q2

Sep

FY10

- 11

Q3

Dec

FY

10-11

Q4

Mar

FY 10-

11

Q 1

June

FY 11-

12

Q2

Sep

FY11 -

12

Q3 Dec

FY 11-

12

Q4

Mar

FY 11-

12

Q 1

June

FY 12-

13

Q2

Sep

FY12 -

13

Q3

Dec

FY 12-

13

Interest

rate 4% 4% 4% 4% 4% 4% 6% 6% 6% 6% 6%

CASA

ratio 28% 32% 28% 30% 27% 26% 27.70% 32% 34% 32% 26%

CASA

deposits 6700 7700 7900 8791 8254 9247 10615 12402 11054 12321 13359

The CASA ratio trend is not stable for Kotak Mahindra Bank. There is not a continuous

movement in CASA ratio with Stable Interest rate (4%). After increase in interest rate there was

sudden growth in the ratio but which is not continuous as ratio declined in Q2 and Q4 of 2012-

13.

0%

5%

10%

15%

20%

25%

30%

35%

40%

Q 1

June

FY 10

-11

Q2

Sep

FY10

- 11

Q3

Dec

FY

10-11

Q4

Mar

FY

10-

11

Q 1

June

FY

11-12

Q2

Sep

FY11

- 12

Q3

Dec

FY

11-12

Q4

Mar

FY

11-

12

Q 1

June

FY

12-13

Q2

Sep

FY12

- 13

Q3

Dec

FY

12-13

Kotak Mahindra Bank

CASA Ratio

Interest rate

CASA ratio


26/33

26

Impact of Interest rate Deregulation on CASA Ratio of the Axis Bank :

Axis Bank

Q 1June

FY 10

-11

Q2Sep

FY10 -

11

Q3Dec

FY 10-

11

Q4Mar

FY 10-

11

Q 1June

FY 11-

12

Q2Sep

FY11 -

12

Q3Dec

FY 11-

12

Q4Mar

FY 11-

12

Q 1June

FY 12-

13

Q2Sep

FY12 -

13

Q3Dec

FY 12-

13

Interest

rate 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4%

CASA

ratio 40% 42% 40% 40% 40.53% 42% 42% 42% 39% 41% 40%

CASA

deposits 55043 57674 62899 59551 74414 82140 86756 91422 86942 95538 97757

The CASA ratio of Axis Bank one of the Large Private sector banks is comparatively constant

that is in the range of 40%. There is slight movement in the Ratio with Stable interest rate.

0%5%

10%15%20%25%30%35%40%45%

Q1JuneFY10-11

Q2SepFY10

-11

Q3DecFY1

0-11

Q4MarFY10-11

Q1JuneFY1

1-12

Q2SepFY11

-12

Q3DecFY1

1-12

Q4MarFY11-12

Q1JuneFY1

2-13

Q2SepFY12

-13

Q3DecFY1

2-13

Axis Bank

Casa Ratio

Inetrest rate

CASA ratio


27/33

27

The Trend of CASA Deposits For YES,Kotak,IndusindAnd Axis Bank:

0

2000

4000

6000

8000

10000

12000

Q 1

June

FY 10 -

11

Q2

Sep

FY10 -

11

Q3 Dec

FY 10-

11

Q4

Mar FY

10- 11

Q 1

June

FY 11-

12

Q2

Sep

FY11 -

12

Q3 Dec

FY 11-

12

Q4

Mar FY

11- 12

Q 1

June

FY 12-

13

Q2

Sep

FY12 -

13

Q3 Dec

FY 12-

13

YES Bank

CASA Deposits

CASA deposits

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Q 1

June

FY 10 -

11

Q2

Sep

FY10 -

11

Q3 Dec

FY 10-

11

Q4

Mar FY

10- 11

Q 1

June

FY 11-

12

Q2

Sep

FY11 -

12

Q3 Dec

FY 11-

12

Q4

Mar FY

11- 12

Q 1

June

FY 12-

13

Q2

Sep

FY12 -

13

Q3 Dec

FY 12-

13

Indusind Bank

CASA deposits

CASA deposits


28/33

28

0

2000

4000

6000

8000

10000

12000

14000

16000

Q 1June FY

10 -11

Q2 SepFY10 -

11

Q3 DecFY 10-

11

Q4 MarFY 10-

11

Q 1June FY

11-12

Q2 SepFY11 -

12

Q3 DecFY 11-

12

Q4 MarFY 11-

12

Q 1June FY

12-13

Q2 SepFY12 -

13

Q3 DecFY 12-

13

Kotak Mahindra Bank

CASA deposits

CASA deposits

0

20000

40000

60000

80000

100000

120000

Q 1

June FY

10 -11

Q2 Sep

FY10 -

11

Q3 Dec

FY 10-

11

Q4 Mar

FY 10-

11

Q 1

June FY

11-12

Q2 Sep

FY11 -

12

Q3 Dec

FY 11-

12

Q4 Mar

FY 11-

12

Q 1

June FY

12-13

Q2 Sep

FY12 -

13

Q3 Dec

FY 12-

13

Axis Bank

CASA Deposits

CASA deposits


29/33

29

The Trend of CASA Deposits is progressively upward from Q2 2011 that is after

deregulation of Interest rate for Yes Bank and Induind Bank compared to other two

banks.

In case of Yes Bank CASA deposits increased steadily from 5913.5 Crs. to 10340 Crs

(from Q3 2011 to Q3 2012 ) 4% after increase in interest rate to 7% and before

deregulation it was

And for Indusind bank it increased from 10,757 Crs.To 14651 Crs (from Q3 2011 to Q3

2012 ) which is 36% after increase in interest rate to 6%.

Kotak Mahindra Bank comparatively does not have high growth in the CASA deposits

like other two banks. The increase in Deposits is from10,615crs to 13,359 crs(from Q3

2011 to Q3 2012 ) that is 25%.

The Axis bank is showing similar trend of Increase in CASA deposits before and after the

deregulation of Saving Account interest rate.

Such trend of CASA deposits clearly explains that banks with lower casa ratio have huge

growth in CASA deposits, compared to banks with higher casa ratio.


30/33

30

Conclusions:

Banks lay emphasis to increase the portion of CASA with them so as to reduce the costs because

higher CASA ratio means higher is the number of current account and saving account deposits in

bank which are cheaper source of fund.

Higher income from CASA will improve the net interest margin as the cost of this fund is

relatively lower. Hence, higher the CASA ratios better the net interest margin, which means

better operating efficiency of the bank. Banks having low CASA ratio will benefit as they have

fewer shares of saving deposits in their total deposits which leads to lower interest outgo. Banks

with Low CASA ratio will be first to increase interest rate which leads to competition. Yes Bank,

Kotak Mahindra Bank and indusind Bank have Low CASA ratio have already increase interest

rate.

The comparative analysis of these small sector banks with one of the large private sector bank

that is Axis bank shows that the strategic move of Banks who have lower casa ratio to increase

saving interest rate to attract new depositors and improve casa ratio will have significant impact

for short term but once the casa ratio will increase such with Industry level then such move will

not positively impact. Primary research analysis is supporting to this interpretation that Interest

rate is 4th

ranked factor for customers to consider for opening a new account with the bank. And

Banks Brand, Trust is 1st

foremost factor they will consider to have an account with the bank.

Such Interpretation concludes that the influence of saving account deregulation will not give

Positive impact for Long run to Banks. As there is increase in new customer acquisitions than a

mere increase in balances and higher interest rates on savings accounts will fall once there is acorrection in term deposit rates. Deregulation of interest rates on savings bank accounts has not

threatened the market.


31/33

31

References:

www.rbi.com

Business standard news paper

BankBazaar.com

www.ijrcm.org.in Dinodia Capital Advisors research paper Indian Banking Industry: Rising above the Waves,

January

http://ir.kotak.com

http://www.indusind.com/indusind/wcms/en/home/top-links/investors-

relation/financials/index.html

http://www.axisbank.com/investor-corner/investor-corner.aspx

http://www.yesbank.in/index.jsp?navigationUrl=%2FYES+Bank+Repository%2Fen%2FInvestor

+Relations
http://www.rbi.com/http://www.rbi.com/


32/33

32

Appendix

Name of the Respondent

Age

Place

1. If you want to open a Saving Account which type of bank you will prefer?

o Public sector bank

o Private sector bank

o Foreign bank

2. Which type of Account do you have with the current bank? (please mention name

of the bank below)o Saving Account (name of the Bank :__________________________)

o Current Account(name of the Bank :_________________________)

3. From how much time you are dealing with this current bank?

o 0-1 year

o 1-2 years

o 2-5 years

o 5-10 years

o More than 10 year

4. Indicate the extent to which each of the following factors were (or would be)

important to you when choosing a Bank for your saving account by selecting the appropriate


33/33

number where 5= very important and 1 = unimportant. If a factor had no importance, please

circle number one.

1 2 3 4 5

Better Interest rate provided than

er competitor Bank

Recommendations by family

mbers or friends


Location of branch and ATMs

Knew the bank staff

5. If any competitor bank is giving you more interest rate than your current bank

would you open a bank account in that bank?

o Yes______________________________________________________________________________

________________________________________________________________________________

_____________________

o No______________________________________________________________________________

________________________________________________________________________________

______________________

6. If you want to change the Bank for saving account following which Bank you will

prefer to do so?

o Yes Bank

o Kotak Mahindra Bank

o Induslnd Bank

o Other commercial bank

Banking Future

Documents

Transcript of Banking Future