If you’ve ever made a payment through a fintech app, you’re probably familiar with the satisfying sound of a notification announcing the amount you’ve paid. That sound comes from a device called a sound box, which has quickly become a must-have for merchants.
The latest to take notice of the humble sound box is the country’s largest public-sector lender, State Bank of India (SBI). It plans to launch and incentivise its 40 million current-account users with the sound box in order to address a falling CASA ratio CASA ratio CASA ratio Current Account and Saving Account ratio of a bank is the ratio of deposits in current and saving accounts to total deposits. .
Banks pay very low interest rates of ~3% when customers park their money in savings accounts, while current accounts are interest-free. Thus, CASA deposits are lenders’ cheapest source of capital, and SBI’s CASA ratio recently dipped by 176 basis points basis points Basis points One basis point is one-hundredth of a percentage point. (bps) to 44.48%.
SBI has been excelling in most other growth benchmarks. It registered the highest-ever quarterly profit in the three months ended December 2022, improved net interest margin (NIM)—the difference between interest yield and expense—and reduced gross non-performing assets gross non-performing assets Gross non-performing assets GNPA: Gross NPA (GNPA) denotes the total of all the loan assets that haven't been repaid by the borrowers within the 90-day period. . Despite this, “the top management is worried,” according to a senior SBI employee, who did not want to be named as they are not authorised to speak with the media.
SBI is finding it increasingly expensive to fund loans at a time when India is experiencing an unprecedented credit upswing. In SBI’s case, for the quarter ended December 2022, year-on-year growth in loans given out was ~1.7X of deposits in the same period.
Additionally, the Reserve Bank of India—the country’s banking regulator—has increased increased The Economic Times RBI raises repo rate by 25 bps to 6.5% Read more the repo rate repo rate Repo rate Repo Rate is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks or financial institutions in India against government securities. by 250bps since May 2022 to control retail inflation.
As a result, banks, including SBI, have had to pay more money to the regulator, leading to liquidity concerns and triggering a deposit war to attract customers.