CASA Ratio

Imagine two ways to borrow money to run a shop: friends who lend interest-free as long as you keep enough of it available whenever they need it back, versus a moneylender who charges a fixed, meaningful interest rate for a set period. A bank funds itself through a very similar mix, and CASA Ratio measures how much of that funding comes from the cheap, friends-like source.

CASA stands for Current Account and Savings Account, the two deposit types a bank generally pays little to no interest on, current accounts typically earn zero interest and exist mainly for businesses' transactional convenience, while savings accounts pay a modest, low rate. CASA Ratio is simply the proportion of a bank's total deposits sitting in these two account types, as opposed to fixed or term deposits, which pay a meaningfully higher, contractually fixed interest rate.

A high CASA ratio is one of the clearest structural advantages a bank can have, because it means a larger share of the bank's lending is funded by nearly free money rather than by expensive term deposits. This directly widens Net Interest Margin, the spread between what a bank earns on loans and pays on deposits, without the bank needing to take on any additional lending risk to get there.

This is exactly why banks compete so aggressively on everyday banking convenience, salary account tie-ups, UPI integration, mobile banking experience, none of which pays interest directly, but all of which is designed to keep more customer money sitting in low-cost current and savings accounts rather than being moved into higher-interest but costlier-to-the-bank term deposits.

Whenever an analyst praises a bank for its strong CASA franchise, that is shorthand for exactly this advantage, a large base of customers who leave their money sitting in low or no-interest accounts, quietly subsidising that bank's overall cost of funds relative to a competitor that has to rely more heavily on expensive term deposits.