3 Bank Stocks with Declining CASA and Rising NPAs to Add to Your Watchlist

Synopsis: CASA ratios are a key indicator of a bank’s funding strength, and a decline can increase borrowing costs. IndusInd Bank, Karur Vysya Bank, and CSB Bank have recently reported falling CASA ratios alongside pressure on asset quality indicators. These trends highlight potential margin risks investors should monitor in the banking sector.

The CASA ratio, which represents the share of low-cost current and savings deposits, is a crucial metric that determines a bank’s cost of funds and profitability. When CASA declines, banks often rely more on higher-cost term deposits, which can compress net interest margins. At the same time, rising or elevated non-performing assets (NPAs) indicate increasing credit risk. In recent quarters, several private sector banks have witnessed declining CASA ratios alongside pressure on asset quality. Here are three banking stocks where these trends are becoming increasingly visible.

IndusInd Bank 

IndusInd Bank Limited is a commercial bank under the Banking Regulation Act. The bank is publicly held and provides a wide range of banking products and financial services to corporate and retail clients besides undertaking treasury operations. With a market cap of Rs 68,730 crore, the shares of IndusInd Bank Ltd are trading at Rs 883 and are trading at a discount of 9% from their 52-week high 

The case of IndusInd Bank is such that it is facing pressure on its low-cost deposits during recent quarters as its CASA ratio is falling. The CASA ratio of the bank declined by 43 points on a year-on-year basis and is currently at 30.3%. This is because a higher amount of deposits is coming from term deposits as compared to current and savings accounts. This is a worrying sign as it will increase the cost of funds for the bank and will result in a lower NIM if this is not arrested.

However, the bank is also facing pressure on its asset quality indicators. The gross NPA of the bank is at 3.56%, and its net NPA is at 1.04%, which is higher than its previous period 

Karur Vysya Bank Ltd

Karur Vysya Bank is engaged in providing a wide range of banking and financial services, including commercial banking and treasury operations.With a market cap of Rs 28,600 crore, the shares of Karur Vysya Bank Ltd are trading at Rs 296 and are trading at a PE of 12.4 compared to their industry’s PE of 15.4.

The bank continues to grow its business with increasing deposit and advances growth. However, the bank is also witnessing a decline in its low-cost deposit base. The CASA ratio of the bank decreased by 43 points on a year-on-year basis and stood at 27.2%. This indicates that the bank is increasingly relying on term deposits and other higher-cost funding sources for its increasing advances.

Regarding its asset quality, it is observed that the bank is maintaining its asset quality. The bank’s gross NPAs stood at 1.05%, whereas its net NPAs stood at 0.19%. These figures are significantly low when compared with other mid-sized private banks. Although its NPAs are comfortable, its CASA ratio is decreasing, and it might impact its funding costs and margins.

CSB Bank Ltd

CSB Bank (formerly The Catholic Syrian Bank Ltd) is engaged in the business of banking services, is one of the oldest private sector banks in India with a history of over 98 years, and has a strong base in Kerala. The bank focuses on SME, retail, and NRI customers.

With a market cap of Rs 6,188 crore, the shares of CSB Bank Ltd are trading at Rs 357 and are trading at a PE of 10 compared to their industry’s PE of 15.4.

CSB Bank reported that its balance sheet has shown steady growth in the quarter, while its low-cost deposits have shown weakening trends. CSB Bank’s CASA deposits have shown a decline of 62 basis points year-on-year to 20.6%. This reflects that more and more of its deposits are moving to higher-cost sources of funding. This will impact its net interest margins in the coming quarters if this trend of declining CASA deposits continues.

On the other hand, the bank has reported a marginal increase in its stressed assets. Its net non-performing assets have increased to 0.67% in the latest quarter compared to 0.64% in the previous year. This reflects that its bad loans have increased by 3 basis points year-on-year. Though this increase is marginal, it reflects that its asset quality is showing a marginal decline as lending activities are increasing.

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