The Cheapest Money in Banking Is Draining Away: CASA Falls to 39%
Savers moving to term deposits and market instruments have pushed the credit-deposit ratio to about 82.5% — and every point of CASA lost is margin banks must find elsewhere
What happened
Banking questions are usually answered through non-performing assets. This one is about the other side of the balance sheet, and it is arguably more consequential right now: a bank's ability to lend cheaply depends on what it pays for money, and Indian households are steadily deciding to be paid more for theirs. That shift — households behaving like investors rather than depositors — is the structural story beneath a technical-looking ratio.
The Deposit Mix Is Getting More Expensive
Composition of Bank Deposits
| Current accounts pay | No interest |
| Savings accounts pay | Low rate |
| Term deposits pay | Several multiples more |
| Credit-deposit ratio | ~82.5% |
Source: Reserve Bank of India
CASA stands for Current Account and Savings Account deposits — the low-cost component of a bank's funding, since current accounts carry no interest and savings accounts pay a low administered or board-determined rate.
●Term deposits (fixed deposits) carry substantially higher rates and are contractually locked for a period.
●The CASA ratio — CASA as a share of total deposits — is therefore a direct indicator of funding cost: a higher ratio means cheaper funds and a wider spread.
●Current data show CASA at roughly 39 per cent, down from about 44 per cent, with term deposits correspondingly at about 61 per cent against 56 per cent earlier.
●The credit-deposit (C-D) ratio — advances as a proportion of deposits — stands near 82.5 per cent, an elevated reading indicating limited headroom for credit expansion without commensurate deposit mobilisation.
●Net interest margin (NIM) is the difference between interest earned on assets and interest paid on liabilities, expressed against interest-earning assets; a falling CASA ratio compresses it mechanically.
●Related concepts: the statutory liquidity ratio (SLR) and cash reserve ratio (CRR) determine how much of deposits banks must hold in prescribed forms, and monetary transmission depends on how quickly changes in the policy repo rate pass through to deposit and lending rates.
Every percentage point of CASA lost must be replaced by term deposits costing several times more — which is why a five-point shift in composition matters as much as a change in the policy rate.
◎ In Simple Words
Banks make money by paying little for the money they hold and charging more for the money they lend. The cheapest money is what sits in your current or savings account, because banks pay almost no interest on it. Indians are now moving that money into fixed deposits, mutual funds and shares, which pay more. So banks must pay more for their funds, and the gap they earn shrinks. Banks are also already lending out about 82.5 paise of every rupee they hold, which leaves little room before they must attract new deposits to lend further.
Factual Pointers
Practice · 2 questions
With reference to banking in India, consider the following statements:
1. CASA deposits comprise current account and savings account balances and are the lowest-cost source of funds for a bank.
2. A falling CASA ratio tends to compress a bank's net interest margin.
3. The credit-deposit ratio measures advances as a proportion of deposits.
Which of the statements given above are correct?
An elevated credit-deposit ratio in the banking system generally indicates that:
Mains Practice Questions
"The migration of household savings from bank deposits to market instruments is financial deepening for the economy and a funding problem for banks." Critically examine. (250 words, GS3)
Explain how the composition of bank deposits affects monetary policy transmission in India. (250 words, GS3)
A liability-side squeeze can become an asset-quality problem. Examine this proposition with reference to Indian banking. (150 words, GS3)
Frequently Asked
· People also askWhat are CASA deposits and why do they matter?
CASA means Current Account and Savings Account balances — the cheapest funding a bank has, since current accounts pay no interest and savings accounts pay a low rate. A bank funded largely by CASA can lend profitably at rates a term-deposit-funded bank cannot match.
Prelims · GS3The CASA ratio, or CASA as a share of total deposits, is therefore a direct indicator of a bank's funding cost and its lending spread.
SOURCE Reserve Bank of India
How much has the deposit mix shifted?
The CASA share has fallen to roughly 39 per cent from about 44 per cent, while term deposits have risen to around 61 per cent from about 56 per cent. Because term deposits cost several multiples of a savings account rate, a shift of this size materially raises blended funding cost.
Prelims · GS3The credit-deposit ratio has simultaneously reached about 82.5 per cent, indicating banks are lending a high proportion of what they raise.
SOURCE Reserve Bank of India
Why are savers moving their money?
Rising financial literacy, easy digital access to mutual funds and equities, and a sustained period in which market returns exceeded deposit rates have taught households to treat idle balances as an opportunity cost. This is financialisation of household savings.
GS3 · EconomyFor the economy it is a healthy development — savings moving toward productive risk capital — even though it raises funding costs for banks. Treating it purely as a banking problem misses the underlying financial deepening.
SOURCE Reserve Bank of India
What does a credit-deposit ratio of 82.5 per cent mean?
That banks have deployed about 82.5 paise of every rupee of deposits as credit, leaving limited headroom to lend further without raising fresh deposits. Deposit growth, rather than capital or risk appetite, becomes the binding constraint on credit expansion.
GS3 · EconomyWhere credit is rationed, it falls first on borrowers without alternative funding — small enterprises and retail borrowers — rather than large corporates who can access bond markets directly.
SOURCE Reserve Bank of India
How does this affect monetary policy?
It slows transmission. When funding shifts toward term deposits, a larger share of bank liabilities is contractually fixed for a period, so a cut in the policy rate reaches funding costs only as those deposits mature and reprice — weakening the potency of rate changes.
GS3 · EconomyThis matters most at precisely the point in the cycle when monetary policy is being relied upon to stimulate credit.
SOURCE Reserve Bank of India
What can banks do about it?
Each option costs something. Accepting thinner margins reduces internal capital generation. Raising lending rates dampens demand and risks adverse selection. Competing harder for deposits raises costs system-wide without enlarging the pool.
GS3 · EconomyThe one response that addresses the cause is growing fee income and transaction banking to retain low-cost operating balances. Shifting asset mix toward higher-yielding unsecured lending defends margin but imports credit risk, which can surface as an asset-quality problem years later.
SOURCE Banking sector analysis