Economics • Banking & FinanceMedium
What does the term 'CASA Ratio' signify for a commercial bank in India?
A. The proportion of deposits coming from Current Accounts and Savings Accounts relative to total deposits✓ Correct Answer
B. The ratio of capital adequacy to stressed assets
C. The share of agricultural loans in total priority sector lending
D. The proportion of cash reserves maintained against statutory liabilities
💡 Solution & Explanation
The Current Account Savings Account ratio measures the proportion of total bank deposits originating from current and savings accounts, which entail minimal or zero interest payouts for the institution. A higher CASA ratio indicates a cheaper and more stable source of funding, directly enhancing the net interest margin and overall profitability of the bank. Term deposits and fixed certificates generally command higher interest costs compared to these demand deposits. Commercial banks actively monitor and incentivize CASA growth to optimize their cost of capital.
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