CASA ratio

CASA stands for current account and savings account. Current accounts are used mainly by businesses to run their payments and usually pay no interest. Savings accounts are held mainly by individuals and pay a low rate. Fixed deposits, which pay more, are left out of the ratio.

Why a high CASA ratio is valuable

CASA money is cheap, and it is sticky. People keep salaries and business receipts in these accounts for convenience, not for the rate, so the balances do not move every time another bank offers a little more. A high CASA ratio therefore lowers a bank's cost of funds and makes it less sensitive to rate moves. It is one of the main reasons some banks earn steadily higher margins than others, as the analysis of bank margins explains.

A worked comparison

Illustrative example. Two banks each hold ₹1,00,000 crore of deposits. Bank A has 10 percent in current accounts at no interest, 30 percent in savings at 3 percent and 60 percent in fixed deposits at 7 percent. Its average cost of deposits is 5.1 percent. Bank B has 5 percent in current accounts, 20 percent in savings and 75 percent in fixed deposits at the same rates. Its cost is 5.85 percent. The 0.75-point gap costs Bank B about ₹750 crore a year before it lends a single rupee.

How CASA moves through a rate cycle

When interest rates rise, fixed deposits become more attractive and some savers move money out of their savings accounts. CASA falls and the cost of funds rises, with a lag. When rates fall, the shift reverses slowly. Watch the credit-deposit ratio too: when loans grow much faster than deposits, banks must compete harder for deposits.

Where to find it

Banks report CASA in their quarterly results presentations. The deposits schedule in the annual report splits deposits into demand, savings and term deposits, so you can work it out yourself.

Common mistakes

• Using the quarter-end figure alone. Current account balances can jump on the last day of a quarter. Where a bank reports average CASA, use that.
• Reading CASA without the rate paid. A bank can lift its CASA ratio by paying a high savings rate, which defeats the purpose.
• Comparing banks with very different businesses. A bank with a large branch network, salary accounts and government business will usually have a higher CASA than a newer bank, so compare with close peers and with the bank's own history.

Questions investors ask

What is a good CASA ratio? There is no fixed level. Compare with close peers and with the bank's own trend, and read it together with cost of funds.

Why does CASA fall when interest rates rise? Because higher fixed deposit rates pull money out of low-paying savings accounts.