The Cheapest Money in Banking Is Draining Away: CASA Falls to 39%

Article summary

The composition of India's bank deposits is shifting in a way that squeezes lending margins. The share of current account and savings account balances — CASA, the cheapest funding a bank has — has fallen to roughly 39 per cent from about 44 per cent, while term deposits have risen correspondingly to around 61 per cent from about 56 per cent. At the same time the credit-deposit ratio stands near 82.5 per cent, an elevated level indicating that banks are lending a high proportion of what they raise and have limited headroom before deposit growth becomes the binding constraint on credit growth. The mechanism is straightforward: current accounts pay no interest and savings accounts pay very little, so a bank funded largely by CASA can lend profitably at rates a term-deposit-funded bank cannot match. As savers shift toward term deposits, mutual funds, equities and other market instruments in search of higher returns, the average cost of funds rises and net interest margins compress. Banks then face a choice between accepting thinner margins, raising lending rates, or competing harder for deposits — each of which has consequences for credit availability and for the transmission of monetary policy.