First Time in a Decade: Public Sector Banks Surpass Private Rivals in CASA Ratio

In FY 2024-25, a significant shift occurred in India’s banking landscape. For the first time in a decade, state-owned banks outperformed their private counterparts in terms of the current account and savings account (CASA) ratio and asset quality. This reversal comes amid continued stress over deposit mobilisation and changing monetary policy conditions.

Public Sector Banks Take the Lead in CASA Ratio

Public sector banks recorded a CASA ratio in the range of 31% to 54% during FY25, while private banks reported a CASA ratio between 24% and 47%. This marked a decade-high performance for state-owned institutions in contrast to their private peers.

The improvement is attributed to an aggressive end-of-year push by public banks to secure more retail deposits. Despite broader sector challenges in attracting deposits due to lower interest rates compared to other financial instruments, state-owned banks managed to hold their CASA levels within expected targets.

A report by ICRA noted a marginal rise in public banks’ CASA share during Q4 FY25, while private sector banks experienced a slight decline. This highlights the divergent deposit mobilisation strategies adopted by the two banking segments.

Policy Rate Cuts Affecting Deposit Dynamics

The Reserve Bank of India (RBI) has reduced the repo rate by 100 basis points so far in its rate-cutting cycle to support economic growth. This has led to changes in interest rates on CASA deposits, with banks adjusting returns accordingly.

Banks Turn to Certificate of Deposits for Liquidity

Amid tightening deposit growth, several banks have increased reliance on short-term debt instruments such as certificates of deposits (CDs). RBI’s annual report revealed a notable uptick in CD issuances across FY25.

• Q1 FY 25: ₹2.5 lakh crore
   
• Q2 FY 25: ₹2.8 lakh crore
   
• Q3 FY 25: ₹2.9 lakh crore
   
• Q4 FY 25: ₹3.7 lakh crore

This surge reflects efforts to bridge the growing gap between credit and deposit growth, with credit demand remaining strong. Banks are supplementing deposit bases through these instruments to maintain liquidity.

Read More: After RBI’s Rate Cut, These 4 Public Sector Banks Cut Lending Rate – Find Out Which Ones!

State-Owned Banks Show Improved Asset Quality

State-owned banks also showed stronger asset quality metrics than private peers in Q4 FY25. According to the CareEdge report, gross NPAs of public banks declined 17% YoY to ₹2.94 lakh crore. Conversely, private banks saw a 5% YoY increase in gross NPAs to ₹1.21 lakh crore.

Conclusion

FY2024-25 marked a turning point for India’s banking sector, with state-owned banks outpacing private players in CASA ratio and asset quality for the first time in a decade. Public banks’ strategic push for retail deposits, supported by CD issuance and controlled asset risk, has helped them stabilise amidst a challenging economic and monetary environment.

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