Despite the Reserve Bank of India’s (RBI) 50 basis point repo‑rate cut over the past three months, banks’ current account savings account (CASA) ratios are unlikely to climb immediately, said Srinivasan Vaidyanathan, chief financial officer, HDFC Bank. Addressing analysts during the earnings call, he said CASA ratio is expected to improve only after a lag of a few quarters amid the falling interest‑rate cycle. Typically, CASA ratio moves inversely to interest rates, when interest rates fall, the CASA ratio increases, but with a lag of a few quarters.
“If you see over a period of 15 years through the up and down rate cycle, the CASA has moved in the opposite direction, which is when the rate goes up, CASA ratio goes down and the rate starts to come down. There is some lag, it’s not instantaneous, after a few quarters lag, the CASA starts to go up,” said Vaidyanathan. “So if the empirical is repeated, there is no reason to believe that it would not be the same, we are not seeing something different as such, we should get the CASA back, but not in a hurry because two rate cuts have happened.”
He added that there is need to wait and see the impact of the global factors, inflation trajectory and purchasing power of people.
HDFC Bank’s CASA ratio has declined to 35% in March 2025 from 38% in March 2024.
Generally, when interest rates in the economy decline, banks tend to witness an increase in their CASA ratio. This phenomenon occurs because in a lower interest rate environment, the attractiveness of term deposits and other higher-yielding fixed-income instruments diminishes. Consequently, depositors may prefer to keep a larger portion of their funds in more liquid accounts like current and savings accounts, despite the lower interest earned on savings accounts and the absence of interest on current accounts.
With fixed deposits rates staying elevated in the past one year, banks have witnessed a gradual decline in CASA ratios. A source of low cost funds, CASA play a crucial role in protecting net interest margins of banks. Driven by tight liquidity conditions and high credit demand over the past one year, banks started raising interest rates on fixed deposits, which led to a widening of rates differential between FDs and savings accounts. This prompted depositors to shift their funds from CASA to FDs to earn higher rates.
The bank is looking to lower its loan to deposit ratio (LDR) to its pre-merger levels in the next financial year. “What we had described last quarter or even about a year ago is that the LDR will come down to the pre-merger level of 85 to 90. More precisely, it was 87 and change, the quarter before the merger, 85 to 90 is what we have operated, that will come into that range in FY27,” he said.