Banks learn that paying little in savings interest comes with a cost

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Icra and Mint calculations showed. “Casa ratio shot up after demonetization and reached its peak during covid-19, prior to which it used to be in early to mid-thirties levels," said Anil Gupta, senior vice-president and co group head of financial sector ratings, Icra Ltd. Casa levels should remain “comfortably above mid-thirties", Gupta said.

He said digital payments have increased significantly, which means people do not need to carry much cash for daily requirements; so, it will lead to higher balance in savings accounts. Gupta said Casa ratio might go down further if banks continue to increase term deposit rates. However, he does not foresee any material increase in saving deposit rates for larger banks, as their savings deposit base is driven by balances that customers maintain on a day-to-day basis and the relationship with the bank is more transactional, not just driven by interest rates.

In FY24, savings deposits earned 2.7–3%, while term deposits of one to three years earned 6–7.1%, showed the Reserve Bank of India data of five major banks up to 1 September. A decade ago, savings deposit rates were at 4% and one to three year fixed deposits at 8.75–9.25%, meaning the gap between savings and term deposits has narrowed over the years. In fact, the share of term deposits in total deposits increased to about 60% in September 2023 from 57% in March 2023 and 55% in March 2022.