CRISIL has said the cost of deposits for banks will rise by 10-20 basis points as they begin to calculate interest on savings account balances on a daily basis. The impact will be highest for banks that have a dominant share of salary accounts with highly fluctuating balances.
However, this increase is not significant to materially impact bank profitability or lead to any significant change in the share of low-cost deposits in the banking system.
According to an RBI directive from April 1, all banks have started computation of monthly interest on savings accounts on a daily basis instead of the current method of linking the interest to the minimum balance between the tenth and last day of each month.
It is estimated that for a salary account holder with a minimum savings balance between 1-2 times of the monthly salary, the increase in interest income will be between 10% and 25%.
The higher interest outgo on savings accounts will increase the cost of deposits for banks. It added that the impact would be reduced by the low interest rate of 3.5% offered on savings deposits.
Assuming that the entire savings balances for the banks are transaction intensive, Crisil estimates that the overall increase in the cost of deposits for banks will be between 10 bps and 20 bps.
While the adoption of the daily average method will result in some increase in the cost of deposits for banks, the increase is likely to be marginal and in itself will not have a material impact on the earnings profile and, consequently, the credit quality of Crisil-rated banks.
Current and savings account deposits account for 33% of deposits in the banking system as of March 2009.
The share of savings deposits is estimated to have increased to 25% as on December 2009 which would translate into an increase of 2-4% in CASA levels by March 31, 2010. This has been primarily due to sharply reduced interest rates on term deposits and a moderate credit growth regime, which has led to banks' retiring high cost wholesale deposits.
