Two types of accounts form the foundation of almost every bank’s deposit base: current accounts and savings accounts. Together, they’re called CASA — and the proportion of a bank’s total deposits that comes from these two account types is one of the most watched metrics in the entire banking industry.
Why? Because CASA deposits are cheap. Savings accounts pay 2.5% to 4% interest. Current accounts pay nothing at all. Compare that to fixed deposits, which might cost a bank 7% or more, and the math becomes obvious: a bank that funds itself with 50% CASA and 50% FDs is paying far less for its money than one relying 80% on FDs. And cheaper money means better profitability and room to offer more competitive loan rates.
Why CASA Ratio Is So Closely Watched by Investors
When analysts evaluate a bank’s quarterly results, CASA ratio gets as much attention as NPA numbers. Here’s why: if a bank’s CASA ratio drops from 45% to 38% in a year, it means depositors are moving money out of savings accounts and into FDs — possibly because FD rates have risen and people are chasing returns. The bank must now compete by offering higher FD rates, which directly squeezes its Net Interest Margin (NIM) and reduces profitability.
HDFC Bank built its reputation — and premium valuation — partly on its consistently high CASA ratio. Even during periods when the broader banking sector saw CASA erosion, HDFC Bank maintained 40%+ through a combination of salary account partnerships with large employers, easy digital account opening, and strong branch banking. HDFC Bank’s CASA advantage means it consistently pays less for deposits than most competitors, which flows directly into its superior ROA (Return on Assets).
For ordinary customers, CASA ratio is irrelevant in daily life — you’re either using a savings account or a current account, and the bank’s overall funding mix doesn’t affect your experience directly. But if you’re evaluating a bank’s health — either as an investor or a large depositor — a declining CASA trend is an early warning sign worth paying attention to.
Frequently Asked Questions
Q: What is the full form of CASA in banking?
CASA stands for Current Account and Savings Account. The CASA ratio — the proportion of these low-cost deposits in a bank’s total deposit base — is a key indicator of the bank’s funding cost and profitability.
Q: Is a high CASA ratio good or bad for a bank?
High CASA is good for the bank — it means a larger portion of funding comes from cheap or zero-cost deposits, which lowers overall borrowing costs and improves profitability. For borrowers, banks with high CASA can often afford to offer more competitive loan rates.
Q: How do banks increase their CASA ratio?
Mainly through: salary account tie-ups with corporates (guaranteed monthly credits keep accounts active); aggressive digital account opening; building branch networks in high-footfall areas; offering value-added services like zero-AMB accounts or high-savings-account rates (some banks offer 6–7% on savings to attract deposits); and building a strong Jan Dhan/zero-balance account base.
Q: What’s the difference between CASA and FD from a bank’s perspective?
FDs cost the bank 6–8% per annum and are locked in for fixed terms — the bank knows exactly when to repay but pays a premium for certainty. CASA is cheaper (0–4%) but can be withdrawn on demand. Balancing these two — stable term funding vs cheap liquid funding — is one of the core challenges in bank treasury management.
