Current Account and Saving Account (CASA) forms the backbone of both funding as well as liquidity in the Indian banking sector. It is not only important for strengthening lending abilities but also important for initiatives on financial inclusion, especially with rising digital banking and an ever-expanding middle class in the country.
Union Finance Minister Nirmala Sitharaman has stated that the government aims to reach the remaining adults and new adults with bank accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY). As of August 14, 2024, there were over 173 crore active CASA accounts in the country, including more than 53 crore operational PMJDY accounts. CASA indeed represents a huge potential stream for Indian banks.
Challenges before Indian CASA forces for banks
Despite the opportunities, the banks face several challenges in the optimal offering of CASA product lines:
- Intense Competition: Banking in India is extremely competitive. Public sector, private, foreign banks, and numerous fintech companies create an environment of healthy competition forcing banks to constantly innovate services to acquire and retain clients.
- Evolving Customer Expectations: Today’s consumer is technologically savvy and requires and expects personalized mobile-first experiences. Instant service is expected from the banks and innovative digital offerings, which puts enormous pressure on banking institutions to continually evolve their product offerings.
- Regulatory Compliance: The regulatory environment in India is quite rigorous, and the key issues are Know Your Customer (KYC), Anti-Money Laundering, and data privacy. Compliance does not necessarily work hand-in-hand with customer experience sometimes; therefore, this is one tightrope the banks have to walk upon.
- Cost Optimization: With rising costs of operations, there is pressure from the market on banks to optimize their processes and reduce the cost of acquiring new customers while remaining profitable. In this regard, there is a need for efficiency in banking operations motivated by an interest in operations within the entire spectrum of banking.
- Legacy Infrastructure: Most banks still operate using outdated, less innovative core banking systems, which restrain them from becoming innovative as well as agile. Its outdated infrastructure proves to be challenging for them to cope with the demands of a highly digital customer base.
Addressing the Challenges: Key Strategies for Success
Dealing with all these challenges, banks may have several key strategies.
- Accelerate Digital Transformation: Digital onboarding processes and mobile-first banking solutions would make tremendous improvements in customers’ experiences. Banks can touch new customers and retain existing ones by making access much easier and more convenient. Reserve Bank of India Governor Shaktikanta Das urged banks to modernize their deposit-taking processes by integrating technology, noting that while lending has gone digital, deposit mobilization continues to rely on outdated methods that need reform.
- Personalize the Customer Journey Through Data-Driven Insights: Data analytics is basic in the decision-making process to understand the needs and behavior of the customers. Banks can segment their target based on the available data with the customers; hence, they adapt according to specific demands that can help ensure customer loyalty and increase satisfaction.
- Automate and Streamline: Automation technologies like Robotic Process Automation (RPA) and Artificial Intelligence (AI) make the processes of KYC/AML efficient and even the loan processing effective, with effective customer service, thus better experiences for customers.
- Leverage AI: AI can be used to analyze customer journeys as well as provide personalized product suggestions that enhance interactions further and create relevance and interest.
- Strengthen Security and Compliance: With an increase in the adoption of digital banking, banks are required to develop strong security measures and fraud prevention systems. In light of this, advanced compliance frameworks will be required by the banks to secure customer data and, therefore, maintain trust.
- Modernize IT Infrastructure: The cloud-based solutions open APIs, and microservices architecture will make banks more agile and scalable in operation, and it may help banks adjust to change easily according to shifting market conditions.
Conclusion
The Indian CASA segment throws open challenges as well as opportunities before the banks. The Union Finance Minister has urged banks to return to their core focus of deposit mobilization and lending, emphasizing the need to balance two critical elements of the banking business—changing customer expectations, and a maze of regulatory demands. In the complex landscape of competition, it will be critical for banks to adopt innovative strategies to succeed and thrive.
Views expressed by Sunil Pandita, Head of Business, India and South Asia, Newgen Software
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