Bank competition-CASA War-IDBI shows the way

IDBI decided to do away with minimum deposit for CASA (current and savings accounts) accounts and it is a welcome move. "RM Malla, CMD of the bank said the move is aimed at improving low-cost deposits (savings and current account) which stand at 14% — probably lowest in the industry. IDBI has a low share of retail deposits as a large part of its balance sheet originated from the erstwhile Industrial Development Bank of India, which relied largely on wholesale funds. Until now, IDBI was charging depositors fees in the range of `100 to `200 if the quarterly average balance fell below `5,000 for SB accounts and Rs.10000 for Current account.

Banks should realise that they need funds at minimum rates so that they can lend to others at higher rate and manage their expenses and profit within that margin of difference. But forgetting this, many banks started charging various fees on savings and current account holders in order to earn fee income which is slowly more than the interest income. This is a not a good sign. The banks should encourage savings so that they can lend it to others and earn margins. Slowly the money is going to share market and also to big companies in the form of loans and debentures. In order to stop this exodus, the banks should evolve ways to attract CASA. In olden days, banks used to give employment to the kith and kin of big depositors in order to allure them to have big deposits thus making them profitable.Demand drafts are issued at par. Now the reverse tendency is going on. For flimsy reasons, fees are charged on customers. IDBI has come out of this shell and declared that there will not be bank charge for not maintaining any minimum deposit. A good and sensible move. CASA is the cheapest source of funds for banks and they should strive hard to get more so that they can have sizable funds at their disposal for lending. Now very soon, funds will be a problem and banks should foresee this and plan now itself. Due to computers, manpower costs have come down heavily and there is no reason for any flimsy charges on CASA holders.