For the first time in a decade, state-owned banks have beat private sector banks on the current account and savings account (CASA) ratio and asset quality front in financial year 2024-25.
Experts said that state-owned banks have been aggressively focusing on retail deposits towards the end of the year, compared to private peers, leading to their CASA ratio remaining within the guided levels or slightly lower.
“In Q4 FY2025, public sector banks witnessed a slight increase in their share of CASA, given the aggressive push towards raising retail deposits at the year-end. However, private sector banks continued to witness a decline, though marginally,” said Sachin Sachdeva, Vice President, Sector Head - Financial Sector Ratings, ICRA.
On the asset quality front, experts added that the fresh NPA (non-performing asset) level in private sector banks increased primarily, owing to the stress in the unsecured personal loan segment, including micro finance. This led to state-owned banks posting better asset quality.
According to a Moneycontrol analysis, state-owned banks have a CASA ratio in the range of 31-54 percent in FY25, compared to the 24-47 percent of private banks. This is a better level for the state-owned banks in a decade than private banks, which were having a higher share.
In the last few quarters, banks have been struggling with deposit mobilisation, especially on the CASA front, due to unattractive interest rates for depositors as other financial products offered greater returns.
Even after this, banks have been able to manage the CASA deposit at competitive levels in Q4FY25. Banks, especially state-owned ones, were able to maintain the CASA ratio within the guided level or slightly lower, thanks to the introduction of innovative products.
Additionally, stress over CASA ratio has increased after the central bank started the rate-cutting cycle, leading to banks adjusting rates on these deposits. So far, the RBI has cumulatively cut 100 bps repo rate to support growth.
Kotak Institutional Equities, in a report, said that the recent policy rate cuts have started influencing NIMs (net interest margins) through the repricing of loans ahead of deposits.
“While loans linked to EBLR (External Benchmark Lending Rate) were repriced immediately, the repricing of term deposits is expected to take longer. Additionally, most banks have reduced savings account interest rates, as repricing affects existing stock rather than new deposits,” report added.
Compensating with CD issuance
As stress persists for banks on the deposit mobilisation front, a few banks have been tapping the short-term debt market to raise funds through certificates of deposits (CDs).
According to the Reserve Bank of India’s (RBI) annual report, CD issuances increased as banks supplemented their deposit resources. In the primary market, fresh issuance of CDs increased to Rs 2.8 lakh crore in Q2 of FY2024-25 -- from Rs 2.5 lakh crore in Q1 and further to Rs 2.9 lakh crore in Q3 -- amidst credit growth remaining higher than deposit growth. It stood at Rs 3.7 lakh crore in Q4.
“Issuances of CDs increased as credit growth remained robust, although there was narrowing of gap between credit and deposit growth,” RBI said in its annual report.
Asset quality
In Q4FY25, state-owned banks have beaten private banks with better asset quality due to lower incremental slippages, recoveries and upgradations in the former.
According to a CareEdge report, as of March 31, 2025, gross NPAs of state-owned banks improved significantly, declining by 17 percent YoY to Rs 2.94 lakh crore, reflecting the continued strengthening of asset quality. On the other hand, gross NPAs of private banks rose by 5 percent YoY to Rs 1.21 lakh crore as of March 31, 2025.
Net NPAs of state-owned banks improved by 23.3 percent on-year to Rs 0.60 lakh crore as of March 31, 2025, while net NPA of private banks increased by 13.6 percent on-year to Rs 0.33 lakh crore, driven by stress seen in microfinance and unsecured segments.
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