Bangalore: The union finance ministry has asked public sector banks (PSBs) to focus on raising low-cost funds, particularly current account and savings account (CASA).

Most large banks currently have a CASA base of barely 20 per cent.

The ministry, at a meeting with top bankers, has conveyed that it wanted this ratio to be raised to 35 per cent of their respective demand and time liabilities, said the head of a PSB who attended the meeting.

Among the banks that are close to the Ministry''s prescribed CASA, are Central Bank of India and Vijaya Bank.

The Ministry''s concern is largely due to PSBs offering high interest rates on short-term deposits at rates close to 10 per cent. Such rates were being offered for tenures of slightly above one year.

Bankers said that one of the major areas of concern for the ministry was that the high rates were inconsistent with the current inflation trend. With year-on-year inflation at just 4.3 per cent, the real rates were well over 5 per cent. Historically, one-year real deposit rates have seldom exceeded 2 per cent.

The government''s fear was that such high rates would lead to a cost push effect on lending rates.

The implication was that the current regime of high rates would lead to an escalation in the weighted average cost of working funds and in turn impact credit off take, particularly in the productive sectors and adversely impact the GDP growth target of 9 per cent.