CASA Decline: Why Banks Regret Pushing Mutual Funds
Why in the news
A senior banker remarked that the industry created its own ‘Frankenstein’: branches chased fee income from third-party products, and now that loan growth needs deposits, cheap funds are scarce.
Key facts
- Banks promoted mutual funds and insurance as alternatives to deposits mainly for fee income.
- Even after policy rate cuts, deposit rates cannot be lowered because funding costs remain high.
- The CASA ratio dropped at all major banks, increasing reliance on high-rate Certificates of Deposit (CDs).
- Savers find higher-return investment avenues more attractive than bank savings.
How banks are responding
| Bank group | Approach |
|---|---|
| Public sector banks | Keep savings rates low and lean on government backing |
| Private banks | Pay higher rates, up to 8%, to attract depositors |
| Others / innovation | Insurance covers, retail-loan discounts, premium banking perks |
About CASA
- CASA means current and savings accounts. Current accounts earn no interest; savings accounts pay little, mostly at PSBs.
- A strong CASA ratio keeps a bank’s cost of funds low.
- Other deposit sources listed: term deposits, NRI deposits and tapping State and Central Governments.
Way forward
- Build deposit plans aimed at students, professionals and retirees.
- Interest rates alone will not do; perks and services matter equally.
- Balance fee-based income with interest income to avoid repeating the error.
Exam angle
- Full form: CASA = Current Account Savings Account; NIM = net interest margin.
- Higher CASA share means cheaper funding.
- Related term: Certificates of Deposit as costly wholesale-type funding.