Ko­tak Tar­gets HDFC and ICICI Banks in Sav­ings Rate Gam­ble

The Economic Times - - Companies - Joel Re­bello & Saloni Shukla

Mum­bai: Uday Ko­tak has set a scorch­ing pace for ev­ery­one in the bank­ing in­dus­try in the past two years. Ko­tak Mahin­dra Bank’s de­posits, as­sets and prof­its have surged. But in a de­clin­ing in­ter­est rate sce­nario with credit and de­posit growth stut­ter­ing, the bank­ing in­dus­try is re­spond­ing by cut­ting lend­ing, sav­ings and de­posit rates hop­ing to pro­tect mar­gins and boost lend­ing. MD, Ko­tak Mahin­dra Bank does put pres­sure on mar­gins. (But) you may work on prob­a­bly nar­rower mar­gins but sig­nif­i­cantly larger vol­umes and that is what we want.” What Ko­tak is also do­ing is some­thing that all com­peti­tors do. He is chal­leng­ing the dom­i­nance of ri­vals like HDFC Bank and ICICI Bank who with their high CASA ra­tios take away a big chunk of or­di­nary sav­ings. CASA refers to cur­rent and sav­ings ac­count de­posits. It is the cheap­est and the stick­i­est source of fund­ing for banks. A higher por­tion of CASA in a bank’s over­all de­posit mix brings down its av­er­age cost of funds, im­prov­ing prof­itabil­ity. Ko­tak’s CASA has surged in re­cent years ris­ing from 28% in 2011 to 35% in De­cem­ber 2015 thanks to the buy­out of ING Vysya. Ko­tak wants it to go higher to 40% in the next 18 months and hence the de­ci­sion to stick to higher sav­ings rate. A 40% CASA ra­tio by the end of next fis­cal will or­bit Ko­tak into the space oc­cu­pied by the likes of ICICI and HDFC Bank, its larger ri­vals. The two have CASA ra­tios at 45% and 40%, re­spec­tively.

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