Amid slowing CASA growth, banks turn to costly solutions, Pg13

Key Highlights:

• CASA (Current Account and Savings Account) deposit growth has slowed, prompting banks to seek costlier funding solutions.
• The gap between credit growth and deposit growth widened to 5.4 percentage points by June 15, according to RBI data.
• The credit-to-deposit ratio for banks increased to 82.5% as of June 15, up from approximately 75% in mid-2025.
• Banks are increasingly relying on higher-cost funding sources such as term deposits and Certificates of Deposit (CDs).
• The share of CASA in the total deposit base has fallen to around 39% from a peak of 44% in FY22.

Detailed Insights:

• Retail investors are increasingly opting for avenues like stocks and mutual funds, which offer better returns than traditional CASA accounts.
• CASA deposits are considered low-cost (around 3-4% interest) and a "sticky" source of funds for banks.
• Term deposits and Certificates of Deposit (CDs) are significantly higher-cost options (7-8% interest), which can squeeze bank margins.
• While banks have largely maintained Net Interest Margins (NIM), the reliance on costly, shorter-term funds poses a risk if interest rates rise.
• The slowdown in deposit growth was also highlighted in the Reserve Bank of India's Financial Stability Report.
• Experts suggest that the sluggish CASA growth is cyclical, influenced by overall liquidity in the financial system post-COVID.
• A potential hike in interest rates by the RBI could severely impact the banking sector if CASA growth does not rejuvenate.

Key Concepts Involved:

• CASA Deposits: Current Account and Savings Account deposits, which are low-cost and stable funding sources for banks.
• Term Deposits: Financial instruments where money is locked in for a fixed period to earn interest, including Fixed and Recurring Deposits.
• Certificates of Deposit (CDs): Short-term, wholesale money market instruments used by corporates and institutions to raise funds.
• Credit-to-Deposit Ratio: The percentage of a bank's total deposits that has been deployed as loans.
• Net Interest Margin (NIM): The difference between the interest income earned and the interest paid by a bank, relative to its interest-earning assets.
• Financial Stability Report: A report published by the Reserve Bank of India assessing the health and stability of the Indian financial system.