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Egged on by a constant drift of savings towards the equity markets and the widening gap between the returns in banks and equity instruments, more and more citizens are trusting their savings with the markets, jeopardising the access of the country’s banking industry to low-cost funds through the CASA (current and savings account) deposits, The Economic Times has said in a report.

While the esoteric nature of investments in the stock market is easing off, the convenience of investing in equity and equity-linked instruments – mutual funds for instance – is prompting more and more savers to turn away from low-income accounts, a staple source of funds for the banks.

The drop in CASA levels has been sharp. All commercial banks had a cumulative CASA share of 40.5% in September 2023. It was a sharp drop of 260 basis points since March 2023. The CASA ratio stood at 45.2% on March 31, 2022. Therefore, in a space of only 18 months the share of cheapest funds went down by 470 basis points. The biggest bank in the country SBI suffered an erosion of 330 basis points to reach 41.18% on 31 December 2023 (Q3 of FY24).

The northward journey of bank FD rates has also contributed to the flight of capital out of the CASA.

“There has been a shift in the savings pattern, especially in the metros, where banks used to get most of their large deposits from. Thanks to digitisation, these savers have access to other savings products, such as mutual funds, denting banks’ ability to garner deposits,” P R Rajagopal, executive director, Bank of India told the newspaper.

Mutual funds that combine attractive returns and less unpredictability than direct purchase of equity have taken away a lot of money from the banks. Association of Mutual Funds in India (AMFI) data reveal equity MFs attracted Rs 21,781 crore in January 2024 alone – a 22-month high figure. Going by net inflows into MF – excess of inflow over redemption – witnessed a positive figure for 35 months on the trot. Assets under management (AUM) in MF industry went up sharply from Rs 50.77 lakh crore in December 2023 to Rs 52.74 lakh crore in January.

The attraction of SIP accounts, too, has proved to be a considerable factor. In January this year, SIP accounts have risen by 51.8 lakh to reach 7.92 crore.

If CASA is dipping, the private sector banks have turned out to be the biggest losers. The share of CASA deposits of private sector banks dipped to 39.9% on December 31, 2023, compared with 44.5% a year ago – a drop of 460 basis points in 365 days.

Experts are of the opinion, a largely young tech-savvy customer base that was once a boon for these banks, could prove to the bane as well, on this aspect. Since they are comfortable with technology, they can quickly move around their funds from idle silos into instruments that hold out the promise of higher returns. Private banks also offer a facility called ‘sweep in’ which basically allows a depositor to sweep funds from the savings account to an FD on easy liquidity terms. This facility is available in banking apps too. This has also resulted in a low of money flowing out of the savings accounts.

SBI Chairman Dinesh Khara pointed out that customers tend to move funds to higher-yielding assets, especially in times of inflation.

The SBI chairman said, “Invariably, we have seen that during inflationary conditions, there is a tendency on the part of all the savers to change asset allocation. But banking remains the only channel through which the money will flow into mutual funds or life insurance or pension funds.”

The credit deposit ratio of the Indian banks achieved a 20-year high of 80% in December 2023. Also, the rise of credit has recorded a pace that is 1.5 times the nominal pace of growth in GDP.

Public sector banks are also facing a challenge from another quarter. They are not getting large floating deposits from corporate and government accounts.

Bank of India’s Rajagopal said, “Current account deposits are also no longer bulky because companies are actively managing their treasuries and keeping less in their accounts. Also, unlike earlier, the government now only gives ministries their budgeted allocations on demand and not upfront. All these factors have made garnering deposits challenging. These changes are structural and are here to stay.”