With banks cutting down their benchmark rates, customers fear the deposit rates to fall more and therefore they are asking banks to renew their fixed deposits. They want to lock their funds before the interest rates fall further. "They fear further cuts and want to renew their deposits at existing rates," says a senior executive at Indian Bank.
Currently the banks are moving ahead in a balanced manner by focusing on their CASA (current account, saving account) along with renewing the fixed deposits of their customers. Banks are optimistic about growing their CASA business together with the fixed deposit growth.
They expect that their CASA account to be filled in by new customers where as the FDs will be renewed by the existing ones. "As far as growth in CASA is concerned, it is a bit of a challenge now but not difficult to achieve our targets," says M S Sundara Rajan, CMD of Indian Bank.
Presently the highest deposit rates range between 8% and 9.75% but banks are expected to lower this rate in the coming few days. "Customers' apprehensions about rate cuts are justified in the current scenario," says V S Reddy, Managing Director of Lakshmi Vilas Bank.
However some banks have taken up selective policy over the high cost deposits. "Due to the slowdown, there is not much credit offtake at the moment and banks are flush with funds in any case. While banks can't refuse to renew deposits of customers especially those like FDs, most financial institutions are not in favour of bulk and other high cost deposits at the moment," said a senior official at SBI.
"We are not going in for corporate or other bulk deposits. We are focusing only on retail deposits at the moment," says S Balasubramanian, chairman of City Union Bank. The bank is also trying to raise its business through mobilizing saving accounts by tapping on college students and young professionals.
The main reason for banks to focus on CASA is that these are low cost funds in comparison to the fixed deposits. Also the renewal of fixed deposits is based on the prevailing interest rate where as a saving account is not closed by the customer in a hurry.
There are other banks that are retaining the float money as it is. Float money is most prominent in cases where there is a time gap between a cheque being written and the amount being deducted from the payer's account.
Mr Reddy says, "Some amount of float funds always remains in CASA accounts. Sometimes, these amounts are huge and there is a time lag between transferring such funds from a saving/ current account to fixed deposits. This is a low cost resource for banks and we are looking at tapping those."