Friday, 26 August 2016

BA' Disqus'sion: Preparation for GD

Dear Readers,

Welcome to BA Disqus'sions. SBI has released GD-Interview(Phase-III) Call Letters and now you should start preparing to face Group Discussion. We’ve already given you some Tips for both Group Discussion and Personal Interview and now we’ll discuss some important topics for Group Discussion. Although nothing can be assured of what topic you might have to face in GD, but still you should have adequate knowledge regarding some important scenarios and topics. 


Today we’ll discuss CASA RATIO. This topic is related to Banking and Finance Sector and if you are a Bank PO aspirant you should know enough to speak about CASA Ratio.

This is the new initiative where a mod will conduct the discussion and all the irrelevant disruptions will be blocked. In this post, we are going to discuss some important points on the topic CASA Ratio for Group Discussion. 

 Only subject related discussion and quizzes are allowed, so if you are on Banking Awareness Quiz, then quizzes and information related to Banking and Finance will be allowed.
☑ No other kind of chit chat will be permitted.
 Any body who indulges in chitchat in this particular page will be blocked right away(Without Warning)

 What do you understand by CASA?

A current account savings account (CASA) is an attempt to combine savings and checking accounts to entice customers to keep their money in the bank by paying no or very low interest on the current account while the savings portion pays an above-average return. They are offered free or for a fee depending on minimum or average balance requirements, and are an attempt to limit the disinter-mediation that occurs when bank-deposit interest is lower than other available short-term investments. These deposits tend to be cheaper than the bank issuing certificates of deposit (CDs) and are also considered more dependable.

☞ What do you understand by CASA Ratio:  

The CASA ratio shows how much deposit a bank has in the form of current and saving account deposits in the total deposit.  If the CASA ratio is higher than it means that a higher portion of the deposits have come from current and savings deposit. This means that the bank is getting money at low cost, since no interest is paid on the current accounts and the interest paid on savings account is usually low.
Current and Saving Accounts are demand deposits and therefore pay lower interest rates compared to term deposits where the rates are higher.

☞ Why banks are keen on gained a higher share of CASA?

Interest rate paid on Casa is much lower compared to other deposits like term deposits or recurring deposits. While banks do not pay any interest on current account, interest paid on savings account deposit is 4%. Banks therefore make maximum effort to increase the share of Casa on their books to reduce their overall cost of deposits.

What does CASA mean for customers?

Recently interest paid on savings account deposits is 4%. Banks pay interest on savings deposits on a daily basis rather than paying on the minimum balance maintained by them in six months.
As a result, savings account customers earn better returns compared to what they earned a year ago.
Further, interest earned on savings account deposits does not attract TDS (tax deduction at source). Interest income above 10,000 a year attracts TDS of 10% in case of term deposits. However, there is no major benefit for current account deposits, which is mainly maintained by corporate and traders.

☞ How Banks Utilize a CASA?

Financial institutions encourage the use of a CASA as it results in a higher profit margin for the bank. Because the interest paid on the deposits is lower when compared to a term deposit, the bank’s net interest income (NII) is greater. Thus, a CASA is a cheaper source of funding for financial institutions.

☞ What are the disadvantages of high CASA?

These deposits can move out of banks' books anytime, leading to asset-liability mismatches. While in case of term deposits, banks are almost certain that the depositor may not withdraw money before the maturity of the deposit and may also renew the deposit on maturity.

Further, to finance long-term projects, banks need to have long-term liabilities on their books to avoid mismatches. Banks cannot rely on Casa deposits to fund long-term loans.

Remember GD is about expressing your knowledge and views, the more you are aware about the subject, the more it will help you to put forth your perspective firmly. 

All the Very Best BA'ins for SBI PO GD and PI

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