The chief of ESAF Small Finance Bank (SFB) has identified growing Core Administrative System Architecture (CASA) deposits as the biggest challenge faced by small banks. CASA deposits refer to current and savings accounts that banks hold with each other.
According to the SFB’s chief, the increasing demand for CASA deposits is making it difficult for small banks to manage their balance sheets and liquidity. The rising CASA deposits have not only posed a challenge in terms of managing liquidity but also put pressure on the banks’ balance sheets.
The administrative burden of managing CASA deposits is significant, and small banks lack the resources and expertise to effectively handle it. The ESAF SFB chief stated that the bank’s own CASA deposits, which had been increasing at a compound annual growth rate (CAGR) of 15%, were putting pressure on the bank’s liquidity and balance sheet management.
The chief also attributed the growing CASA deposits to the recent demonetization drive, which had led to an increase in people holding cash in their accounts. As a result, the flow of cash into the banking system increased, leading to a surge in deposit growth.
To address the issue, the SFB was exploring alternative ways to manage its CASA deposits, such as investing in high-yield liquid assets and promoting digital banking initiatives. The bank is also working on building a more efficient and scalable system for managing CASA deposits, which will enable it to better manage its balance sheet and liquidity.
The challenge posed by CASA deposits is not unique to ESAF SFB; small banks across the industry are grappling with the same issue. The Reserve Bank of India (RBI) has also recognized the problem and has issued guidelines to ensure that banks maintain adequate liquidity and manage their balance sheets effectively.
In conclusion, the growing CASA deposits pose a significant challenge to small banks like ESAF SFB, which lack the resources and expertise to effectively manage their balance sheets and liquidity. To address this issue, the bank is exploring alternative ways to manage its CASA deposits and building an efficient and scalable system to manage its balance sheet and liquidity. The challenge posed by CASA deposits is not unique to ESAF SFB, and small banks across the industry are likely to face the same issue, making it essential for them to develop strategies to manage their CASA deposits effectively.