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Sem 5 Prep
← Money & BankingSources and uses of bank funds

Formulas for this chapter

CASA ratio

CASA ratio = (Current account deposits + Savings account deposits) / Total deposits

Any question on the cost or the stability of a bank's funding. Only current and savings go on top; fixed, recurring and term deposits are in the denominator only.

Current accounts
Demand deposits paying 0% interest
Savings accounts
Demand deposits paying usually 2% to 4%

Weighted average cost of deposits

Cost = (SUM of each bucket x its rate) / total deposits Saving from a mix shift = amount shifted x (old rate - new rate)

When a deposit mix and its rates are given. Divide by total deposits, not by the interest-bearing ones, or the zero-cost current accounts will vanish from the answer.

bucket
Current, savings or term deposits, each with its own rate

Net interest income from a balance sheet

Interest earned = advances x lending rate + SLR securities x their yield + 0 x CRR cash Interest paid = CASA x CASA rate + term deposits x term rate NII = interest earned - interest paid

When a question builds a bank from its deposit mix and reserve requirements. The CRR balance is non-earning, so it appears on the asset side with a yield of zero and still has to be funded.

advances
Deposits times (1 - CRR% - SLR%), when the bank lends to its limit
Step 3 of 26
The real wordsTheory

Sources of funds: the three heads

Every rupee on the liabilities side sits under one of three heads.

1. Owned funds: capital plus reserves.

2. Borrowed funds: deposits, interbank borrowing, bonds, and borrowing from the RBI.

3. Other liabilities: provisions, payables and the like.

Learn the order too, because it runs from the most permanent money to the least.

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