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    Quick Summary

    The CASA full form is Current Account and Savings Account. CASA in banking means the amount of money deposited by bank customers in current and savings accounts. These accounts are the primary source of low-cost funds for banks, as savings accounts typically offer lower interest rates than fixed deposits, while current accounts usually pay no interest. 

    A strong CASA enables banks to decrease their funding costs, improve profitability, and offer better banking services to customers. Investors closely monitor a bank's CASA ratio, as it is an important indicator of a bank's operational efficiency and financial strength.

    Let us understand what is CASA, how it works, the CASA ratio and factors that affect it. 

    How does CASA work?

    CASA consists of current accounts and savings accounts through which banks accept deposits from businesses, individuals, and institutions. CASA allows account holders to make transactions from their current accounts and savings accounts, withdraw funds, use their debit cards, issue cheques, and access internet banking.

    The funds in CASA can be accessed through UPI, ATM withdrawals, debit cards, mobile banking, net banking, and electronic fund transfers such as RTGS, NEFT or IMPS.

    Amounts deposited in current accounts do not attract interest and are mainly used for day-to-day business transactions. Amounts deposited in savings accounts earn interest at fixed rates while providing customers with convenient access to their money.

    Further, some banks, such as Axis Bank, have minimum balance requirements in CASA accounts based on their account type and customer strategy. 

    Banks use CASA deposits as part of their funding base to provide loans and other financial products. The difference between the cost of these deposits and the interest earned on loans contributes to the bank's net interest margin.

    What is CASA ratio & how is it calculated?

    The CASA ratio shows the proportion of a bank's total deposits that come from current and savings accounts. It is a key indicator of the bank's funding strength. 

    CASA ratio formula:

    CASA ratio = (Current account deposits + savings account deposits) ÷ total deposits × 100

    Example:

    • Current account deposits: ₹5,000 crores
    • Savings account deposits: ₹6,000 crores
    • Total deposits: ₹18,000 crores

    CASA ratio = (₹5,000 + ₹6,000) ÷ ₹18,000 × 100 = 61%

    A higher CASA ratio reflects a larger portion of a bank's low-cost deposits, enabling it to improve profitability and enhance lending efficiency.

    A high CASA ratio suggests that the bank can lend at competitive rates and still earn healthy profits. A high CASA ratio offers several advantages for banks:

    • It decreases the overall cost of funds for banks.
    • It reflects efficient deposit mobilisation.
    • It improves the bank's profitability.
    • It also supports a stronger net interest margin.
    • A high CASA ratio also provides the bank with low-cost, stable funding.

    Factors that affect a bank's CASA ratio

    Several factors affect a bank’s CASA ratio, including the following:

    • The volume of deposits in savings and current accounts
    • Higher fixed deposit interest rates may encourage customers to shift funds from CASA accounts to fixed deposits
    • Competition among banks for retail deposits
    • Availability of salary accounts and corporate relationships
    • Quality of digital and branch banking services
    • Bank's reputation

    Choose an Axis Bank Savings Account or Current Account for secure and convenient banking.


    Frequently Asked Questions

    1. What is a good CASA ratio?

    There is no fixed benchmark for a good CASA ratio. However, a higher ratio indicates that a larger portion of the bank's deposits comes from low-cost CASA deposits, improving profit margins and reducing funding expenses. 

    2. Why is CASA important for banks?

    CASA is important because it provides banks with the cheapest, most stable, and lowest-cost funding. CASA allows banks to maximise their profit margins, reduce the cost of funds, and support long-term business growth. 

    3. Why do investors track a bank's CASA ratio?

    Investors track the CASA ratio, as it indicates a bank's funding stability, operational efficiency, and structural profitability. It ensures greater resilience during changing interest-rate cycles. 

    4. How is CASA different from fixed deposits and term deposits?

    CASA deposits are for day-to-day banking transactions, offering easy access to funds. Term deposits and fixed deposits are invested for a specified period, attract higher interest rates than CASA deposits, and are meant for long-term investments. 

    Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.

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