Banking-concepts-casa

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Labels: Banking, BANKING CONCEPTS, IBPS

Banking Concepts: CASA

What is Casa Ratio?

Casa is basically the current and savings sccount deposits. Casa ratio is

the share of current and savings account deposits to the total deposits of

the bank. In India, interest rates paid on current and savings account

deposits is administered by banking regulator - the Reserve Bank of

India.

Why are banks keen on garnering a higher share of CASA?

Interest rate paid on Casa is much lower compared to other deposits like

term deposits or recurring deposits. While banks do not pay any intereston current account, interest paid on savings account deposit is 4%.

Banks therefore make maximum effort to increase the share of Casa on

their books to reduce their overall cost of deposits. HDFC Bank has the

highest share of Casa to total deposits at 52%, followed by the State

Bank of India at 48% and ICICI Bank at 45%.

What does Casa mean for customers?

Recently, RBI increased interest paid on savings account deposits from

3.5% to 4%. Further a year ago, RBI told banks to pay interest on

savings deposits on a daily basis rather than paying on the minimum

balance maintained by them in six months. As a result, savings account

customers earn better returns compared to what they earned a year ago.

Further, interest earned on savings account deposits does not attract

TDS (tax deduction at source). Interest income above 10,000 a year

attracts TDS of 10% in case of term deposits. However, there is no major

benefit for current account deposits, which is mainly maintained by

corporates and traders.

What are the disadvantages of high CASA?

These deposits can move out of banks' books anytime, leading to asset-

liability mismatches. While in case of term deposits, banks are almost

certain that the depositor may not withdraw money before the maturity of

the deposit and may also renew the deposit on maturity. Further, to

finance long-term projects, banks need to have long-term liabilities on

their books to avoid mismatches. Banks cannot rely on Casa deposits to

fund long-term loans.

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2 comments:

Anonymous 13 February 2013 21:17

thanks bankersadda for publishing this concept..the 2nd

question was asked in my PO interview which I couldn't answer

Reply

Anonymous 8 August 2013 23:16

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hello sir...

plz let me knw..interest on saving a/c z calculated on daily

basis or minimun balnce between 10th of month to end...

As different articles say different concepts.... so plz clear dis...

thnx....

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