Reports from the third quarter ending on December 31st reflect that most banks have witnessed a fall in their ratio of low-cost deposits to total deposits. The CASA (current account savings accounts) ratio of the banks during this period declined in comparison to the last quarters.

The CASA is a base from where banks get cheap funds and thereby a higher ratio of these funds enables banks to bring down their costs. But the high interest rate regime and volatile market conditions have lured investors to shift their investments to the safe fixed deposits offered by the banks.

Chairman and Managing Director of Bank of India, Mr T.S. Narayanasami explains that the CASA falls because during a phase of rising credit, banks look for bulk deposits to raise resources and CASA does not allow them to raise volume. As result of which CASA percentage declines.

Union Bank of India, Chairman and Managing Director, Mr M.V. Nair said that CASA share was the only part where his bank reported a fall in the third quarter.

In the last quarter most banks were offering fixed deposits in the range of 8.5% to 9.5% and rather some of them were giving as high as 10% and more to attract the depositors. Therefore the depositors found no reasons to remain attached to the usual CASA deposits and transferred majority of the deposits to the bank FDs.Executive Director of HDFC Bank, Mr Paresh Sukhthankar said, "Fixed deposits grew by 80 percent. With the turmoil in the market there was flight of funds to quality investment. So, the CASA share saw a slowdown."

Analyst in the banking industry said that CASA balances observed a decent fall because of the differences in the interest rates. "In a high interest rate scenario the incentive to shift to term deposits is high. We are now at a scenario of peak deposit rates at 8-8.5 percent. But as banks start reducing deposit rates, the peak rates will settle at lower levels of 7-7.5 percent. Then the incentive to shift to term deposits will be lesser," he said.The analyst further said that the CASA share is likely to pick in the last quarter of the current fiscal because banks are planning to mobilize deposits by the end of the fiscal. However the earlier level of CASAs would only be only be achieved towards the end of the first quarter of the next fiscal. This will be seen once the deposits rates offered by the banks start falling.

Meanwhile the deposit rates in the industry have started falling as RBI has taken several measures to signal a soft interest regime. Recently Punjab National Bank (PNB) has announced to cut its deposit rates by 25 to 50 basis points across various maturities. At the same time the bank also decreased its prime lending rate (PLR) to 11.5% from 12%.