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Sunday, November 20, 2011

What is CASA ratio?



CASA stands for Current and Saving Accounts. Every bank accepts deposits from its customers in current accounts, saving accounts, term deposits (fixed deposits, recurring deposits etc) accounts and other debt instruments.
CASA ratio indicates how much deposit (out of total deposits) is in current accounts and saving accounts.
For current accounts, no interest is paid while on saving accounts nominal interest is paid.
Though with RBI deregulating the saving bank deposit rates, a few banks have raised the interest payable on saving accounts but still by this date majority of banks are stuck to 4% interest rates.
Higher CASA ratio denotes that bank is availing deposits at lowest possible interest rates. Profitability of a bank is measured in terms of NIM (Net Interest Margin) and higher CASA ratio ensures higher NIM.
Current account and saving accounts are collectively called as Demand Deposits as customers don’t give prior notice before withdrawing their deposits.

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