Context:
Due to recent liquidity concerns where loan growth has outpaced deposit growth, regulators and the government are emphasizing the need to increase overall deposits, particularly the CASA component.
CASA (Current Account and Savings Account):
- Refer to the funds deposited in current and savings accounts of bank customers.
- Predominantly used in West Asia and South East Asia
- Features –
- Cost Efficiency – CASA is a cheaper source of funds for banks due to lower interest rates compared to term deposits.
- Interest Rates – Savings accounts within CASA pay more interest than current accounts.
- Transaction Volume – CASA accounts involve numerous daily transactions, such as withdrawals, remittances, and account statements.
- CASA Ratio – This metric indicates the % of total bank deposits held in CASA accounts, crucial for assessing a bank’s liquidity.
- Significance –
- Stable Deposits – A higher CASA ratio means a bank has a larger proportion of stable deposits available for lending.
- Financial Health – The CASA ratio reflects a bank’s financial health and its ability to raise funds at lower borrowing costs.
- Current Accounts – Also known as checking accounts, these allow customers to withdraw cash and write checks against the balance, earning no interest.
Types of Bank Accounts:
- Term Deposits – Includes fixed or recurring deposits
- Valid for a fixed period with a fixed interest rate.
- Non-term Deposits – Includes current or savings accounts used for daily operations, valid as long as the customer maintains them.
- They offer lower interest rates compared to term deposits.
Source: The New Indian Express
Previous Year Question
Consider the following statements:
Statement-I: In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes.
Statement-II: Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means.
Which one of the following is correct in respect of the above statements?
[UPSC Civil Services Exam – 2023 Prelims]
(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-1
(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-1
(c) Statement-I is correct but Statement-II is incorrect
(d) Statement-I is incorrect but Statement-II is correct
Answer: (a)
