Concept 1 · free preview
Deposits: demand vs time liabilities, CASA and who sets deposit rates
Understand
When you put money in a bank, the bank owes that money back to you. So for the bank, every deposit is a liability, and the loans it makes out of those deposits are its assets. Deposits are the cheapest and largest source of funds for a bank, which is why banks compete for them. Deposits are grouped by when the customer can take the money back. A demand deposit is withdrawable on demand — current accounts and savings accounts. A time (term) deposit is accepted for a fixed period — fixed deposits, recurring deposits, cumulative and reinvestment deposits. RBI's deposit directions define a savings deposit as an interest-bearing demand deposit with limits on the number and amount of withdrawals, and a current account as a non-interest-bearing demand deposit. Current and savings deposits together are called CASA. Because CASA money pays little or no interest, a bank with a high CASA ratio has a lower cost of funds. The total of a bank's demand and time liabilities (minus certain exempt items) is its NDTL — the base on which CRR and SLR are calculated. Interest rates on deposits are no longer fixed by RBI. Banks decide them through a Board-approved policy, but RBI sets the framework: rates must be uniform across branches and customers for similar deposits taken on the same date, published in advance, and not negotiable.
Rule
Deposit = liability of the bank; loan = asset of the bank.
Demand deposits: current account and savings account. Time deposits: fixed, recurring, cumulative, reinvestment and annuity deposits, and cash certificates.
A notice deposit is a term deposit for a specific period, withdrawable on giving at least one complete banking day's notice.
CASA ratio = (Current + Savings deposits) ÷ Total deposits × 100. Higher CASA means cheaper funds.
NDTL (Net Demand and Time Liabilities) is the base for CRR and SLR.
Savings bank interest rate was deregulated with effect from 25 October 2011; banks set it, with one uniform rate on balances up to ₹1 lakh.
Deposit rates must follow a schedule disclosed in advance, be uniform for similar deposits accepted on the same date, and are not negotiable between the depositor and the bank.
Banks may not accept interest-free deposits other than in current accounts, and may not use prizes, lotteries or free trips to attract deposits.
Current position
As of 2026-10-11, DICGC insures each depositor up to ₹5 lakh (principal plus interest) per bank, in the same right and same capacity; the limit was raised from ₹1 lakh with effect from 4 February 2020.
Effective: 4 Feb 2020Source (opens in a new tab)
Example
A bank has current deposits of ₹40,000 crore, savings deposits of ₹60,000 crore and term deposits of ₹1,50,000 crore. Total deposits = ₹2,50,000 crore. CASA = ₹1,00,000 crore, so the CASA ratio = 1,00,000 ÷ 2,50,000 × 100 = 40%. If its CASA ratio rises, its average cost of deposits falls, and it can lend more cheaply.
Common mistake
A savings account is a DEMAND deposit, not a time deposit — even though it earns interest.
Deposits are liabilities and loans are assets for the bank; many students reverse them.
RBI does not fix the savings or FD rate any more; it only sets the framework. The savings rate was the last one to be freed, in October 2011.
DICGC cover of ₹5 lakh is per depositor per bank (same right and capacity), not per account or per branch.