CASA full form refers to “Current Account Saving Account.”
In simple words CASA means money received by banks from current and savings accounts.
CASA deposits are very important for banks because they provide low-cost funds, which help the bank earn more profit.
A higher CASA ratio means the bank is strong, efficient, and better prepared to handle economic changes.
What Are Current Account Deposits?
Who Uses Them?
Current accounts are mainly used by businesspeople and companies that have many daily transactions.
These accounts are perfect for those who frequently deposit and withdraw money.
Deposits and Withdrawals:
There are no restrictions on how much money can be deposited or withdrawn from a current account.
A business can deposit large amounts daily and withdraw as needed without any limitations.
Interest:
No interest is paid on the money in a current account.
This is because these accounts are designed for convenience rather than saving.
Other Name:
Current accounts are also called “demand deposits” because the money in the account can be taken out anytime, on demand, without any waiting period.
What Are Savings Account Deposits?
Who Uses Them?
Savings accounts are for individuals like salary earners and non-profit organizations.
These accounts are designed to help people save their money securely while earning some interest.
Deposits:
You can deposit as much money as you want into a savings account.
There are no limits on the number of deposits or the amount you can add.
Withdrawals:
Withdrawals from savings accounts may have some restrictions, like limits on the number of withdrawals per month.
Interest:
Interest rate is lower than what you would get with a fixed deposit account.
Purpose:
The main aim of savings accounts is to develop the habit of saving among individuals.
Importance to Banks:
Savings accounts are a significant source of funds for banks.
The money deposited in these accounts helps banks give loans and invest.
These deposits are also called “demand deposits.”
CASA Deposits Importance
Low Cost:
Banks pay no interest on current accounts and only a small amount of interest (2%-6%) on savings accounts.
High Profit:
The money collected from CASA deposits is lent to borrowers at higher interest rates. This increases the bank’s profit.
Better Services:
To attract more CASA deposits, banks offer special services like salary accounts for employees and cash-management services for businesses.
CASA Ratio:
This is the percentage of CASA deposits compared to the total deposits in a bank.
A higher CASA ratio means the bank has more low-cost funds.
Why Is a High CASA Ratio Important?
Low Costs for Banks:
Banks pay less interest on CASA deposits compared to other types like fixed deposits. This helps them save money.
More Profit:
Banks lend the money collected from CASA deposits to businesses and individuals at higher interest rates.
This increases their Net Interest Margin (NIM), which is the profit they make from lending.
Stronger Position:
A CASA ratio above 40% is considered healthy for a bank.
It shows that the bank can operate efficiently with low costs.
Better Protection Against Risks:
Banks with a high CASA ratio depend less on fixed deposits and are less affected by changes in interest rates in the economy.
How Do Banks Increase CASA Deposits?
Attract Retail Customers:
Banks reach out to individuals and offer benefits like zero-balance accounts or easy online banking to encourage them to open savings accounts.
Salary Accounts:
Banks work with companies to provide salary accounts for their employees. This ensures regular deposits into the bank.
Business Services:
Banks offer services like cash management and payment solutions to attract business owners to open current accounts.
