SOURCES OF FUND ,COST &

ROLE OF CASA IN BANK

Dr S.Chatterjee
S-8
 Definition of Banking:
Accepting Deposit of money from the public
for the purpose of Lending and or Investment.

Bank accepts two types of deposit, Demand

Deposit and Time Deposit.
Deposit payable on demand and without
any notice called Demand Deposit.
Deposit repayable after a contracted period is
called Time Deposit.
 WHAT IS CASA ?
• CURRENT ACCOUNT and SAVINGS ACCOUNT
• Current Account:
i) Operative demand deposits account with
facility of day to day operation.
ii) Mainly used for trading activity.
iii)No interest is paid on the balance kept in the
account as they are not meant for savings and
only for trading and business purpose.
iv)Cost of deposit is negligible or zero
WHO CAN OPEN CURRENT ACCOUNT ?

• Current account can be opened by

• Individuals/Proprietorship firms/Partnership
firms/LLPs/Trusts/HUFs/ Executors/Company.
• All a/cs to be opened after KYC compliance
• Current Account is a “Zero” interest cost
deposit for the Bank. Only servicing cost
incurred. It is also called Low Cost deposit.
 SAVINGS ACCOUNT
• Normally the Bank enters into relationship
with the customer with Savings account.
• The account is opened with the intention of
savings and hence no business transaction is
entertained in the account.
• Bank pays very low interest (3%-6%) on
Savings Account.
• Number of Transaction is restricted in SB a/c
 SAVINGS ACCOUNT
• Interest is paid on the daily balance in the
account .
• Savings Account holders are provided with
debit card to have their ATM transactions.
• Since bank pays only 3-6% interest it is a cost
effective deposit for the Bank. It is also called
Low Cost Deposit.
 BANK’S CASA PRODUCTS
• CURRENT ACCOUNT PRODUCTS:-
For Example:-
• 1) CA (Normal, without any value addition)
• 2) Current Account Plus
• 3) Most Banks have Premium Current Account

• WHAT ARE THE SALIENT FEATURES OF THESE

PRODUCTS ? Cntd….
 Bank’s CASA Products
• CURRENT ACCOUNT PLUS :-
• To retain existing customer and to attract new
customer.
• Two components CA & FD.
• Minimum Balance 1 Lac and above 1 Lac will be
transferred to FD at 10K multiple for 15 days period.
• CA and FD balance will be combined for passing
cheque drawn on CA on last in first out basis.
• contd…..
 Bank’s CASA Products ….contd.
CURRENT ACCOUNT PLUS
• Automatic renewal of balance after every 15
days.
• No penalty for premature withdrawal.
• Existing customer can convert to this account.
• Interest will be paid as applicable for 15 days.
• TDS on FD interest as per rules.
 Bank’s CASA Products
• PREMIUM CURRENT A/C:-
• Minimum balance 10K in rural and 25K in other
places.(Or as decided by Individual Banks)
• 25% Concessional rates of service charge.
• Instant credit of outstation cheques up to 25K
and free ATM facility.
• Penalty is levied once in a month if stipulated
balance not maintained.
 Bank’s CASA Products
• SAVINGS BANK PRODUCTS (For Example:-)
• 1) Normal Savings Bank (without any value addition)
• 2)Premium SB A/c
• 3) Vikas SB A/c
• 4) Advantage Salary A/c
• 5) Mahila Sanchay A/c
• 6) Scholarship to Brilliant Wards of SB depositors in
Rural Areas.
• 7) Rs.5 No Frill Account.
 Bank’s CASA Products
Vary from Bank to Bank
• For Example
• SOME SALIENT FEATURES OF SB PRODUCTS :-
• 1) SB A/C Normal
• 2) PREMIUM A/C :-Min. balance 5K in rural and
20K in other places. Not for Institution. Instant
credit of outstation cheques up to certain value
• 25% Concessional Service Charges and discount in
Processing Charges on any retail loan, Personal
Accident Cover.
 Bank’s CASA Products
• 3) VIKAS SB A/C:-
• All Govt./Quasi Govt./NGO engaged in
development program and maintaining
minimum balance 5K.
• 25% concession on service charges, any
number of times withdrawal on any amount.
• Instant credit of outstation cheque up to 25K.
contd…….
 Bank’s CASA Products
• 4) ADVANTAGE SALARY PREMIUM
• Central/State/PSU/Corporation/Corporates /Education
Institution having CA. No min. balance in SB for employees,
even Zero balance and OD facility up to one month salary
max.50K
• 5) Mahila Sanchay SB a/c
• SB a/c exclusively for women. Issue of DD up to 5K for
educational purpose of her ward free of cost. Providing Piggy
Bank free of cost for day to day savings at home and deposit
periodically.
Contd…….
 Bank’s CASA Products
• 6) SCHOLARSHIP TO BRILLIANT WARDS of SB
Depositors in Rural Areas
• SB a/c operative Min. 6 months and
Min.bal.5K . For ward of SB a/c holder, one
scholarship Rs500 p.m. per rural branch each
pursuing further studies after class X and XII.
Only one ward is eligible for one year.
 Bank’s CASA Products
• 7) Rs. 5 or NO FRILL A/C:-
• Opened with Rs.5
• No Incidental Charges.
• No inoperative Charges.
• Can be converted in to Normal SB A/c with
available facilities.
• No cheque book and No ATM.
 ROLE OF CASA IN BANK
• CASA BRINGS SMILE ON BANK’S FACE ! HOW?

• Bank’s main function to accept deposit for lending.

• But Deposit has a cost. Term Deposit/FD more costly.

• CASA being low cost deposit, thrust on this.

• Business environment very competitive.

 ROLE OF CASA IN BANK
* Interest earning on loans and advances not
very high due to deregulation and competition.
• How to increase profit ? which is ultimate goal.
• To increase income and reduce cost.
• How does CRR and SLR affect our Profit ?
• CRR 3% , SLR 18% of Net Demand and Time
Liabilities of the Bank.
• Both drag down profit (Negative Carry)
 ROLE OF CASA IN BANK
• COST COMPONENTS:-
• Interest on Deposits(IOD) -Major Component
• Establishment ( Cost for employees)
• General Expenses viz Rent ,Electricity, Telecom

• Q. How to reduce IOD cost?

• A. Mobilizing more CASA Deposits. How ?
 ROLE OF CASA IN BANK
HOW DOES IT HELP?
HAVE A LOOK ON BANK’S PERFORMANCE DURING FY 2015-16
• Total Business 5,00,000cr. (Say) Assume :
• Total Deposit 3,80,000 cr. ,
• Av Cost of total Deposit (COD) 6.5% = 24700 cr. … …A
• CASA Component 1,10,000cr (28.95% of Deposit). Average cost of interest in
SA was 3.5% (appx.)ie = 3080 cr …………B [ SB 80%]
• Cost of Bal Deposit 2,70,000 cr A-B = 20950 … ….C
• Assume CASA increased to 40%, having same proportion of CA & SA,total
Deposit remaing same IOD would be less vis-a-vis Profit would increased
substantially.
• (Assuming Interest rate for Non-CASA deposit to remain same , Work on it and
ensure that when (1)CASA increases, % of COST of deposit falls vis-à-vis NII &
PROFIT increases )
 ROLE OF CASA IN BANK
• There is another significant role of CASA other
than reducing the cost (as mentioned below)

2) If our cost of deposit is low, then we can

afford to bid for bulk deposit with increased rate
of interest and there by build volumes in
business.
 ROLE OF CASA IN BANK
3) CASA accounts will help the Bank to cross sell
its other products to the customers.
• Cost of servicing of CASA has considerably
come down on account of shift of customers’
touch points from the branch to ATM/Internet
medium.
4) CASA also helps in expanding the customer
base and thus the market space for the Bank.
 ROLE OF CASA IN BANK
5) More the current account more is the clearing
surplus and thus helps the Bank to earn by
lending the funds to the needy banks through
CALL MARKET.

6) Where a Bank is short of cash and is in the

mode of borrowing from other banks this can be
reduced on account of inflow of cash by CASA
customers.
 ROLE OF CASA IN BANK
7) CASA opens new opportunities. The CASA customer base will help
the Bank to improve the retail credit portfolio of the Bank which is
again a profitable venture.

8) More CASA will also boost credit portfolio of the bank. More CASA
means low cost of fund enabling bank to reduce lending rate . Thus, a
robust growth in credit portfolio at cheaper rate.

To sum up , Profitability of the Bank is directly proportional to the

CASA percentage of the total deposit.
 Strategies to improve CASA

Focusing on Top Potential Pockets to augment their CASA

deposits
Continuously striving for opening new a/cs by exploring the
market potential of the new areas.
Utilizing the Overseas Representative Offices to get
information of NRI Clienteles and expand the business.
 Strengthening of Retail Sales Units for reaching out to new
customers and thereby increasing the business generation
capability.
   Installation of POS machines in large numbers to scale up
CA Portfolio.
Incentivise the customers for opening CASA Deposit a/c
Incentivise and motivate employees to garner CASA Deposit.
 Probable Questions:
• What is the significance of EM? How can EM be
leveraged to improve ROE.?
• Explain the significance of CASA . How can it help
in improving profitability ?
• Transfer price
• In terms of the profitability statement , explain
the expenditure elements of a Bank.
• As a prudent Banker explain the steps you would
undertake to improve profitability of a Bank’
 CASA Problem-1
(For Practice)
•  
• 1 . Why is CASA so important for a Bank. Substantiate your answer after solving
following problem.
• M/s Pioneer Bank Ltd with 15000 employees having aggregate deposit of Rs
10,50,000 cr with following deposit composition as on 31.03.2019
• Current Deposit Rs 60,000 Cr, Savings account Deposit Rs 1,50,000 cr and
rest as term deposit. It had paid Interest @ 4% to Savings and average 7% to term
deposits.
• It proposes to improve Current deposit to Rs 100,000 cr and Savings to Rs 3,00,000 cr
in present financial year ending on 31.03.20. Assuming the aggregate deposit and
interest rates remaining at same level, calculate: (i) Average cost of Deposit (a) as
on31.03.2019 and (b)as on 31.03.20. (ii) expected reduction in Interest expenses by
dint of increase in CASA as on 31.03.17
• Ans (i) a. 6.17% b. 5.476% (ii) Rs 7300 Cr
•  
 CASA Problem-2
(For Practice)
• 2. Progressive Bank Ltd, a Bank has liability mix consisting
of equity of Rs 2000 cr. and Av Deposit Rs 16000 cr. with
20% as current deposit. After maintaining 4% CRR and 21%
SLR the bank earns an average yield of 12% per annum by
deploying remaining fund in credit and investing in
securities. Income on Investments, including interest on
reserve is about 20% of total income. The overhead and
other expenses is about 6% of average deposits. If the bank
wants to earn a profit of Rs 200 cr. for the year, what rate
of Interest should the bank pay to its depositors?
•  
 Some problems on Deposits
• Refer to Text Book of P.Suresh & J.Paul (4ed)
1) Prob 4.1 P-123
2) Prob 4.2 P-124
3) Prob 4.1 P-129
4) Prob 4.2 P-130
5 & 6)Prob 4.3 & 4.4 P-131
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