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.

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

This single ratio explains most of the difference in profitability between Indian banks. Cheap deposits are the durable competitive advantage in lending, because they persist through the rate cycle and cannot be bought quickly. A bank with 45% CASA can lend at the same rate as one with 25% and earn far more, or 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.

The franchise takes decades to build and one crisis to lose.

The cheapest funding wins, every cycle.