Summary: The CASA (Current Account and Saving Account) ratio is a key metric used in the banking sector to measure the proportion of low-cost deposits (current and savings accounts) to a bank’s total deposits. This ratio significantly influences a bank’s profitability as current accounts generally offer no interest, and savings accounts provide minimal interest, resulting in a lower cost of funds. A higher CASA ratio implies that a bank can lower its cost of capital, thus boosting profit margins. Conversely, term deposits such as fixed and recurring deposits come with higher interest rates, increasing the bank’s expenses. A higher CASA ratio allows banks to offer more competitive loan interest rates while maintaining a higher gross margin. However, banks must carefully manage the risk associated with CASA deposits, as these funds can be withdrawn at any time, unlike fixed deposits, which are locked in for a specific period. The CASA ratio is a vital performance indicator, as demonstrated by its variation among banks, with some public and private sector banks consistently achieving higher ratios over recent years.
Current Account and Saving Account (CASA) ratio is a widely used ratio in banking sector.
We can divide the whole discussion about CASA as following:
1) Overview of banking industry in the world
Banking sector is one of the important financial sectors which helps the business to execute financial transaction. All over the world there are many banks which makes import and export of goods and services possible.
There are 91 (Ninety one) Commercial bank in India as on date and we can compare the same with number of commercial bank in our neighbouring countries and some of the advanced countries (in terms of GDP) as below:
| S.N | Country name | Number of Commercial Banks (approx) | Nominal GDP (USD Trillion) -2024 | % of world GDP |
| 1 | United States | 4,470 | 28.78 | 26.28% |
| 2 | China | 4,561 | 18.53 | 16.92% |
| 3 | Germany | 147 | 4.59 | 4.19% |
| 4 | Japan | 110 | 4.11 | 3.75% |
| 5 | India | 91 | 3.94 | 3.59% |
| 6 | Pakistan | 41 | 0.34 | 0.31% |
| 7 | Nepal | 30 | 0.04 | 0.04% |
| 8 | Bangladesh | 62 | 0.46 | 0.42% |
| 9 | Sri Lanka | 30 | 0.07 | 0.07% |
As we can see from above table India is the 5th largest economy in the world with estimated Nominal (at current price) GDP of USD 3.94 Trillion (representing around 3.59% of world GDP) with number of commercial banks of around 91, whereas United States with 26.28% of world GDP has around 4470 commercial banks.
Such wide difference between the number of banks in India in comparison to that of USA and China primarily depends upon the geographical area, Govt Regulations and Banking habits of people in that country.
2) Types of Banks in India
In India, there are primarily two types of banks. 1) Schedule bank and 2) non-schedule bank. Schedule banks are those banks which are registered with RBI and non-schedule bank are not registered with RBI.
In our day to day life, the difference between schedule and non-schedule bank is being seen while we are required to deposit any demand draft with educational institutions and Govt departments, who insist for demand draft from a schedule bank only. Apart from that whenever a firm is required to give Bank Guarantee to its supplier for availing credit, these suppliers also insist for Bank Guarantee from a schedule bank only because of safety reasons.
In India commercial banks are primarily divided into public sector banks, Private sector banks and small finance banks. List of scheduled public sector banks, private sector banks and small finance banks is as below:
| S.N | Private Sector Banks | Public Sector Banks | Small Finance Banks |
| 1 | Axis Bank | Bank of Baroda | Au Small Finance Bank |
| 2 | Bandhan Bank | Bank of India | Capital Small Finance Bank |
| 3 | CSB Bank | Bank of Maharashtra | Equitas Small Finance Bank |
| 4 | City Union Bank | Canara Bank | ESAF Small Finance Bank |
| 5 | DCB Bank | Central Bank of India | Jana Small Finance Bank |
| 6 | Dhanlaxmi Bank | Indian Bank | Northeast Small Finance Bank |
| 7 | Federal Bank | Indian Overseas Bank | Shivalik SFB |
| 8 | HDFC Bank | Punjab and Sind Bank | Suryoday Small Finance Bank |
| 9 | ICICI Bank | Punjab National Bank | Utkarsh Small Finance Bank |
| 10 | IDBI Bank | State Bank of India | Unity Small Finance Bank |
| 11 | IDFC First Bank | UCO Bank | Ujjivan Small Finance Bank |
| 12 | IndusInd Bank | Union Bank of India | |
| 13 | Jammu & Kashmir Bank | ||
| 14 | Karnataka Bank | ||
| 15 | Karur Vysya Bank | ||
| 16 | Kotak Mahindra Bank | ||
| 17 | Nainital Bank | ||
| 18 | RBL Bank | ||
| 19 | South Indian Bank | ||
| 20 | Tamilnad Mercantile Bank | ||
| 21 | Yes Bank |
3) Sources and utilisation of Funds for a Bank
As we know the primary function of a commercial bank is to accept deposit and grant credit in form of loans. The following are the sources of inflow and outflow of funds for a commercial bank.
| Inflow of cash | Outflow of Cash |
| Accepting Deposits | Granting loans and advances |
| Credit from other banks / RBI | Making other Investments |
| Collecting fees for services | Incurring operating expenses |
Major source of fund for a commercial bank is accepting deposits (on returnable basis). A bank accepts deposits in primarily 4 forms:
- Current Account deposits
- Saving Account deposits
- Fixed Deposits (also known as Term Deposit)
- Recurring Deposit
As we know banks don’t pay any interest on current account deposits and a very low rate of interest on saving account deposit (around 3% P.A).
In case of Fixed deposit and Recurring deposit, banks use to provide rate of interest in the range of 6% P.A to 8.5% P.A.
On comparing these two interest rates it’s simple to understand that cost of fund for a bank is very low in case of Current Account and Saving Account (CASA) deposits i.e around 1.50% P.A (assuming equal weights for current account and saving account deposits), whereas in case of term deposits (Fixed deposit and Recurring Deposits) cost of fund will be around 7% P.A (i.e a spread of around 5.50% PA (7% – 1.50%)).
In other words, if a bank is getting higher amount of CASA (Current Account Saving Account) deposits then it’s overall cost of fund will be lower, which will enable the firm to lend at a comparatively lower rate and make higher profit.
4) CASA Ratio calculation and Interpretation
CASA ratio = (CASA deposits / Total Deposits) * 100
For example:
Consider two Banks: Bank X and Bank Y.
The financial data as on 31st March 2024 is as below:
| Name of the Bank | Bank- X | Bank- Y | ||
| Particulars | Rs in Lacs | Interest rate | Rs in Lacs | Interest rate |
| CASA deposits | 500.00 | 1.50% | 900.00 | 1.50% |
| Other Deposits | 1,500.00 | 7.00% | 1,100.00 | 7.00% |
| Total Deposit Received | 2,000.00 | 2,000.00 | ||
| Loan Granted | 2,000.00 | 9.00% | 2,000.00 | 9.00% |
Bank X has accepted deposit of Rs 2,000 Lacs (with CASA Deposit of Rs 500 Lacs i.e 25% CASA ratio) and has grated loan of Rs 2000 lacs with interest rate of 9%.
Bank Y has accepted deposit of Rs 2000 Lacs (with CASA Deposit of Rs 900 Lacs i.e 45% CASA ratio) and has grated loan of Rs 2000 lacs with interest rate of 9%.
The gross profit calculation of these two banks (excluding other income and expenses) is as below:
| Name of the Bank | Bank- X | Bank- Y | ||
| Particulars | Rs in Lacs | Remark | Rs in Lacs | Remark |
| Expenditure | ||||
| Interest on CASA deposits | 7.50 | (1.50% of 500) | 13.50 | (1.50% of 900) |
| Interest on other deposits | 105.00 | (7% of 1,500) | 77.00 | (7% of 1,100) |
| 112.50 | 90.50 | |||
| Income | ||||
| Interest on loan given | 180.00 | (9% of 2,000) | 180.00 | (9% of 2,000) |
| Gross Margin | 67.50 | Income – Expenditure | 89.50 | Income – Expenditure |
As we can see the Bank -Y with higher CASA ratio of 45% makes a gross margin of Rs 89.50 lacs whereas Bank-X with CASA ratio of 25% makes a gross margin of Rs 67.50 lacs only (i.e difference of Rs 22 lacs).
So higher CASA ratio is beneficial for a bank in terms of margin. However, it possesses a risk of uncertainty about withdrawal of these CASA deposits since money from a current and saving account can be withdrawn at any time, whereas in the case of Term Deposits they are with the bank for a specified period. Hence banks can make funding plan easily with the term deposits in comparison to CASA deposits.
For analysis of a company we look at ratios (like Gross Profit ratio, Net profit ratio, Debt-equity ratio etc). In case of banking companies one of the important ratio is CASA ratio, since it gives an indication about the cost of accepting deposits of the bank.
Higher CASA ratio indicates that overall cost of deposits for the bank is lower and vice-versa.
CASA ratio is determined at a point of time (may be at end of year, quarter etc). So it’s a point concept.
5) Statistical Data of CASA Ratio of prominent Banks over last 5 years
Below table gives a summary of CASA ratio for some of the banks in India: (Source: Moneycontrol)
| S. N. | CASA ratio (%) as on | 31.03.2024 | 31.03.2023 | 31.03.2022 | 31.03.2021 | 31.03.2020 |
| Public Sector Banks | ||||||
| 1 | Bank of Maha-rashtra | 52.73 | 53.38 | 57.85 | 53.98 | 50.29 |
| 2 | Central Bank of India | 50.04 | 50.45 | 50.63 | 49.27 | 46.40 |
| 3 | Indian Overseas Bank | 43.89 | 43.74 | 43.43 | 42.51 | 40.25 |
| 4 | Indian Bank | 40.77 | 41.98 | 41.76 | 42.30 | 34.65 |
| 5 | Punjab National Bank | 40.33 | 41.99 | 46.55 | 44.54 | 42.97 |
| 6 | State Bank of India | 39.89 | 42.66 | 44.51 | 45.39 | 44.22 |
| 7 | Bank of Baroda | 38.76 | 39.47 | 41.45 | 40.15 | 35.28 |
| 8 | UCO Bank | 37.45 | 36.78 | 39.42 | 39.15 | 39.41 |
| 9 | Bank of India | 37.17 | 38.41 | 40.08 | 36.68 | 36.51 |
| 10 | Union Bank of India | 33.57 | 35.25 | 36.53 | 36.32 | 35.58 |
| 11 | Punjab and Sind Bank | 32.41 | 33.58 | 33.80 | 32.80 | 29.57 |
| 12 | Canara Bank | 29.90 | 31.08 | 33.94 | 32.73 | 31.37 |
| Private Sector Banks (few) | ||||||
| 1 | IDBI Bank | 50.43 | 53.01 | 56.77 | 50.45 | 47.74 |
| 2 | IDFC First Bank | 47.24 | 49.76 | 48.44 | 51.74 | 32.16 |
| 3 | Kotak Mahindra Bank | 45.50 | 52.82 | 60.68 | 60.44 | 56.16 |
| 4 | Axis Bank | 42.98 | 47.15 | 44.99 | 44.92 | 41.19 |
| 5 | ICICI Bank | 42.17 | 45.83 | 48.69 | 46.28 | 45.11 |
| 6 | HDFC Bank | 38.18 | 44.38 | 48.16 | 46.11 | 42.23 |
| 7 | IndusInd Bank | 37.90 | 40.14 | 42.78 | 41.81 | 40.37 |
| 8 | Bandhan Bank | 37.09 | 39.28 | 41.60 | 43.38 | 36.83 |
| 9 | RBL Bank | 35.21 | 37.36 | 35.28 | 31.81 | 29.60 |
| 10 | South Indian Bank | 32.07 | 32.98 | 33.20 | 29.72 | 25.00 |
| 11 | Yes Bank | 30.90 | 30.75 | 31.11 | 26.13 | 26.63 |
| 12 | City Union Bank | 30.63 | 29.88 | 32.56 | 29.14 | 24.97 |
| 13 | CSB Bank | 27.20 | 32.18 | 33.65 | 32.19 | 29.17 |
| 14 | DCB Bank | 26.02 | 26.42 | 26.75 | 22.84 | 21.46 |
| Small Finance Banks (few) | ||||||
| 1 | Capital Small Finance Bank | 38.29 | 41.88 | 42.16 | 40.08 | 36.31 |
| 2 | Au Small Finance Bank | 33.40 | 38.43 | 37.28 | 23.00 | 14.47 |
| 3 | Equitas Small Finance Bank | 31.97 | 42.28 | 52.00 | 34.24 | 20.46 |
| 4 | Ujjivan Small Finance Bank | 26.69 | 26.41 | 27.29 | 20.55 | 13.53 |
| 5 | Utkarsh Small Finance Bank | 20.50 | 20.88 | NA | NA | NA |
| 6 | Jana Small Finance Bank | 19.70 | 20.20 | 22.52 | 16.29 | 7.39 |
From the above table we can see that among the public sector banks highest CASA ratio is for Bank of Maharashtra (52.73%) and lowest is for Canara Bank (29.90%).
Among the private sector banks highest CASA ratio is for IDBI Bank (50.43%) and lowest is for DCB Bank (26.02%).
Among Small Finance Banks highest CASA ratio is for Capital Small Finance Bank (38.29%) and lowest is for Jana Small Finance Bank (19.70%).
6) Factors affecting CASA Ratio, it’s advantages and drawbacks
CASA ratio is primarily driven by following factors:
1. Number of Business users holding current account
2. Salaried account holders- Generally salaried people tend to keep higher amount in saving bank accounts
3. Easy accessibility of bank branches- If a bank has higher number of branches/ ATM facility then it attracts large number of CASA customers.
4. Reputation and solvency of the bank- If the bank has good reputation and solvency, it attracts large number of CASA customers.
5. Sales promotion techniques adopted by banks- Now a days many banks use to provide relatively higher rate of interest on saving account beyond a threshold limit. It attracts a large number of saving account customers and thereby helps to improve CASA ratio.
Based on above discussion, prima-facie we understand that higher CASA ratio is good as it reduces cost of funds to the bank and increases gross profit for the bank.
However higher CASA ratio has limitations that bank cannot finance long-term, large projects using funds from current and savings accounts (CASA), since it may result in a mismatch between assets and liabilities.
7) Conclusion
The CASA ratio helps to determine the funds ratio in a bank’s current and savings accounts against the total deposit.
Through this ratio, one can comprehend the bank’s profitability. This ratio can also be used while making an investment decision for a specific bank along with other factor.
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