CASA ratio

The share of a bank's deposits held in current and savings accounts, which pay little or no interest, as opposed to term deposits, which pay the going rate.

With ₹14,000 crore in savings accounts and ₹8,000 crore in current accounts against ₹55,000 crore of total deposits, a bank has a CASA ratio of 40%.

This single ratio explains most of the difference in profitability between Indian banks. Why does one ratio matter so much? Cheap deposits are the durable competitive advantage in lending, because they persist through the rate cycle and can't be bought quickly. A bank with 45% CASA can lend at the same rate as one with 25% and earn far more. Or it can lend more cheaply and win the business.

Above 40% is strong and a falling ratio is a warning, particularly in a rising rate environment when savers move money to term deposits.

Deposit franchises take decades to build and one crisis to lose.

In every cycle, the cheapest funding wins.