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Finance: Banking – CASA
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1. CASA stands for Current and Savings Account ratio which is used in the banking and financial sector. It is the ratio of deposits in the current and savings accounts of a bank to its total bank deposits. A high CASA ratio indicates that a higher portion of the bank’s deposit come from current and savings accounts. This means that the bank is getting money at low cost. It is a very good tool for banks to measure the availability of finance and to know their financial strength. This helps the bank in planning loan disbursement at reasonable rates as liquidity is available freely at a less price. This is one form of ratio to know the status and the need for fund mobilisation if the same is required to be done. The bank can carry out its lending activities well and see to it that it earns more interest rate on the money so lent. This helps in increasing the banks resources and makes the banks financial strong if the money received at low cost is properly lent and income earned Generally the current accounts attract a charge as the bank is doing a job of holding the customers which he can come and ask for withdrawal at any point of time without notice. If he is willing to park the funds of a huge amount even for a period of 3 or 5 or 7 or 10 days he is paid interest. The intention of the banks to hold on to the funds for the short term period which are of high volume as this will help in increasing the liquidity substancially. The savings bank accounts attract a somewhat lower interest rate than a fixed deposit. As these customers can also approach the bank for withdrawal of cash as and when required without any notice. But since the withdrawal will not be of high value and to incentivise the customer to park money with the bank a nominal amount of interest is paid to him. These rates vary form bank to bank in small percentages due to competition among banks to attract customers towards them and get more fund flow into their bank to enable them to carry them their banking activities smoothly. A money kept in savings account can be also converted into a fixed deposit by the as is the case that he can withdraw it. So it is a business opportunity that the banks cannot afford to ignore. Once the fixed deposit is made by the customer as per his requirement if he gets more liquid cash or he does not need the funds the interest rate will also proportionately increase depending on the period for which the fixed deposit has been made. These fixed deposits are for the period of 15days, 31days, 45 days, 60 days, 120 days, 180 days, 1year, 3 year and 5 years generally.
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