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Indian Banks Grapple with Plunging CASA Ratios, Eroding Profitability
3 Aug
Summary
- CASA ratios of top Indian lenders down 150 bps in past year
- HDFC Bank, IndusInd Bank see 11-point CASA ratio drops
- Kotak Mahindra Bank reports sharpest 19-point CASA ratio decline
As of August 4th, 2025, India's top private and public sector lenders are grappling with a significant decline in their CASA (current accounts-savings accounts) ratios. Over the past year, these ratios have dropped by 150 basis points, directly affecting the banks' net interest margins (NIMs).
The immediate impact of this trend is visible across the industry. In the June 2025 quarter, the NIMs of these lenders were down 18 basis points year-on-year and 14 basis points sequentially. The decline has been even more pronounced over the past two years, with a 43-basis-point drop.
The country's largest lender by market value, HDFC Bank, and IndusInd Bank have each seen an 11-percentage-point drop in their CASA ratios between the first quarters of fiscal years 2022 and 2026. This highlights the growing reliance of these banks on costlier sources of funding.
The sharpest decline, however, has been reported by Kotak Mahindra Bank, whose CASA ratio fell by more than 19 percentage points during the same period. According to Suresh Ganapathy, head of financial services research at Macquarie Capital, this has led the bank to increasingly rely on "high-value bulk deposits," putting pressure on its core profitability.
To mitigate the impact, some large lenders, such as HDFC Bank and ICICI Bank, have cut savings account interest rates during the June 2025 quarter, which is estimated to improve their NIMs by 5-8 basis points. However, the overall shift towards higher-yielding term deposits and alternative instruments continues to challenge the Indian banking sector's core profitability.
