CASA Ratio
The CASA Ratio is the proportion of a bank's total deposits held in current account and savings account (CASA) deposits, which are low-cost or zero-cost liabilities, serving as a key indicator of a bank's funding cost advantage and deposit franchise strength.
The CASA Ratio is one of the most watched metrics in Indian bank analysis because it directly reflects a bank's structural cost of funds advantage. Current accounts earn no interest, while savings accounts in India typically earn 2.5–4% per annum (far below the 6–7.5% typically offered on fixed deposits). A bank that funds a significant share of its lending through CASA deposits therefore has a meaningfully lower blended cost of funds, which feeds into wider NIMs and stronger profitability.
India's leading private-sector banks built formidable CASA franchises through extensive branch networks, salary account relationships with large employers, and digital banking investments. HDFC Bank, for instance, maintained CASA ratios above 40% through much of the 2010s by aggressively acquiring salary account mandates with corporates, which brought large pools of low-cost current account float and sticky savings balances. In contrast, newer small finance banks and most NBFCs lacked this advantage and relied on higher-cost term deposits or market borrowings.
The CASA ratio is not static — it is sensitive to the interest-rate environment. When fixed deposit rates are high relative to savings rates, depositors rationally shift money from savings accounts to fixed deposits, compressing CASA ratios. This dynamic was evident during the 2022–23 rate-hike cycle, when banks reported CASA compression as higher FD rates attracted migration of savings balances. Banks with larger and stickier salary account and current account balances were relatively insulated from this shift.
Regulators and analysts also examine the quality of CASA. A high current account ratio is typically more valuable than a high savings account ratio, because current account holders — businesses and institutions — maintain balances for transactional necessity rather than return optimisation, making those balances genuinely sticky. The composition of CASA, therefore, matters as much as the headline ratio.
For equity investors in banking stocks, CASA ratio trends are a leading indicator of NIM direction. A rising CASA ratio in a stable rate environment points to improving funding cost dynamics and potential NIM expansion, while CASA erosion may foreshadow rising funding costs even if the policy rate has not changed. Tracking CASA alongside loan-to-deposit ratios provides a comprehensive view of a bank's balance sheet health and growth sustainability.