State Bank of India Revises Strategy to Boost Current Account Deposits

The State Bank of India (SBI) is revising its strategy to boost current account deposits in light of the government’s “just-in-time” (JIT) funding policy, which has decreased the bank’s liquidity. SBI is now concentrating on appealing to mid-range and high-value customers, including startups and new businesses. To support this initiative, SBI has established transaction banking hubs in 34 locations across the country.

The JIT funding policy, which promotes timely payment releases to enhance cash management and oversee fund allocation under Centrally Sponsored Schemes (CSS), has resulted in a reduction of liquidity in the banking sector. This development has prompted SBI to adjust its strategic approach.

Banking expert V Viswanathan pointed out that advancements in payment systems—such as the Real Time Gross Settlement System (RTGS), National Electronic Funds Transfer (NEFT), Immediate Payment Service (IMPS), and cheque truncation—have also played a role in diminishing liquidity.

Current accounts, commonly used for various business transactions, do not accrue interest but do offer overdraft facilities. Traditionally, these accounts could generate liquidity during delays in payment processing. However, recent trends indicate a decline in current account and savings account (CASA) deposits, which accounted for 41.88% of domestic deposits as of September 2023.

SBI Chairman Dinesh Kumar Khara has linked the decrease in CASA deposits to changing consumer behaviors during inflationary periods. Therefore, SBI is focusing on strengthening its current account offerings relative to its savings accounts, aligning with a broader strategy to mitigate the impacts of the JIT funding policy and shifting customer patterns.

While SBI’s adjustments appear to be fostering growth, it’s crucial to pay attention to significant financial metrics. Recent data indicates that SBI has experienced a revenue increase of 5.67% over the past twelve months as of the second quarter of 2023. Additionally, the bank’s market capitalization is reported at approximately 102.47 million USD, with a quarterly revenue growth of 11.6% for the same period, suggesting that the new strategies may be effective.

However, there are potential concerns. The bank has been rapidly consuming cash and has witnessed a rise in total debt over consecutive years, which may influence its capacity to sustain a dividend yield currently at 3.87%.

In summary, while SBI’s strategic adaptations seem to be promoting growth, investors should closely monitor these financial indicators moving forward.