Why are banks keen on garnering a higher share of CASA?
Interest rate paid on CASA is much lower commared to other deposits like term deposits or recurring deposits. While banks do not pay any interest on current account, interest paid on saving account deposit varies from 4% to 6%. Banks therefore make maximum effort to increase the share of CASA on their books to reduce their overall cost of mdeposits. HDFC Bank has the highest share of CASA to total deposits at 52% followed by the srate Banke of India at 48% and ICICI Bank at 45%.
What does CASA mean for customers?
Recently, RBI told banks to pay interest on saving deposits on saving on adaily basis rather than paying on the minimum balance maintained by them in six months. As a result saving account customers earn better returns compared to what they earned earlier. Further, interest earned on saving account deposits does not attract TDS (tax deduction at source). Interst incaome above 10,000 a year attracts TDS of 10% in case of term deposits. However, ther is no major benefit for aurrent account deposits, which is mainly maintained by carpoarates and traders.
What are the disadvantage of high CASA?
Therse deposits can move outnof banks' books anytime, leading to asset-liability mismatches.While in case of term deposits. banks are almost certain that the depositor may not withdraw money before the maturity of the deposit and may also renew the deposit on maturity. Further, to finace long-term project, banks need to have long-term liabilities on their books to avoid mismatches. Banks cannot rely on CASA deposits to fund long-term loans.