A RESEARCH STUDY

ON
HOW TO IMPROVE CASA RATIO

By: Saurabh Kumar, Research Officer

Introduction
CASA is an integral part of every Indian banker's vocabulary these
days and analysts are busy working on it to gauge bank's
profitability. CASA ratio shows how much deposit a bank has in the
form of current and savings bank deposit in the total deposit. Higher
CASA ratio means less cost of deposits, which results in a better net
interest margin and better operating efficiency of the bank. In this
competitive environment in the banking sector, it is very difficult to
keep the net interest margin high. The depositors are demanding for
the higher rate of interest and the borrowers are asking for more and
more competitive pricing. At present nearly 22% of the deposits are
savings bank accounts and 12% are current accounts, according to the
report of the RBI on the Trends and Progress of banking in India
2008-2009. This is approximately 12 lac crores of deposits in the
Indian banking system in the form of Savings bank or Current
account deposits. The major portion in savings bank deposit balance
is constituted by Individual customers.
With term deposits rates losing attractiveness for people to park
money for longer durations, most banks have reported a significant
surge in their current account savings account (Casa) ratio for the
quarter ended December 31, 2009. Leading the pack is State Bank of
India (SBI), countrys largest commercial bank. The Casa of the bank
has surged to 42.94 per cent as on December 31, 2009, against 36.58
per cent in the corresponding period a year ago, thereby registered a
growth of 29.94 per cent. In the same period, SBI has registered 11.26
per cent growth in overall deposits.
In case of HDFC Bank, the Casa ratio stands at close to 49 per cent as
on December 31, 2009, against 40 per cent as on December 31, 2008.
ICICI Bank, the largest private sector bank in the country, also
reported a similar trend. The Casa ratio in case of ICICI Bank stood at
39.6 per cent at the end of third quarter of the present financial year,
compared with 27.4 per cent on December 31, 2008 and 36.9 per cent
on September 30, 2009.

We can better understand the effect of CASA deposits on the net

interest margin by this trend that when a bank cuts its loan rate, its
interest income declines, and if its not able to cut its deposit rates by
an identical margin, its NIM gets affected. Normally, in a rising
interest rate scenario, banks are in a hurry to raise their loan rates,
but slow in offering higher interest to depositors. Conversely, when
the rates move southwards, banks are quick to cut their deposit rates,
but they take time when it comes to passing on the benefit to
borrowers. There is a reason behind this. The impact of any hike or
cut in loan rates is felt immediately as a banks entire loan book is
repriced, but thats not the case with deposits as the new rates are
applicable only when the existing deposits mature or new deposits
flow in. Here comes the role of CASA deposits. Higher the CASA
ratio, the negative effect of interest rate fluctuation is minimized.
There are many factors which affect these low cost deposits in the
Banks. A retail customer keeps usually balance equivalent to one to
two months expenses in the savings bank account. Similarly an
individual, firm, institution or company keeps balance equivalent to
usually one month expenses in the current account. The amount is
thus decided out of the total funds which will become the part of
savings bank or current account balance. The next comes selection of
the bank based various criteria and perception of the customer
depending on the reputation of different banks in the market.
Strategic goals are required to be set for improving CASA deposits on
all the areas like marketing, technological improvement, customer
service, cross selling etc.

Methodology
For deciding strategies and tools for improvement of CASA deposits,
it is required to study the trends amongst the Banks and as our Bank
is itself a large institution, within the Bank trends study is also
required for SBI. The following methodology is followed for
conducting this study: (i) Collection of data Data is collected of five banks including State
Bank of India for last 4 years and for December, 09. The other banks
selected for comparison are Punjab National Bank, Bank of Baroda,
HDFC Bank and ICICI bank, for a representative sample from both
public sector and private leading banks. The trends are also
compared with the trend in stock market, gold prices and average
term deposit rates for 1-2 year period.
The data of CASA deposits of the fourteen Circles are also collected
and analysed to understand the trend within the bank in different
part of the country. The trend is compared with the growth in
average number of new accounts opened monthly in both savings
bank and current account.
(ii) Feed back is collected form officers working in different segments
and different geographical areas in relation to the various factors
affecting the CASA deposits and suggestions are obtained regarding
measures to be taken for improving CASA deposits. The total sample
size is 95, which includes officers posted as Branch Manager in P
intensive branches in different Circles, trainers posted in various
State Bank Learning Centres, Branch Managers from different parts
of the country and young Trainee Officers. Their feed back is
analysed to understand how strong are the factors affecting the
CASA deposits.
(iii) On the basis of the trends during the past years and the effect of
the external and internal factors and the suggestions given by the
officers from the cross section of the Bank, few strategies are designes
which may be helpful in improving the CASA deposits.

Trends in CASA ratio (Major Banks in India)

The trend of CASA deposit is studied for five banks including State
Bank of India. The data is collected for March 06, March 07, March 08,
March 09 and Dec 09.
(i) Trends in CASA deposits of major banks 350000

300000

250000

200000

State Bank Of India

Bank of Baroda

150000

Punjab National Bank

ICICI Bank

100000

HDFC Bank

50000

0
Mar, 06

Mar, 07

Mar, 08

Mar, 09

Dec, 09

Fig.1
It is clear from the fig.1 that the CASA deposit of all the major banks
is improving over the year. This is mainly due to economic
development in the country, as more funds become available and
with inflation average monthly expenditure also increases.

(ii) Growth in CASA deposit over the years 45%

40%

35%

30%

State Bank Of India

25%

Bank of Baroda

20%

Punjab National
Bank

15%

ICICI Bank

10%

HDFC Bank

5%

0%
2007

2008

2009

Dec, 09

-5%

Fig.2
All the major banks have shown positive growth during last four
years with the only exception being ICICI bank in 2008-09. The
decline in the CASA deposit of ICICI bank is mainly due to mass
withdrawal of deposits from the bank, the reason being the loss of
reputation of the bank in the domestic market in a particular period
during the year.

(ii) Trend of CASA ratio 70.00

60.00

50.00
State Bank Of India

Bank of Baroda

40.00

Punjab National
Bank
30.00
ICICI Bank

HDFC Bank

20.00

10.00

0.00
Mar, 06

Mar, 07

Mar, 08

Mar, 09

Dec, 09

Fig.3
It is evident that HDFC bank is the leader in the CASA deposits
during last 4 years. SBI has maintained a level around 40% in the last
four years. The other major banks also show almost similar trend
through the sample period. The decline is due to the effect of global
recession on the Indian Markets during 2007-08 and 2008-09 period.
(iii) Trend of growth in CASA deposit compared with SENSEX
We can positively relate growth in sensex to the availability of liquid
funds. It is quite visible that CASA deposit showing better growth
when sensex is improving.

45%
40%

20000
40%

39%

17464

13072

30%

27%

14000

27%

26%

12000
20%

18%

9709
10000

20%

10%

17%

14%

State Bank Of India

Bank of Baroda
Punjab National Bank

15%

15%

15%
10%

16000

25%

25%
20%

15644

34%

35%

18000

14%

8000

ICICI Bank

11%

11%

6000

HDFC Bank
SENSEX

5%

2%

0%

Mar, 07

Mar, 08

-2%

Mar, 09

-5%

4000
2000

Dec, 09
0

Fig.4
(iv)Growth of CASA deposit compared with avg. term dep. rates The CASA deposit of the banks are adversely related to the average
term deposit ratesduring a period. Higher term deposit rates will
adversely affect the growth in CASA deposit. The relationship is
shown in Fig.5.

45%
40%

10
40%

8.5
34%

35%

7.5

30%

7.5
27%

27%

26%

25%

25%
20%

39%

6
20%

20%

State Bank Of India

Bank of Baroda

18%

17%

15%

14%

14%

ICICI Bank

11%

11%

10%

10%

Punjab National Bank

15%

15%

HDFC Bank

Avg Term Dep Rate

5%

2%

0%

Mar, 07

-2%

Mar, 08

Mar, 09

Dec, 09

-5%

Fig.5
(v) Growth in CASA deposit compared with gold price changes
45%
40%

28.8%
40%

39%

0
34%

35%

19.3%
30%

16.5% 27%

0
20%

17%
15%

15%
10%

State Bank Of India

Bank of Baroda

20%

18%

15%
10%

26%

25%

25%
20%

27%

14%

14%

Punjab National Bank

ICICI Bank

11%

11%

HDFC Bank
Gold Price change

5%

2%

0%

Mar, 07

Mar, 08

-2%

Mar, 09

-5%

-0.1%

Dec, 09
0

Fig.6

The change of gold price is showing no relationship with the sample

data. The price of gold has continuously increased during the past
four year period, but the CASA deposit of the banks are not showing
positive or negative trend with this. The great recession in the global
markets which squeezed the liquidity from the market may be one of
the reasons and the loss of confidence in the currencies during the
recession affected economies led to the surge in the gold prices.

Trends and Comparison (within SBI)

(i) Trend of CASA ratio of selected Circles of the Bank 70.00

60.00

NEW DELHI
MUMBAI
PATNA

50.00

LUCKNOW
KOLKATA
BHOPAL

40.00

CHENNAI
HYDERABAD
BHUBANESWA
R
BANGALORE

30.00

20.00

Mar'05

Mar'06

Mar'07

Mar'08

Mar'09

Dec'09

Fig.7

Barring a few exception most of the Circles showed the same trend of
growth and decline in the CASA ratio during last five years. The
CASA deposit of the Circles is increasing throughout the period. The
decline in the CASA ratio is due to comparatively more growth in the
term deposits. During the period March 08 to March 09 the average
interest rate in the term deposits was in range of 9.5% to 10.5% .

(ii) Trend of CASA deposit of the selected circles of the Bank45000

40000
NE W DE L HI

35000

MUMB AI
30000

P AT NA
L UC K NO W

25000

K O L K AT A
20000
B HO P AL
C HE NNAI

15000

HY DE R AB AD
10000
B HUB ANE S W
AR
B ANG AL O R E

5000

0
Mar'05

Mar'06

Mar'07

Mar'08

Mar'09

Dec '09

Fig.8
The CASA deposits in almost all the Circles have an increasing trend.
The growth is quite significant during March 07 to March 09. But this
was not sufficient to improve the ratio due to even higher growth in
term deposits during the period.

(iii) CASA ratio in respect of new accounts opened For savings

bank account deposit the relationship is positive with the number of
new accounts opened. Higher growth is observed when more
numbers of new account are opened. For current account the
relationship is not linear.
(iv) Feedback from officers on factors affecting CASA ratio
Feedback was collected from officers representing various business
groups and geographical areas. The feedback focused on four aspects
which may influence CASA deposit.
a. What affects CASA deposits To achieve the goal of mobilizing
more CASA deposits, it is required to understand the factors which
can motivate or de-motivate the potential CASA depositor. The
Majority responded that the rate of interest in term deposits is the
strongest factor that affects the CASA deposits. The other strong
factors are returns from market investments and banks new hybrid
liability products. There is a strong negative correlation between rate
of interest term deposits and growth in CASA deposits. This view is
also supported by the data of CASA deposits of the five major banks
compared with the average rate of interest in term deposit.
b. Factor affecting selection of Bank for CASA deposits When a
potential depositor decides to keep the money in current or savings
bank account, the next he decides is Bank. More than 60% of the
respondent recommended customer service. Customer service is the
first and most important factor which comes in the mind of the
depositors. The other factors are technological superiority,
availability of good hybrid liability products and availability of other
non-banking investment products under one roof.
(v)Feedback on strategies for improving CASA ratio Keeping in
view the above factors feedback was taken on what should be the
strategy for improving CASA deposits
a. Strategies for improving Savings account deposits When asked
about the strategy for sustainable growth in savings bank deposit,

more than 45% agreed that opening maximum number of individual

accounts is the best option. High preference to opening of HNI
accounts is also viewed as a strong factor for growth.
b. Strategies for improving current account deposits Opening
maximum number of current account of retail traders and small
industries should be the strategy for better growth in current account
deposits is the response of more than 50% respondents.

Strategies for improvement CASA deposits

Based on the trends of CASA deposits of major Banks, trends in
Circles of SBI and feedback collected from officers of SBI from across
the country, following strategies are suggested, which may be helpful
for improving CASA deposits (i) Improvement in services and technologies- As we understand
that the potential is decided by the liquidity available in the country,
in retail and other segments, the competition starts with selection of
the bank where these deposits will go. In the current financial
environment, the level of customer service and availability of
advance technologies are the most important factors which attract a
potential deposit to any bank.
On customer service front, our level has increased a lot from the
position 4-5 years back. But the standard is still not satisfactory, and
we have to walk a long way to achieve this, that too in a very short
time. For developing the employee into a knowledgeable, customer
friendly asset, training process and training system are required to be
developed and strengthened. We may plan to have a dedicated
helpline for CASA accounts Circle wise.
Technology is the aspect where we are far behind the private sector
banks. The products and tools are available in most of the cases, but
due to knowledge gap, our staff is not able to use them properly.
Training is required for the employees to provide them proper
knowledge of the products and for customers, awareness programme
may be conducted through different media and through branches
regarding new generation products like internet banking, mobile
banking etc. On the banks website the facility may be provided to
the customers for putting up the technical problems or queries
related with Internet banking, Mobile banking and ATM. Presently
all kind of requests can be generated through Internet banking
facility, in addition to that facility may be provided that the customer
can refer the pending requests to the vertically higher office in case of
abnormal delay.

(ii) Marketing and development of new hybrid products and

proper marketing of the existing products Nowadays, customer
does not want to come to the branch for every transaction and he
expects from the banker his deposits will be kept in such a manner to
give him maximum returns. Our bank has very good hybrid products
like Savings plus, which is one of the best such products in the
market. These kinds of products should be marketed vigourously. All
the private banks are capitalizing on the different variants of the
same products, only due to better marketing and better technical
support.
(iii) Drives for opening more new accounts For savings bank
deposits, opening of more and more new accounts is the best
alternative. Our bank is planning to double its savings account base
in rural area as on March 09 within two years. The campaigns should
be designed and launched with suitable strategies matching to the
different conditions prevailing during the period based on the factors
discussed earlier in the report.
(iv) Providing all financial services under one roof Presently we
are providing other facilities to our customers only for the companies
associated with the State Bank of India, viz. SBI life, SBI MF etc. This
restricts the opportunity for the customers and the chances of
migration of an urban customer start if he plans to invest in other
companies. Providing investment opportunity to the customer by
offering products of all the major companies may be a good option.
This is one of successful strategies applied by private banks like
HDFC bank. If the complete financial planning will be provided for
the urban customers with excellent customer service and supported
by better technology, it would certainly help in improving the
savings bank deposits.
(v) Targets for each officer and reward for best performances
Monthly targets may be set for the officers and staff of each branch
for the number of accounts and amount mobilized both. Higher

reward and recognition schemes may be launched for the best

performers.
(vi) Popularising demat services With the strong emergence of
electronic media, interest of retail customers in the stock market has
increased significantly. The young and tech savvy generation always
want to do it themselves while sitting in their office/ home. It is
required to market our product but simultaneously it is also required to
reduce the processing time for the opening of new accounts. In urban
centre this product alone is sufficient to attract a huge amount of low
cost deposits.