"Banks have been asked to cut down their reliance on bulk deposits. They need to focus on mobilising low-cost deposit. They should be focusing more on CASA (current account savings account)," Financial Services Secretary Gurdial Singh Sandhu told media.
They should be aiming at 40 per cent CASA for improving their profitability, he said.
CASA is mobilised at a very low rate and subsequently deployed for lending at a much higher rate resulting in higher margin for banks.
All the public sector banks provide 4 per cent per annum interest rate on savings account, while it is nil for current account deposits. So, the average cost of funds comes much lower than 4 per cent. At the same time, base rate or minimum lending rate for most of the banks is above 10 per cent.
On bad debt, all banks have been directed to step up efforts for loan recovery, he said, adding, banks should also pay attention to cutting overhead cost.
He also said banks need to accord top priority to cases of fraud and willful default and take legal action against those responsible.
Moreover, non-performing assets or bad loans of state-owned banks rose by 28.5 per cent from Rs 1.83 lakh crore in March, 2013 to Rs 2.36 lakh crore in September last year.
Banks recovered Rs 18,933 crore worth of bad loans during the April-December period. They have been monitoring their top 30 bad loan accounts for quite some time now.