Kotak Targets HDFC and ICICI Banks in Savings Rate Gamble
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.