CASA

CASA is a ratio of savings/current account deposits to total deposits.

This is an important analytic metric for Commercial Banks which mostly earn from the spread between the lending and borrowing rates.

Summery

Higher CASA means lower bank’s borrowing cost which helps to increase bank’s income margin.

How?

Commercial banks lend and invests money for a higher rate of return than it pays as interest to its own lenders. The deposits which these banks receives amount to interest payable. If it is a term deposit, banks usually pays the depositor at a higher interest than a non-term deposits. Although banks can make good investment choices with the certainty of time in term deposits, banks looses a significant amount of money in paying back for it. For the collection of non-term deposits, banks pay back at a lesser rate of interest, but it has to utilize the money more conservatively. With efficient policies and good management team this can be mitigated which after all reduces the bank’s net interest payed out.