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| Squeeze effect |
Mumbai, Aug. 10: Banks have become wary of offering overdraft facilities with current accounts as loan defaults increase because of a spike in interest rates.
A few months back, overdrafts were one of the key selling points of current account schemes. This is no longer the case now.
The brochures of commercial banks, both state-run and private, reveal that they are now highlighting other features such as immediate credit of outstation cheques, free account-to-account transfers within the same bank and the waiver of processing charges on car loans. While some banks have pruned the overdraft limit, others have decided to do away with the facility.
Public sector Vijaya Bank has directed its branches to stop giving overdrafts.
“We have received instructions twice from our head office that overdrafts should not be given. Even the branch manager does not have the power to give an overdraft. Only the regional office can allow it and that, too, in rare cases,” an official who did not wish to be identified said.
Kotak Mahindra Bank has trimmed its overdraft limit. K.V.S. Manian, the bank’s head of retail liabilities and branch banking, told The Telegraph that though the bank did not stop issuing overdrafts, it had brought down the limit marginally to around 3-3.5 times the minimum average balance from four times earlier. A senior official from the Bank of India said the bank was providing the facility only if it was backed by a collateral.
Banks bet big on current and savings accounts (CASA) as they can raise resources at a low cost and later lend at higher rates. They, therefore, have been offering many facilities to current account holders.
Current accounts, which cater to the business segment, do not yield any interest to the account holder. “We have been focussing on raising the CASA ratio as it helps strengthen our margins,” a spokesperson from HDFC Bank said.
The private sector bank has one of the highest CASA share in the industry. For the first quarter ended June 30, the bank’s share of CASA stood at around 45 per cent of its total deposits.
