ICICI Bank’s Q2 Results: What Lies Behind

2 11 2008


 Last month, ICICI Bank reported its results for the Q2 ended 30th September 2008.The Bank has been able to maintain its margins by reducing its operating expenses and increasing its share of  CASA  (Current Account and Savings Account) deposits . As CASA  deposits are low cost deposits, they are the darlings of all commercial banks. They reduce the banks’ cost of funds. On savings accounts, they pay a measly 3.5% now and on current accounts they pay no interest.



ICICI Bank claims to have grown CASA by 30 % over the same period last year How did they achieve this significant increase at a time when the fixed deposit rates were offering an attractive yield? 



A major shift in policy helped ICICI Bank to increase its CASA deposits. (Mind you, we’re talking about  the increase in deposits here, not the depositors). From July 1, 2008, it mandated all savings bank account holders to maintain a minimum balance of Rs 10,000 in place of Rs 5,000. This was not applicable for salary accounts and no-frill accounts. ICICI Bank sent out a letter to all its savings account holders informing the same and adding that they would levy a Rs 750 + Service Tax, should the accountholders failed to maintain a Quarterly Average Balance (QAB) of Rs 10,000. They also  suggested their customers that should they found the hike in QAB too steep, they were free to switch to a no-frill account with the bank or even close the account. The Rs 10,000 minimum balance is the highest among all banks ( including all public and private sector banks, except Kotak Mahindra Bank, which also requires a Rs 10,000 min QAB). One fails to understand why ICICI Bank is imposing a minimum balance  limit which is at least ten times that of a PSU bank for offering exactly the same range of services?



While the weeding out of non-remunerative savings accounts may incease operational profits, it may also surge the number of disgruntled customers. I suspect alienating such customers has contributed  to the current problems with perceptions that ICICI Bank seems to be grappling with.

– G. Mohan




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