After hitting a low in the first quarter of FY26, CASA (current account, savings account) ratio of banks have started to make a comeback from the second quarter. According to data from 29 PSU and private sector banks, CASA has improved 23 basis points to 36.38%.
Banks, especially state-run banks, are confident that the worst is behind them in terms of CASA. Both SBI Chairman CS Setty and Ashok Chandra, MD & CEO, PNB in analysts’ calls expressed confidence that this number will gradually improve and the momentum will sustain in the second half of FY26.
What did Karthik Srinivasan say?
Karthik Srinivasan, head, financial sector ratings at ICRA, said, “Incremental growth in CASA deposits has increased in the last two quarters as the gap between savings rates and term deposit rates has narrowed. CASA remix of banks will stabilise at current levels with an upward bias.”
Some of the main reasons for this relief has been due to curtailment of high-cost bulk deposits and waiving minimum balance charges, along with prudent liability management that have helped banks stabilise this.
However, despite this sequential rebound, the year-on-year CASA ratio remains compressed, down 115 bps from 37.53% a year back in the second quarter of FY25 and 250 bps from 38.89% in the second quarter of FY24.
The CASA compression seen across the system in the last 8–10 quarters has been broad-based, mainly driven by the rate cycle. During the up-rate phase, banks offered over 8% on term deposits while savings rates stayed around 2.5–3%.
Households and corporates naturally shifted balances into fixed deposits, while surplus liquidity also moved into equity markets and mutual funds. “The high-cost deposits mobilised in FY23 and FY24 during the tight liquidity period are still rolling off, keeping the funding mix tilted toward term deposits,” said a senior private sector banker.
Echoing the same, Suresh Shukla, chief business officer at SBI Securities, said, “Retail and affluent customers are no longer leaving lazy money in savings accounts, they are actively chasing higher-yielding alternatives.”
Potential reasons behind declining CASA?
Falling CASA is also due to the acceleration of real financialisation of savings, believes Priyashis Das, CEO of Northern ARC Securities. “Investors who once relied almost entirely on FDs and bank deposits are now moving toward a mix of equity, mutual funds, and bonds.”
He explained that the credit-to-deposit ratio, hovering around 80%, is a telling sign that deposits are not growing as they once did, and that savers are becoming more deliberate about how they invest. Behaviourally, too, customers are keeping only transactional balances in savings accounts because digital options and sweep facilities make it easy to optimise yields.
“They (consumers) are exploring alternatives like bonds that offer better visibility and higher yields without stepping outside the fixed-income comfort zone,” Das added.
Public sector banks have generally maintained higher CASA ratios than private peers, though both categories saw compression. Bank of Maharashtra led the system with a CASA ratio of 50.35%. IDFC First Bank surged to 50%, up from 48% last quarter, thanks to aggressive retail acquisition and higher savings rates. “IDFC’s upward revision of savings rates acted as a catalyst, reinforcing its competitive positioning and enabling it to attract and retain customers more effectively,” said an analyst.
Among others, the Central Bank of India held strong at 46.83%, while IDBI Bank and J&K Bank remained above 45%. Kotak Mahindra Bank posted 42.3%, though down from earlier highs of 49%, while Axis Bank and ICICI Bank hovered around 40%.
In contrast, HDFC Bank slipped to 34%, far below its pre-COVID peak of 42.5%, YES Bank remained weak at 33.7%, and Bandhan Bank fell sharply to 28%, down from 38.5% just six quarters ago. Smaller players like DCB Bank at 23.5% and Tamil Nadu Mercantile Bank at 27.3% continued to struggle.
Experts believe the worst of CASA compression is behind us. With term deposit rates correcting over the last two quarters, incremental CASA growth has picked up.
Recovery, however, will be slow because competition for granular liabilities remains intense. “The structural reality is that the CASA peaks are very difficult to reclaim,” says Shukla, but he feels banks are focusing on innovation—PSBs with MSME-focused products, private banks with digital-led acquisition being some of the liability strategies. As a senior private sector banker said, “The challenge is clear, innovate, recalibrate, and build a sustainable liability franchise in a world where savers are smarter than ever.”