Beware banks, CASA is a passe! This is a stern warning by the Union Finance Minister Nirmala Sitharaman to banks, which are keen on cross-selling other products such as insurance than focussing on Current Account and Savings Account (CASA) balances.
Savings accounts’ deposits carry lower interest rates, while balance under current accounts earn zero interest rates. Also, asset liability management costs and service costs are higher in CASA, though their overall low-cost funds make CASA as the lifeline for banking as an institution. CASA signifies confidence in the banking system reflecting savings culture and financial discipline.
In the absence of CASA, there is hardly any distinction between banks and non-banking finance companies (NBFCs). Decline in CASA can endanger the strength of banking sector.
In India, savings accounts’ deposit constitutes 65 per cent to 75 per cent of total CASA balance, rest coming from current accounts. The CASA ratio in year 2021-22 for public sector banks was 42.4 per cent, while it was 46.3 per cent for private sector banks. By 2024- 25, CASA ratio was 37.1 per cent for public sector banks and 37.7 per cent for private sector banks. While the CASA ratios have declined in these three years, the dynamics are not totally within banks’ bargains.
Financialization in India has been increasing. Fixed deposits offer higher interest rates as customers have clarity on timelines of their funds-usage; so, they park their surplus funds in fixed deposits rather than in savings accounts. Due to this, all savings are not deposited in CASA. Only transactional and temporarily surplus funds remain in CASA.
The increase of Unified Payments Interface (UPI) in India has caused systematic decline in CASA balances. As UPI enables instant, small-value and frequent payments, the number of transactions has increased from one billion in year 2018 to 228 billion in year 2025. The average UPI ticket size of Rs. 2,000 in year 2020 has gradually declined up to below Rs. 1,300 in March 2026. The 35 per cent decline in UPI average ticket size and huge increase in transactions resulted in lower minimum balances in savings accounts. Further, savers have been preferring investments in mutual funds or stocks over CASA.
Despite the decline in CASA ratios, India is still among few countries with higher CASA balances. US and UK with matured banking system have about 20 to 25 per cent CASA shares. Vietnam and China account for CASA ratios of about 40 per cent.
Indian capital markets are still evolving and financial system is heavily dependent upon bank’s intermediated credit. Financial intermediation in India is evident from household deposits to GDP ratio of 40 per cent, standing among major countries. Therefore, CASA is important not only for banks, but also for Indian economy.
CASA cannot solely remain as bankers’ burden. CASA needs government’s patronage as well. The government should consider zero income tax on interest income from savings accounts’ balances. Savings’ balances should enjoy unlimited or at least much higher deposit insurance. In the absence of government support, banks compete with higher interest rates and explore bulk deposits to enhance CASA balances. Such competition robs the low-cost advantage of CASA besides increasing liquidity risk.
On their part, banks should increase their focus on CASA. Data analytics and artificial intelligence tools should be used to adopt customized solutions. With the help of advanced data analysis, scores can be assigned on savings accounts’ balances and loyal banking habits. The scores can be relied upon in deciding competitive charges on suitable banking services to incentivize CASA customers.
Banks should also widen savings accounts’ base. Savings culture should be enhanced among youngsters starting from their student age. For CASA customers, banks should also offer higher health insurance cover and lower charges on other banking services. On the whole, banks should improve quality of banking experience for all of its customers and particularly to their CASA customers.
(Dr. Kishore is also the Regional Director of PRMIA, US for Hyderabad Chapter. Views expressed by him are personal)
