CASA ratio definition, formula, advantages and disadvantages
CASA is one of the mostly used banking terminologies. There are various benefits of having higher casa ratio. Read our expert’s 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 banking
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 deposits 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.