CASA Ratio Decline in Indian Banks: Causes and Impact
Why in the news
Banks are seeing loans grow faster than deposits, and cheap CASA funds are slipping away. This pushes up funding costs and presses net interest margin (NIM).
Key facts
- CASA ratio = (current + savings deposits) ÷ total deposits × 100.
- Current accounts pay no interest; savings accounts usually pay 2.5–4%.
- Mutual fund AUM climbed from 12% to 32% of bank deposits in a decade.
- RBI cut the policy rate by 100 bps to 5.5% since February 2025.
- Weighted average lending rate in September 2025: 8.50%.
| Driver of CASA fall | What happens |
|---|---|
| Financialisation of savings | Money moves to mutual funds, equities and SIPs |
| Corporate behaviour | Surplus cash goes to liquid funds, returns as costly bulk deposits or commercial papers |
| Interest rate cycle | Lending rates fall faster than deposit rates, squeezing margins |
| UPI and digital payments | Savings accounts become transit points, not parking places |
| Government fund management | Just-In-Time use of e-Kuber trims government balances (earlier about 10% of CASA) |
| CBDC | Funds could sit directly with RBI |
About CASA
- Low-cost deposits mobilised through current and savings accounts.
- Benefits: lower cost of funds, support for credit growth, wider NIM, and stable, sticky liquidity.
- Low ratio = heavier dependence on costly term deposits.
Implications and responses
- Higher deposit costs squeeze NIM; competition grows from mutual funds and digital platforms.
- Response: stronger digital payments, focus on salary accounts and high-value customers, flexible recurring deposits and specialised products, and AI analytics to track fund movements.
Exam angle
- Formula: CASA ratio.
- Term: NIM, the gap between lending and deposit yields.
- Platform: RBI’s e-Kuber with Just-In-Time fund management.
- Future risk: CBDC may pull funds directly to RBI.