CASA is one of the mostly used banking terminologies. There are various benefits of having higher casa ratio.

Read our experts article on CASA ratio calculation, features and all about CASA deposits.

Define CASA ratio

CASA ratio stands for Current Account Saving Account ratio. The share of current account and saving account in total deposits of a bank is termed as CASA ratio. In other words, it tells the share or portion of current account and saving account in total deposits of a bank. Banks have to pay less interest on CASA as compared to other deposits. In India, the amount of payment of interest by banks on CASA is determined by Reserve Bank of India.

Features and Benefits of CASA

Benefits of CASA to banks 1. Banks have to pay less interest on CASA as compared to term deposits and recurring deposits. 2. Banks do not have to pay any interest on current account whereas it has pay just 4% interest on saving account. 3. Banks lay emphasis to increase the portion of CASA with them so as to reduce the costs because higher CASA ratio means higher is the number of current account and saving account deposits in bank which are cheaper source of fund. 4. CASA ratio of HDFC bank is highest with 52% whereas SBI CASA ratio is 48% and CASA of ICICI is 45%. Benefits of CASA to consumer 1. Interest rate on saving account has been increased from 3.5% to 4%. Also, now the calculation of interest on saving account is done on daily basis instead of minimum deposit of six months. Thus saving account holders are receiving more interest than that of one year ago. 2. No TDS is deducted on interest receivable on saving account. 3. Only 10% interest is deducted from income exceeding Rs. 10,000 per annum from interest from term deposits.

Demerits of CASA ratio

It is well said that anything in excess is dangerous. The same rule applies here also. excessive CASA also affects a lot. a.) There is always a probability of withdrawal of CASA from bank. This withdrawal creates a mismatch between asset and liability. b.) Banks cannot depend of CASA for granting long term loans. c.) Banks need long term deposits for funding long term projects since they have less risk of asset-liability mismatch.

<a target="_blank" href="http://netspiderads2.indiatimes.com/ads.dll/clickthrough?slotid=37105"><img alt="Advertisement" height="71" width="640" border="0" src="http://netspiderads2.indiatimes.com/ads.dll/photoserv?slotid=37105"></a> CASA stands for current and savings account. Different kinds of deposits - current account, savings account and term deposits - form the major source of funds for banks. The CASA ratio shows how much deposit a bank has in the form of current and saving account deposits in the total deposit. How is it important for banks? A higher CASA ratio means higher portion of the deposits of the bank has come from current and savings deposit, which is generally a cheaper source of fund. Many banks don't pay interest on the current account deposits and money lying in the savings accounts attracts a mere 3.5% interest rate. Hence, higher the CASA ratio better the net interest margin, which means better

operating efficiency of the bank. Net interest margin is difference between total interest income and expenditure and is shown as a percentage of average earning assets. Higher income from CASA will improve the net interest margin as the cost of this fund is relatively lower. For instance, most banks lend at over 10%, whereas, the rate of interest that they pay on saving deposit is just 3.5%. However, actual realisation depends on other expenditure, too. Why is it in the news? In spite of slowdown, CASA ratio of most of the banks have either posted healthy growth or remained stable in the quarter ended March. For instance, in case of ICICI Bank, CASA ratio improved to 28.7% in the quarter ending March 2009 from 26.1% in the same period a year ago. Also, CASA ratio of Axis Bank improved from 38.1% to 43.1% on the back of robust growth of current and saving account deposits in the last quarter. Nevertheless, CASA ratio of Allahabad Bank and Bank or Baroda remained stable. How is CASA different from term and demand deposits? Current and saving accounts remain operational. Depositors don't need to give prior notice to withdraw money, however, in case of term deposits, the money is locked in for a specific period. If a depositor wishes to withdraw the money before maturity, he may have to pay a fine. Usually, an overdraft facility is available with the current account deposit. Demand deposit gives you the facility to withdraw your money anytime.