Yogesh Kumar/Mint

Yogesh Kumar/Mint

Banks see spurt in deposits after hike in savings rate

Banks see spurt in deposits after hike in savings rate

Mumbai: The hike in savings deposit rates by private sector banks is paying off, at least for now.

Banks that have increased interest rates are seeing a spurt in savings account balances, added new customers and, in the process, are expanding their loan assets and investments.

Kotak Mahindra Bank Ltd, which hiked its savings account rate to 6%, has seen customer acquisition nearly double in the last two months and average balance in savings accounts increasing by 10% to 35,000 from 32,000, said K.V.S. Manian, group head, consumer banking.

Yogesh Kumar/Mint

Kotak is offering 5.5% on savings deposits below 1 lakh and 6% on above 1 lakh.

Banks try to attract the maximum current and savings account deposits because they are the cheapest source of deposits.

Yes Bank Ltd, the first bank to increase the savings rate after the Reserve Bank of India (RBI) allowed banks to fix it on their own on 25 October, said it has seen a threefold increase in new account openings, average balance and enquiries after the hike.

“All the matrix have improved and, hence, we are expecting an increase in the ratio of savings account deposits," said Jaideep Iyer, president, financial management at Yes Bank.

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Mint’s Joel Rebello says banks that increased their savings deposits rates are doing more business, with fresh customers coming in and old ones increasing the amount they have deposited.

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Only 2% of Yes Bank’s total deposits of 40,013.7 crore were savings account at the end of September 2011, the latest publicly available data show.

Iyer said the hike in savings deposit rate has, in fact, helped the bank cut costs. “Our outstanding term deposits were at 8.6%, which are now getting repriced at 7%," Iyer said.

Yes Bank hopes to attract lumpsum deposits from trusts and cooperatives because of the higher rate on savings deposits.

The bank is offering 7% interest if the daily average deposit is more than 1 lakh and 6% for deposits less than that amount.

Iyer said Yes Bank aims to add a percentage point to the savings deposit every quarter and take the total number of customers to one million from 300,000 now.

“We hope to attract new customers (by offering higher rates) and earn fee income by selling products like insurance, mutual funds and loans (to them)," he said.

In a report on Yes Bank released on Wednesday, Edelweiss Securities Ltd analysts Vikas Khemani and Nischal Maheshwari said a rise in account balances is likely to follow the hike in savings rate in the next two quarters.

“Currently, the bank’s average savings account stands at 45,000 to 50,000, with 7-8% of accounts at 1 lakh and above as balance. We maintain ‘buy’ with target price of 335 per share," Edelweiss said.

Yes Bank shares rose 2.7% on Thursday to end the session at 247.45.

Sumant Kathpalia, head of consumer banking at IndusInd Bank Ltd, said the number of customers as well as the amount in savings accounts have increased after the hike.

“Our balance sheet has grown 22% because of the deepening of inflows in only two months, which is far higher than the 6-7% growth we saw in the same quarter last year. We plan to acquire more trusts and cooperatives," he said.

IndusInd Bank is offering 5.5% interest on savings deposits of up to 1 lakh and 6% for deposits above that amount.

In a report on 19 December, Chandana Jha, analyst at Avendus Securities Pvt. Ltd said IndusInd Bank has added 50,000 accounts per month in 2011-12, up from 25,000 accounts in 2010-11.

“There has been a further 10% rise post- deregulation. Savings deposits growth was about 40% year-on-year in September 2011 quarter. The savings deposits proportion increased by 104 basis points to 8.6% at the end of September. Management has forecast a Casa ratio of 34% by end FY14," Jha wrote. One basis point is one-hundredth of a percentage point.

IndusInd Bank’s Casa at the end of September stood at 27.7%. Savings account deposits made up 8.68%.

“Casa growth is likely to be driven by cross-selling a wider range of products to customers through the branch network. The bank guided to addition of 250 branches over the next two years. We maintain our ‘buy’ rating with a September target of 349 a share," the Avendus report said.

IndusInd Bank shares gained 2.64% to end trading on Thursday at 248 apiece.

Murli Gopal, analyst with Brics Securities Ltd, said though these private sector banks have managed to attract some customers from larger banks, it has not changed anything in the industry.

“Compared to the industry, these banks are very small, so they have not compelled the larger banks to hike rates. Some banks have hiked rates just because it gives their sales force something to talk about, but ultimately it is a total package that attracts customers (and) not just the rates," he said, adding that banks such as Yes Bank do not even have a home loan product.

Yes Bank distributes home loans for Dewan Housing Finance Corp. Ltd.

Kathpalia from IndusInd Bank agreed that the spurt in new accounts may be short term. “Drawing more savings bank accounts is about superior service, reliability and access to distribution. Customers do not move for just 100 per year on a 50,000 balance, that’s why some large banks like HDFC Bank Ltd have not moved at all," he said.

Other banks that have raised savings bank deposit rates include Karnataka Bank Ltd and Ratnakar Bank Ltd.