Smaller Banks Boost CASA Deposits, Outpacing Major Lenders

During the June 2026 quarter, several mid-sized private banks, including IDFC First Bank, Federal Bank, and Bandhan Bank, notably increased their low-cost Current Account Savings Account (CASA) ratios. This performance stands in sharp contrast to larger private lenders, many of whom reported declines in these crucial deposit metrics.

A higher CASA ratio is fundamentally beneficial for banks. It directly reduces their overall cost of funds, which in turn enhances profitability and strengthens net interest margins.

Key performance indicators for the June 2026 quarter highlight this divergence:

• IDFC First Bank reported a leading CASA ratio of 50.8%, a 280 basis point increase year-on-year.
• Bandhan Bank’s ratio rose by 234 basis points to 29.4%.
• Federal Bank saw an increase of 188 basis points, reaching 32.23%.
• In contrast, HDFC Bank’s ratio stood at 32.3%, while Axis Bank experienced a drop of approximately 200 basis points.

Management at IDFC First Bank attributed their success to a long-term strategy. This approach focuses on establishing a stable deposit base rather than prioritizing rapid loan growth.

Federal Bank’s growth, similarly, was linked to a strategic shift in branch-level goals. The bank emphasized the acquisition of new deposit customers.

Major Lenders Face Sustained Erosion

Beyond the most recent quarter, a broader five-year trend shows significant pressure on low-cost deposits for major banks. From June 2023 to June 2027, most large institutions, including HDFC Bank and Kotak Mahindra Bank, experienced erosion in their CASA ratios.

During this longer timeframe, customers moved funds into higher-interest fixed deposits or alternative investments. Notably, among ten major banks analyzed, only IDFC First Bank and YES Bank managed to improve their CASA ratios.

Investor Focus on Funding Costs

For banking investors, the cost of funds remains a critical factor. A reduced reliance on expensive bulk deposits, achieved through higher CASA, protects net interest margins, especially during periods of high or volatile market interest rates.

The challenge now for these mid-tier banks is to sustain these elevated CASA levels as their loan books continue to expand. Investors will closely monitor whether larger banks can reverse their declining trends through new customer acquisition strategies or advancements in digital banking platforms.

They will also observe how management teams balance deposit costs with the ongoing demand for credit. This dynamic interplay will shape profitability in the coming quarters.