Mid-tier private banks in India increase low-cost deposits

Mid-tier private banks in India are increasing their intake of low-cost deposits to strengthen their financial foundations ^[1].

This shift in strategy marks a departure from aggressive loan expansion. By prioritizing the accumulation of low-cost funds, these banks aim to reduce their cost of capital and create a more sustainable funding model that protects against market volatility.

Bank executives have focused on building the Current Account Savings Account, or CASA, ratio. This metric represents the proportion of total deposits held in current and savings accounts, which are significantly cheaper for banks to maintain than term deposits ^[1].

V Vaidyanathan, MD and CEO of IDFC First Bank, said that the institution intentionally slowed its loan book growth to fix internal problems. "If we had kept growing the loan book, we could never have addressed structural issues like this," Vaidyanathan said ^[2].

This strategic pivot has led to significant growth in deposit ratios. Vaidyanathan said that the CASA ratio for IDFC First Bank was only 10% initially ^[3]. The bank has since pursued a target CASA ratio of 50% ^[4].

The focus on these low-cost deposits is part of a broader effort to ensure the banks can sustain growth over several years. This approach allows institutions to stabilize their balance sheets while they refine their operational structures, a process that requires a more stable capital base than rapid lending provides.

Vaidyanathan said the necessity of a patient approach to institutional growth is key. "I believe in playing the long game in every format," Vaidyanathan said ^[5].