WHY CASA DEPOSITS AREN'T AS CHEAP AS ASSUMED TO BE

RADITIONALLY, current and savings bank deposits or CASA is considered to be low-cost deposits in Indian banks.

- TANU K DAS

So these deposits in absolute as well as percentage terms continue to receive overriding emphasis in policy for the sake of operational efficiency. But recent liquidity concerns in the face of loan growth outpacing deposit growth have added another dimension to the 'Chase CASA' strategy. Regulators and the government also have rightly pressed for higher augmentation of overall deposits, specifically the CASA component.

Here we try to present a kind of antithesis on whether CASA truly represents lowest-cost deposits or there is more to it than commonly perceived. True, a current account offers zero interest to depositors while savings deposits offer somewhere in the range of 2.7 to 3.2 percent, at least in public sector banks. In terms of the mathematics of interest outgo, CASA apparently represents lowest-cost deposits, since fixed deposits or FDs offer much higher rates of interest on various tenors and special schemes.

But deposit cost may not be all about interest outgo alone. While terming CASA as the lowest cost option, one missed a few links, as a result of which their cost is probably often understated. There are other associated costs as well that are probably not explicitly factored in. As a result, the impact of operating cost of CASA is often found missing. To add a substantive dimension over and above the normative one, it is essential to illustrate a few important cost drivers in CASA economics.