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Executive Summary
RBI in its monetary policy on 25th Oct 2011 deregulated the Savings Bank Account Interest rate
with immediate effect. Till 24th Oct 2011 the interest rate on Saving Account was fixed at 4%.
The deregulation could have significant impact on banking industry and particularly the banks
with high Current Account Saving Account (CASA) ratio, as the cost of funds are bound to go
up because of rise in interest rates on Savings Account.
Smaller banks with lower CASA ratio will try to mop up deposits by offering higher rates on
Savings Account to customers as a result of which the larger banks will also follow the suit to
keep their customers intact. This study is carried out to do the comparative analysis of saving
account interest rate deregulation impact on small private sector bank i.e. Yes bank, Kotak
Mahindra &Indusind Bank with other commercial bank like Axis bank.
From the study I got to know that Quick actions of banks who have lower casa ratio to increase
saving interest rate to attract new depositors and improve casa ratio will have significant impact
for short term but once the casa ratio will increase such with Industry level then such move will
not positively impact and according to conducted research the high Interest rate is not primary
factor for the customer to open an account with the bank but Banks Brand, Trust , influence from
family members are some of the major factors customer will look in bank to be long term
customer of the bank.
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Indian Banking Industry:
The banking industry plays a major role in representing the financial system in India. It works as
an intermediary between individuals, the government, financial institutions and other
stakeholders who directly or indirectly get affected by the industry. During 2011-12, the Indian
banking industry faced major concerns in regards to deteriorating asset quality, with gross non-
performing assets (NPAs) of banks registering a sharp increase in different sectors such as
aviation, infrastructure and power.
However, in 2012-13 banks have started focusing on lending to more profitable segments such as
retail and small and medium (SMEs), improving risk management policies and effective
monitoring In the near the future, the Indian banking industry is expected to see consolidation in
the wake of future economic growth, changes in banking regulations and increase in competition
from foreign banks Technological innovation and especially mobile banking have paved the way
for dramatic growth in the industry in the coming years
The growth story of banking during the last decade has been spectacular and beyond the
consistent double digit growth. The key trends were strong regulatory framework, use of
multiple channels and technology, strong customer oriented banking services and a growing
economy Although the past couple of years have witnessed a slowdown in the face of high
domestic inflation, depreciation of the rupee and the after-math of the crisis in US and Europe,
the sector still performs better in India vs. in many other developing countries in terms of
growth, profitability, capital adequacy and asset quality etc.
2013 expected to be a good year for India. Although a series of challenges like the overall
slowdown in the economy impacting credit growth, deteriorating asset quality and rising NPAs,accompanying financial inclusion and Basel III implementation are all lingering issues, the
sector is well cushioned with factors like a positive demographic dividend, increasing investment
in infrastructure, innovation in technology and most importantly constructive regulatory policies.
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Structure of Indian Banking Industry:
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Important Milestones of the Banking Industry:
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Factors Affecting the Industry:
Political Factors
Monetary Policy
Regulatory Framework Budget & Budget Measures
Changes in Interest rates
Economic factors
More savings
More capital Formation
Increase in production of goods and services
Banking channels
Social Factors
Increase in population
Changes in Lifestyle
Easy way of lending money
Exploring banking facilities in rural areas
Technological Factors:
Internet Banking IT services & Mobile banking
Credit cards Improvement in efficiency
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Michael Porters 5 forces Analysis about Indian Banking Industry:
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Current Industry Performance:
The Indian banking industry has its foundations in the 18th century, and has had a bouncy
evolutionary growth path since then. The industry in recent times has recognized the
importance of private and foreign players in a competitive scenario and has moved towards
greater liberalization. Indian banks have mobilized around 80% of funding from deposits, thus their ability to win
market share profitably is key to stock returns.
In todays scenario, Current and saving accounts (CASA) are the banks lifelines for
profitable growth, but during FY2012 high interest rate choked them of such deposits,
slowing expansion to a five-year low of 7% Credit growth of the Scheduled Commercial
Banks (SCBs) slowed down to 18.10%1 onFY2012, which was 22.90% in FY2011 on
account of the slowdown of the general economy.
It is expected that the credit growth in FY2013 will be in the range of 16-18%2 as there is
increasing demand for working capital loans and refinancing of forex loans by Indian
corporate.
The growth of total deposits of the (SCBs) stood at 14.92%1 on FY2012, Vs 18.31%1 in
FY2011. The deposit growth is expected to moderate to 14-17%2 over FY 2013-15 with
stable Net Interest Margins (NIM). NIM of SCBs in FY2012 was 2.90%1 on average.
In the present competitive scenario, Private Banks are targeting the faster growing retail
loans and also improving the growth rate in fee income by increasing transaction fees,
whereas Public Sector Banks are targeting to push for higher recoveries and upgrades in
Non-Performing Loans (NPL) and also improving their deposits mix by reducing the share
of bulk deposits.
Indian banks consist mostly of Scheduled commercial bank (SCBs), which includes bothPublic Sector Banks, and the Private Sector Banks. In Public Sector Banks, the government
must retain a 51% stake.
Old Private sector banks are those banks which were not nationalized at the time of bank
nationalization that took place during 1969 and 1980. Most of the old private-sector banks
are closely held by certain communities and their operations are mostly restricted to the
areas in and around their place of origin. e.g Federal Bank, Dhanalaxmi Bank, ING Vysya
Bank.
New private sector banks include those that were established in the past twenty years such as
Yes Bank, Axis bank and existing institutions that were converted into commercial banks,
such as the former development institution ICICI and specialized lenders such as HDFC.
Cooperative banks are small-sized units registered under the Co-operative Societies Act.
That essentially lend to small borrowers and businesses. Eg. Punjab & Maharashtra Co-op.
Bank Ltd., New India Co-op. Bank Ltd.
Regional Rural Banks are mainly focused on the agro sector. These banks are in every
corner of the country and extend a helping hand in the growth of the country. Eg. NABARD,
Haryana State Cooperative Apex Bank Limited, etc.
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Situation Analysis and Problem Definition:
The Indian banking system has growing in size as well as in quality. The current market place for
banking industry is highly competitive. Each bank is expanding its business and, market share in
comparison to their competitors.
For more than a decade, there was just one mantra for every Indian banker that is CASA. It
delivered loads of profits forprivate sector banks.
For banks, the major part of their income is generated from the interest rate differences between
the lending rate and deposit rate. Hence it serves banks to keep the deposit rates low. Banks
define a term called CASA deposits which stands for current account, savings account deposit.
This is usually known as low interest deposit which banks can lend to borrowers at a high
interest rate. The interest rate on current account is zero anyway. The contribution of CASA in
banks profit is very big. Any increase in the CASA rates will reduce banks profit. As per anestimate, CASA deposits are about 30%-50% of the total deposits of a bank.
For a long time, interest rates on saving account were mandated at 3.5%, which was paid on the
minimum deposits that were parked in six months. But in the past couple of years, the Reserve
Bank of India made three changes:
Payment of Interest on saving account on a daily basis
Increased the rate to 4%
Unregulated the rates
Deregulating saving accounts deposit rates may result in innumerable transactions and high costto banks. In current scenario, when the interest rate is almost at peak and bank credit is steadily
going down, this will be another blow. Increasing the interest on savings deposit which is a big
portion of banks deposits will further increase the cost and thus impact the margin of banks.
This changed the way banks looked at CASA. Private Banks like Yes Bank, Kotak Mahindra
Bankand IndusInd Bank, with low CASA base, began offering higher rates to attract depositors.
But public sector banks and the top-three large private banks HDFC Bank, ICICI
Bankand Axis Bankwhich have sizable share of CASA deposits, refrained from raising the
interest rate from 4%. The reason for these private sector banks to increase the interest rate are-
(1) Relatively new players
(2) Fewer Saving accounts
(3) Do not have a strong retail portfolio.
http://economictimes.indiatimes.com/topic/private%20sector%20bankshttp://economictimes.indiatimes.com/topic/Reserve%20Bank%20of%20Indiahttp://economictimes.indiatimes.com/topic/Reserve%20Bank%20of%20Indiahttp://economictimes.indiatimes.com/kotak-mahindra-bank-ltd/stocks/companyid-12161.cmshttp://economictimes.indiatimes.com/kotak-mahindra-bank-ltd/stocks/companyid-12161.cmshttp://economictimes.indiatimes.com/indusind-bank-ltd/stocks/companyid-9196.cmshttp://economictimes.indiatimes.com/icici-bank-ltd/stocks/companyid-9194.cmshttp://economictimes.indiatimes.com/icici-bank-ltd/stocks/companyid-9194.cmshttp://economictimes.indiatimes.com/axis-bank-ltd/stocks/companyid-9175.cmshttp://economictimes.indiatimes.com/axis-bank-ltd/stocks/companyid-9175.cmshttp://economictimes.indiatimes.com/icici-bank-ltd/stocks/companyid-9194.cmshttp://economictimes.indiatimes.com/icici-bank-ltd/stocks/companyid-9194.cmshttp://economictimes.indiatimes.com/indusind-bank-ltd/stocks/companyid-9196.cmshttp://economictimes.indiatimes.com/kotak-mahindra-bank-ltd/stocks/companyid-12161.cmshttp://economictimes.indiatimes.com/kotak-mahindra-bank-ltd/stocks/companyid-12161.cmshttp://economictimes.indiatimes.com/topic/Reserve%20Bank%20of%20Indiahttp://economictimes.indiatimes.com/topic/Reserve%20Bank%20of%20Indiahttp://economictimes.indiatimes.com/topic/private%20sector%20banks7/28/2019 Banking Future
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Objective:
As the Increase in Interest rate will increase the cost of funds for bank as well as liquidity
because it will increase the saving deposits. The impact of this on Banks total earning, lending
rate, Asset Liability mismatches, Quality of the Assets and so on.
The main purpose of the study is to find the impact of interest rate deregulation of these small
private sector banks with other commercial bank. It will give me a holistic view about how such
change of banks impacted on their CASA share of total deposits and also will such strategy have
long run positive impact for banks or not. By doing a comparative study between YES,KOTAK ,
INDUSIND and AXIS Bank I will be able to know that how such type of drive have impacted on
Small private sector bank and large private sector bank.
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Literature Review:
International Journal of Research in commerce and Management
[VOLUME NO. 3 (2012), ISSUE NO. 7 (JULY)]
Contemporary Issue on Deregulation of Saving account Interest rate
This research paper is based on regulatory framework provided by RBI regarding deregulation of
Deposit interest rate in India. The main objective of this study is to understand need of
deregulation, the effects of deregulation on banks and investors and what are the advantages and
disadvantages of deregulation of savings bank deposits interest rate in India
Basic concept:
Interest rate is the price for loan able funds. Like every other commodity price, interest rate is
determined by the forces of demand and supply for loan able funds. Among the other factors that
determine interest rates are savings, investment, inflation, government monetary policy, and
taxation. Savings represents the major supply of credit while investment represents the demand
for credit. Whenever savings falls, while investment remains constant, there is pressure on
interest rate to rise. Similarly, a fall in investment with savings remaining constant usually
pushes up interest rate. Inflation is another factor that influences interest rates. Expectation about
inflation influence interest rates movements. Government monetary policy is another factor that
influences interest rates. An expansionary monetary policy which increases credit in circulation
would pull down interest rate while contra dictionary monetary policy usually pushes up interest
rates. Interest rates deregulation is an economic term used to refer to a situation where by forces
of demand and supply are allowed to determine the value of interest rates rather than its value
being administered directly by monetary authorities. Interest rates deregulation in seen as a
deviation from financial repression. It has been advocated by many economists that interest rate
deregulation helps to enhance savings, boost investment and consequently help to enhance
economic growth.
The major factors which have forced Deregulation to happened are need to strengthen the
competitive forces, Improve efficiency of resources, Product Innovation, transparency of
monetary policy and price discovery.
Increase in competition, Increase in interest rate, Reduction in Net Interest Margin if not
balanced by increase in landing rates, these are some of the major effects of deregulation on
banks and even large Public sector banks like Punjab National Bank are examining ways how to
offset the increase in Savings Bank Account, the bank has SB deposits aggregating Rs 1 lakh
crore.
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IMPORTANT ASPECTS REGARDING DEREGULATION
New banks can now offer a higher interest rate to persuade customers to move away from
their old banks. But as can be visualized, the interest rates paid by all banks on their
savings accounts will rise. This will adversely affect banks profitability.
If banks have to remain profitable, they have two options.
Increase the lending rates to ensure the same profitability in spite of paying a
higher savings account rate.
Cut costs related to savings accounts.
After increasing interest rate at the same time, banks will be forced to remain competitive
with moves such as an increase in the minimum balance requirements wherein better
rates are offered to customers with a larger balance and imposing a charge for issue of
cheque books and so on.
The banks which have hiked the interest rate are:
Yes Bank
Kotak Mahindra Bank
IndusInd Bank
The main purpose behind this was relatively new players, comparatively less saving
accounts and not strong retail portfolio. But SBI has not hiked the savings deposit
rates. The banks which have raised savings deposit rates lack reach.
ADVANTAGES AND DISADVANTAGES OF DEREGULATION OF SAVINGS BANK
DEPOSITS INTEREST RATE IN INDIA
ADVANTAGES
To increase the share of savings account in total deposit: The savings rate was fixed at
3.50% from March 2003 to May 2011.
due to huge gap between savings and term deposit rates, the ratio of savings deposit in
total deposit fluctuated mainly in rural areas, so the deregulation would make such
accounts more attractive in rural areas. RBI policies would become more effective: As savings accounts constitute around 22%
of the total bank deposits, it provides a source of low-cost fund to banks. After
deregulation, it is expected that savings rate would move in cycle with the RBI monetary
policy, thus, making the policy more effective.
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Competition- But after deregulation, it is expected that banks would try to lure customers
by offering higher interest rates along with other innovations and flexibility to get as
many accounts as possible.
DISADVANTAGES
It may lead to asset-liability mismatches
Could impact small households because banks would not be in a position to compensate
savers properly if there is enough liquidity in the system.
Unhealthy competition and systematic risk
FINDINGS AND CONCLUSION OF THE REPORT:
The interest rate for the savings bank account was 3.5% for long time and recently only it
has been increased to the 4.0%. Also, there were changes in the how the interest rates are
calculated. First 10 days of the balance will not be taken for the calculation, also in the
remaining days only the minimum balance will be taken for the interest rates calculation.
This would result in very less benefit to the customers.
This will benefit the salary bank account holders who maintain the lump sum amount in
the saving bank account.
Not all the banks would increase the interest rates immediately. Indias largest bank State
bank of India (SBI) has announced that they would not revise the interest rates
immediately and it would affect the profitability of the bank.
Yes Bank responded to the RBI deregulation move by increasing the interest rate on all
SB deposits by 200 basis points to 6 per cent. The bank also upped the Base Rate by 25basis points to 10.5 per cent.
Most banks are not in a hurry to hike the interest rates on SB deposits as liquidity is
comfortable. So they would not be very keen or desperate to raise the rates and lose the
cost advantage this as per the opinion of Mr.Pratip Chaudhuri, Chairman, State Bank of
India.
As SB rate deregulation is introduced in India in the present tight liquidity conditions,
there is a possibility of an unhealthy rate war among banks, giving way to heightened
volatility in their resource profile.
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Article: Saving rate- Impact on you!
By BankBazaar.com Desk on 18, May, 2012
Reserve bank of India deregulated saving a/c interest rate on deposits and this step has increased
competition among banks and gave choice to the depositors to find out the highest rate and go
for it. This rate is low in todays huge inflationary era. A matured economy cannot afford to have
such difference in the market rate and saving account rate. Globally many developed countries
deregulated saving account interest rate like Canada, USA, Singapore, UK and many other
countries. And this helped them to form efficiency in the system. So Indias this move is
appropriate.
Why Banks are not in favour of this- Banks want to deposit rate low as major part of their
income is generated from the difference between interest rate and lending rate. An Increase in
CASA rate will decline the banks profit. And Current economic condition is not good for
because of volatility of the market situation as this may result in innumerable transactions and
high cost to banks.
Impact on Depositors expects better interest rate, their cash will have more value, good
impact on rural and semi-urban depositors who do not have much knowledge about fixed
deposits and have been actually losing their money because of high inflation. So, this will bring
relief to such people who use their saving account for their savings as well as transactions.
Impact of Bank-with the financial reform the RBI deregulated saving rates too and this is big
blow to their profitability, this have already increased the prospect of NPAs impacting the
margin of banks and it will further increase the cost of banks. Everyone is not unsatisfied withthis move because the new private sector bank that want to penetrate the market with this which
most potent tool to attract customers.
There are concerns with this move- that India is still a poor country where the deposits of
majority people are very less in the bank. Deregulating savings account rate will offended the
poor people most as the banks will give them even lower interest while the well-offs can get a
better interest rate. And it may not help the saving a/c holder as intended. Because bank will
devise some ways to cover increased cost from the customers in the form of other charges on
Transaction, ATM usage, and Cheque delivery.
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NEWS PAPERS COMMENTS ON SAVING BANK INTEREST RATE
DEREGULATION
Business Standard,11 OCT, 2012
INDUSIND BANK, YES BANK VIE FOR TOP-3 SLOT BY IMPROVING CASA
RATIOS
When the Reserve Bank of India (RBI) deregulated the interest rate on savings deposits in
October, 2011, the private lender was the first bank to announce a hike in its rates. IndusInd
Bank and three other private banks imitated the move, only for YES Bank to increase its savings
deposit rate for the second time. Currently, YES Bank offers the maximum rate of interest on
savings deposits (7% on deposits of Rs 100,000 or more among all banks in India). CASA ratio
improved to 15 per cent at the end of March from 11 per cent six months earlier. The rate hike
has also helped IndusInd Bank to improve its savings deposit base even though its CASA ratio
did not improve significantly. The share of savings deposits in total deposits rose to 11.1 % as of
March, 2012 from 8.6 % at the end of October, 2011.Branching out is the process of expansionwhich involves strengthening of the low-cost deposit base, means that both banks will also be
blanketing the country with their branches. According to their move their branch network will
provide us the platform to scale up our businesses.
Reference:
Business standard news paper
BankBazaar.com
www.ijrcm.org.in
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RESEARCH METHODOLOGY
Background of the study:
The objective behind this study is to understand the impact- advantage and disadvantages of
change in CASA interest rate in different banks. This topic is based on the study of increasing
the interest on savings deposit which is a big portion of banks deposits will further increase the
cost and thus impact the margin of banks. How this is impacting for new privet sector
commercial banks compare to other commercial banks.
The scope and coverage of the study is Indian Banking sector as a whole. The Indian banking
sector is segregated in different group includes Public sector banks (19 Nationalised bank, State
bank of India group & other public sector banks), Private sector bank (around 27 banks), Co-
operative banks, Foreign Banks.
Data collection:
The primary data is collected from the Bank customers located in the area Malad to Borivali
regarding their basic perception and view on the saving interest rate impact on their saving
account in the bank.
The study will be based on primary data collected through survey as well as secondary data
Collected from different newspapers, websites, journals and banks quarterly and yearly
Financials which includes balance sheet, Profit and loss a/c.etc. The questionnaire will be
developed and on the basis that collected information the analysis will be completed.
Research design:
The Research design type is Descriptive Research design Data will collect through survey with
structured data collection method i.e. a formal questionnaire will be prepared with questions in a
given format and sequence.
Sample Size:
The Sample for the primary research is location specific that is any Bank customer situated from
Malad to Boriwali. The sample size is for the research is 120 to 150 Customers.
Research Technique:
No any specific Statistical tool or technique is used for Data analysis. Collected data is analysed
using Percentage method and supported with bar diagram & charts.
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Analysis of Primary Research Data
Descriptive Statistics:
Total no of Respondents-120
Average age of Respondent - between 21- 30 years Location of RespondentBoriwali to Malad
The primary research is conducted to analyse the customers behaviour regarding saving account
interest rate differential. The deregulation of Interest rate is really an impactful tool or not to
attract new customer for saving account or it is just increasing cost of fund raising for the banks.
The Primary research data includes the customers opinion about Preferable bank type for the
Customer, important factors they considered about bank to open a saving account, Interest
rate differential will attract or force them to change bank or not , if No then why they will
prefer not to change bank for saving account and which is preferable new bank for them to
open saving account.
The collected information is mentioned below in the form of Descriptive Statistics:
Preferable bank type for respondent customer:
Out of 120 respondent majority i:e 73% Customers Public Sector Banks are most preferable
bank type. Around 24% customers prefer Private sector bank and Very less that is only 3% will
prefer Foreign bank. This indicates that Majority of the customers preference is for Public sector
bank than any other sector.
73%
24%
3%
Public sector Private Sector Bank Foreign Bank
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Type of Account respondent customer has with their current bank:
Widely held 95% of Respondent customers have saving account with their current bank and only
5% of respondents are Current account customers.
Important factors Customers prefer for choosing a bank for saving account:
95%
5%
Respondants type of account withcurrent bank
Saving Account Current Account
0
5
10
15
20
25
30
35
40
45
1 2 3 4 5
Better Interest rate
No. of respondents prefer
Better Interest rateprovided than other
competitor Bank
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0
10
20
30
40
50
1 2 3 4 5
Recommendations by family members or
friends
No respondents prefer
Recommendations by family
members or friends
0
5
10
15
20
25
30
35
40
45
50
1 2 3 4 5
Service provided by Bank
No. of Respondents prefer
Service provided by Bank
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0
5
10
15
20
25
30
35
40
1 2 3 4 5
Location of branch and ATMs
No. of respondents prefer
Location of branch and
ATMs
0
10
20
30
40
50
60
70
80
1 2 3 4 5
Known bank staff
No of respondents prefer
Known bank staff
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As per the above graphical data description ranking of the factors by the respondent customer is
as follows:
Mainly 59 % respondent customers have ranked Known Bank staffas 1st
most important
factor they would consider for choosing a bank for saving account.
36% Respondents have ranked Recommendations by family members or friends as 2nd
important factorthey would consider for choosing a bank for saving account.
With majority 39% of respondents have ranked Service provided by Bankas 3rd
most
important factorthey would consider for choosing a bank for saving account.
Approximately 35% of the Customers have ranked Better Interest rate provided by the
bank than any other competitor bank as 4th
important factor they would consider for
choosing a bank for saving account.
And Nearly 29% of respondents have ranked Location of branch and ATMs as
4th
important factor they would consider for choosing a bank for saving account.
No of respondents feel interest rate differential will force to change bank for saving
account
Past good experience, fully satisfied with services of current bank, old relationship with bank and
staff, trustworthiness are some of the reasons for the respondents why they would prefer not to
change bank account due to Interest rate differential.
Yes
81%
No
19%
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Preferable New bank for Respondent customer
With majority 87 respondents (72%) will prefer any other commercial bank as new bank to open
a saving account, while 18 respondent (15%) and 14 respondent (12%) will prefer Kotak
Mahindra and Yes Bank Respectively . And only one respondent is in the Favour of Induslnd
Bank as a new bank to open a saving account.
12%
15%
72%
1%
Yes Bank
Kotak Mahindra
other comercial bank
Induslnd Bank
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Secondary data Analysis
Comparative analysis of Banks Financial Performance:
Source: www.moneycontrol.com
The above table shows financial performance of Top Private Sector and Small private sector
banks in Indian Banking Industry. Wherein the HDFC Bank Stands 1stamong them as per the
market capitalisation and ICICI bank stand 1stas per Net Profits and Total assets. The following
data would help to do the comparative study of their financial performance in order to
understand the impact of saving account Interest rate deregulation on these banks. Two major
factors have been considered for comparison- Saving Interest rate and CASA ratio, also the trend
of CASA deposits from Year 2010-11 to 2012-13.
Name Market Cap. Net Interest Net
Profit
Total
Assets(Rs. cr.) Income
HDFC Bank 1,48,694.21 27,286.35 5,167.07 3,37,909.49
ICICI Bank 1,20,580.79 33,542.65 6,465.26 4,73,647.09
Axis Bank 60,837.36 21,994.65 4,242.21 2,85,627.79
Kotak Mahindra Bank 48,738.26 6,180.24 1,085.05 65,666.46
IndusInd Bank 21,168.32 5,359.20 802.61 57,596.07
Yes Bank 15,381.31 6,307.35 976.99 73,662.12
http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/hdfcbank/HDF01http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/icicibank/ICI02http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/axisbank/AB16http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/kotakmahindrabank/KMBhttp://www.moneycontrol.com/india/stockpricequote/banksprivatesector/indusindbank/IIBhttp://www.moneycontrol.com/india/stockpricequote/banksprivatesector/yesbank/YBhttp://www.moneycontrol.com/india/stockpricequote/banksprivatesector/yesbank/YBhttp://www.moneycontrol.com/india/stockpricequote/banksprivatesector/indusindbank/IIBhttp://www.moneycontrol.com/india/stockpricequote/banksprivatesector/kotakmahindrabank/KMBhttp://www.moneycontrol.com/india/stockpricequote/banksprivatesector/axisbank/AB16http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/icicibank/ICI02http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/hdfcbank/HDF017/28/2019 Banking Future
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Impact of Interest rate Deregulation on CASA Ratio of the YES Bank
YES Bank
Q 1June
FY 10 -
11
Q2Sep
FY10 -
11
Q3
Dec FY
10-11
Q4Mar
FY 10-
11
Q 1June
FY 11-
12
Q2Sep
FY11 -
12
Q3Dec
FY 11-
12
Q4Mar
FY 11-
12
Q 1June
FY 12-
13
Q2Sep
FY12 -
13
Q3Dec
FY 12-
13
Interest
rate 4% 4% 4% 4% 4% 4% 7% 7% 7% 7% 7%
CASA ratio 10.50% 10.10% 10.20% 10.30% 10.90% 11.00% 12.60% 15.00% 16.30% 17.30% 18.30%
CASA
deposits 3179.9 4052.8 4036.9 4750.9 4,764.4 4838.8 5913.5 7392.1 8170 9030 10340
The graph of CASA Ratio shows the trend between Interest rate and CASA ratio of the Bank
Before deregulation and after deregulation. As it clearly explains that the CASA ratio was
relatively stable with Regulated interest rate (4%) till Q2 of 2011 and after deregulation it
impacted positively as there is relatively increasing trend in the CASA ratio with Interest rate.There is consistent growth in CASA ratio from 11% Q2 2011-12 to 18.3% in Q3 2012-13.
Yes Bank, our CASA is just about 11%, but more importantly only about 2% of the 11% is
savings with the rest being current account balances, which are very lucrative and not impacted
by todays proposition. The 2% savings, approximately about Rs 700 crore of deposits in our
bank, will have minimalistic impact as far as cost of funds is concerned.
0%2%4%6%8%
10%12%14%16%18%20%
Q 1
JuneFY 10
-11
Q2
SepFY10
- 11
Q3
DecFY
10-11
Q4
MarFY
10-
11
Q 1
JuneFY
11-12
Q2
SepFY11
- 12
Q3
DecFY
11-12
Q4
MarFY
11-
12
Q 1
JuneFY
12-13
Q2
SepFY12
- 13
Q3
DecFY
12-13
YES Bank
CASA Ratio
Inetrest rate
CASA ratio
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24
Impact of Interest rate Deregulation on CASA Ratio of the IndusindBank
The CASA ratio trend of Indusind bank with its interest rate is relatively moving in same
manner. There is no massive difference in CASA ratio before and after deregulation as it was
around 28.2% in Q 2 2011-12 and currently28.70% in Q3 2012-13.This shows that the Interest
rate deregulation is not much on CASA ratio of Total Deposits.
0%
5%
10%
15%
20%
25%
30%
35%
Q 1
JuneFY 10
-11
Q2
SepFY10 -
11
Q3
DecFY 10-
11
Q4
MarFY 10-
11
Q 1
JuneFY 11-
12
Q2
SepFY11 -
12
Q3
DecFY 11-
12
Q4
MarFY 11-
12
Q 1
JuneFY 12-
13
Q2
SepFY12 -
13
Q3
DecFY 12-
13
Indusind Bank
Casa Ratio
Interest rate
CASA ratio
Indusind Bank
Q 1
JuneFY 10 -
11
Q2
SepFY10 -
11
Q3 DecFY 10-
11
Q4Mar FY
10- 11
Q 1
JuneFY 11-
12
Q2
SepFY11 -
12
Q3 DecFY 11-
12
Q4Mar FY
11- 12
Q 1
JuneFY 12-
13
Q2
SepFY12 -
13
Q3 DecFY 12-
13
Interest
rate 4% 4% 4% 4% 4% 4% 6% 6% 6% 6% 6%
CASA
ratio 24.30% 25.40% 26.80% 27.20% 28.20% 27.70% 26.50% 27.30% 27.90% 28.00% 28.70%
CASA
deposits 6,663 7,959 8,214 9,331 9,946 10,627 10,757 11,563 12,557 13,365 14,651
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25
Impact of Interest rate Deregulation on CASA Ratio of the KotakMahindra
Bank:
Kotak Mahindra BankQ 1
June
FY 10
-11
Q2
Sep
FY10
- 11
Q3
Dec
FY
10-11
Q4
Mar
FY 10-
11
Q 1
June
FY 11-
12
Q2
Sep
FY11 -
12
Q3 Dec
FY 11-
12
Q4
Mar
FY 11-
12
Q 1
June
FY 12-
13
Q2
Sep
FY12 -
13
Q3
Dec
FY 12-
13
Interest
rate 4% 4% 4% 4% 4% 4% 6% 6% 6% 6% 6%
CASA
ratio 28% 32% 28% 30% 27% 26% 27.70% 32% 34% 32% 26%
CASA
deposits 6700 7700 7900 8791 8254 9247 10615 12402 11054 12321 13359
The CASA ratio trend is not stable for Kotak Mahindra Bank. There is not a continuous
movement in CASA ratio with Stable Interest rate (4%). After increase in interest rate there was
sudden growth in the ratio but which is not continuous as ratio declined in Q2 and Q4 of 2012-
13.
0%
5%
10%
15%
20%
25%
30%
35%
40%
Q 1
June
FY 10
-11
Q2
Sep
FY10
- 11
Q3
Dec
FY
10-11
Q4
Mar
FY
10-
11
Q 1
June
FY
11-12
Q2
Sep
FY11
- 12
Q3
Dec
FY
11-12
Q4
Mar
FY
11-
12
Q 1
June
FY
12-13
Q2
Sep
FY12
- 13
Q3
Dec
FY
12-13
Kotak Mahindra Bank
CASA Ratio
Interest rate
CASA ratio
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26
Impact of Interest rate Deregulation on CASA Ratio of the Axis Bank :
Axis Bank
Q 1June
FY 10
-11
Q2Sep
FY10 -
11
Q3Dec
FY 10-
11
Q4Mar
FY 10-
11
Q 1June
FY 11-
12
Q2Sep
FY11 -
12
Q3Dec
FY 11-
12
Q4Mar
FY 11-
12
Q 1June
FY 12-
13
Q2Sep
FY12 -
13
Q3Dec
FY 12-
13
Interest
rate 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4%
CASA
ratio 40% 42% 40% 40% 40.53% 42% 42% 42% 39% 41% 40%
CASA
deposits 55043 57674 62899 59551 74414 82140 86756 91422 86942 95538 97757
The CASA ratio of Axis Bank one of the Large Private sector banks is comparatively constant
that is in the range of 40%. There is slight movement in the Ratio with Stable interest rate.
0%5%
10%15%20%25%30%35%40%45%
Q1JuneFY10-11
Q2SepFY10
-11
Q3DecFY1
0-11
Q4MarFY10-11
Q1JuneFY1
1-12
Q2SepFY11
-12
Q3DecFY1
1-12
Q4MarFY11-12
Q1JuneFY1
2-13
Q2SepFY12
-13
Q3DecFY1
2-13
Axis Bank
Casa Ratio
Inetrest rate
CASA ratio
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27
The Trend of CASA Deposits For YES,Kotak,IndusindAnd Axis Bank:
0
2000
4000
6000
8000
10000
12000
Q 1
June
FY 10 -
11
Q2
Sep
FY10 -
11
Q3 Dec
FY 10-
11
Q4
Mar FY
10- 11
Q 1
June
FY 11-
12
Q2
Sep
FY11 -
12
Q3 Dec
FY 11-
12
Q4
Mar FY
11- 12
Q 1
June
FY 12-
13
Q2
Sep
FY12 -
13
Q3 Dec
FY 12-
13
YES Bank
CASA Deposits
CASA deposits
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Q 1
June
FY 10 -
11
Q2
Sep
FY10 -
11
Q3 Dec
FY 10-
11
Q4
Mar FY
10- 11
Q 1
June
FY 11-
12
Q2
Sep
FY11 -
12
Q3 Dec
FY 11-
12
Q4
Mar FY
11- 12
Q 1
June
FY 12-
13
Q2
Sep
FY12 -
13
Q3 Dec
FY 12-
13
Indusind Bank
CASA deposits
CASA deposits
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28
0
2000
4000
6000
8000
10000
12000
14000
16000
Q 1June FY
10 -11
Q2 SepFY10 -
11
Q3 DecFY 10-
11
Q4 MarFY 10-
11
Q 1June FY
11-12
Q2 SepFY11 -
12
Q3 DecFY 11-
12
Q4 MarFY 11-
12
Q 1June FY
12-13
Q2 SepFY12 -
13
Q3 DecFY 12-
13
Kotak Mahindra Bank
CASA deposits
CASA deposits
0
20000
40000
60000
80000
100000
120000
Q 1
June FY
10 -11
Q2 Sep
FY10 -
11
Q3 Dec
FY 10-
11
Q4 Mar
FY 10-
11
Q 1
June FY
11-12
Q2 Sep
FY11 -
12
Q3 Dec
FY 11-
12
Q4 Mar
FY 11-
12
Q 1
June FY
12-13
Q2 Sep
FY12 -
13
Q3 Dec
FY 12-
13
Axis Bank
CASA Deposits
CASA deposits
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29
The Trend of CASA Deposits is progressively upward from Q2 2011 that is after
deregulation of Interest rate for Yes Bank and Induind Bank compared to other two
banks.
In case of Yes Bank CASA deposits increased steadily from 5913.5 Crs. to 10340 Crs
(from Q3 2011 to Q3 2012 ) 4% after increase in interest rate to 7% and before
deregulation it was
And for Indusind bank it increased from 10,757 Crs.To 14651 Crs (from Q3 2011 to Q3
2012 ) which is 36% after increase in interest rate to 6%.
Kotak Mahindra Bank comparatively does not have high growth in the CASA deposits
like other two banks. The increase in Deposits is from10,615crs to 13,359 crs(from Q3
2011 to Q3 2012 ) that is 25%.
The Axis bank is showing similar trend of Increase in CASA deposits before and after the
deregulation of Saving Account interest rate.
Such trend of CASA deposits clearly explains that banks with lower casa ratio have huge
growth in CASA deposits, compared to banks with higher casa ratio.
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30
Conclusions:
Banks lay emphasis to increase the portion of CASA with them so as to reduce the costs because
higher CASA ratio means higher is the number of current account and saving account deposits in
bank which are cheaper source of fund.
Higher income from CASA will improve the net interest margin as the cost of this fund is
relatively lower. Hence, higher the CASA ratios better the net interest margin, which means
better operating efficiency of the bank. Banks having low CASA ratio will benefit as they have
fewer shares of saving deposits in their total deposits which leads to lower interest outgo. Banks
with Low CASA ratio will be first to increase interest rate which leads to competition. Yes Bank,
Kotak Mahindra Bank and indusind Bank have Low CASA ratio have already increase interest
rate.
The comparative analysis of these small sector banks with one of the large private sector bank
that is Axis bank shows that the strategic move of Banks who have lower casa ratio to increase
saving interest rate to attract new depositors and improve casa ratio will have significant impact
for short term but once the casa ratio will increase such with Industry level then such move will
not positively impact. Primary research analysis is supporting to this interpretation that Interest
rate is 4th
ranked factor for customers to consider for opening a new account with the bank. And
Banks Brand, Trust is 1st
foremost factor they will consider to have an account with the bank.
Such Interpretation concludes that the influence of saving account deregulation will not give
Positive impact for Long run to Banks. As there is increase in new customer acquisitions than a
mere increase in balances and higher interest rates on savings accounts will fall once there is acorrection in term deposit rates. Deregulation of interest rates on savings bank accounts has not
threatened the market.
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31
References:
www.rbi.com
Business standard news paper
BankBazaar.com
www.ijrcm.org.in Dinodia Capital Advisors research paper Indian Banking Industry: Rising above the Waves,
January
http://ir.kotak.com
http://www.indusind.com/indusind/wcms/en/home/top-links/investors-
relation/financials/index.html
http://www.axisbank.com/investor-corner/investor-corner.aspx
http://www.yesbank.in/index.jsp?navigationUrl=%2FYES+Bank+Repository%2Fen%2FInvestor
+Relations
http://www.rbi.com/http://www.rbi.com/7/28/2019 Banking Future
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32
Appendix
Name of the Respondent
Age
Place
1. If you want to open a Saving Account which type of bank you will prefer?
o Public sector bank
o Private sector bank
o Foreign bank
2. Which type of Account do you have with the current bank? (please mention name
of the bank below)o Saving Account (name of the Bank :__________________________)
o Current Account(name of the Bank :_________________________)
3. From how much time you are dealing with this current bank?
o 0-1 year
o 1-2 years
o 2-5 years
o 5-10 years
o More than 10 year
4. Indicate the extent to which each of the following factors were (or would be)
important to you when choosing a Bank for your saving account by selecting the appropriate
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number where 5= very important and 1 = unimportant. If a factor had no importance, please
circle number one.
1 2 3 4 5
Better Interest rate provided than
er competitor Bank
Recommendations by family
mbers or friends
Service provided by Bank
Location of branch and ATMs
Knew the bank staff
5. If any competitor bank is giving you more interest rate than your current bank
would you open a bank account in that bank?
o Yes______________________________________________________________________________
________________________________________________________________________________
_____________________
o No______________________________________________________________________________
________________________________________________________________________________
______________________
6. If you want to change the Bank for saving account following which Bank you will
prefer to do so?
o Yes Bank
o Kotak Mahindra Bank
o Induslnd Bank
o Other commercial bank