With the economy slowing down, banks have been facing a hit in their high cost deposits and therefore they are turning towards their CASA (current account saving account) to save their profit margins.

The banks have been going slow with their high cost deposits and focusing more on the CASA. However the high cost deposits earn an interest rate of 7.5%-8% and savings account earn a rate of around 3.5% but bankers feel that borrowers would still be able to gain as the lending rates are falling. "When it comes to quoting rates on high cost deposits, banks are not that aggressive now," said Executive Director of Indian Overseas Bank, YL Madan.

Also, Indian Bank has significantly reduced its high cost deposits during the year. Indian Bank's CMD, MS Sundara Rajan said, "We have shed close to Rs 2,200 crore high cost deposits this fiscal and we would not be renewing high cost deposits that come up this month."

The high costs of the bank during the last fiscal were recorded at 11% of the total deposit raised but it is planning to reduce this percentage to less than 7% for the current fiscal. "The need of the hour is to bring down the cost of deposits. We have to reduce costs and improve yields," says Rajan.

Bankers expect to mop up their CASA from semi-urban and rural branches because in the metro cities, investors are keener in term deposits. Vijaya Bank that is likely to set up around 100 new branches is expecting most of their CASA growth from the new branches in semi urban and rural areas.

Recently even Indian Bank is opening new current and saving account to raise capital. "We can't depend on walk-in customers anymore," says Rajan.

Meanwhile the smaller banks that mainly raise capital from high cost deposits are also looking forward to CASA. "While in case of term deposits, the asset liability management becomes easier on account of time period involved, CASA provides greater profitability even though its a violently fluctuating portfolio," said VS Reddy, MD, Lakshmi Vilas Bank.

Presently the bank has 15% CASA of its total deposits and they plan to raise it to 18% of the total bank deposits. Moreover the bank has also introduced two new savings bank and current account products to increase the flow in demand.