RBI flags high interconnectedness of SFBs with co-operative banks

RBI has flagged the interconnectedness of small finance banks (SFBs) with co-operative banks via the bulk deposit route.

“SFBs serve a critical role in delivering credit to under-banked segments. However, many SFBs have low current account and savings account (CASA) deposits and a greater reliance on bulk term deposits, often acquired at higher rates, especially from co-operative banks,” RBI said in its Report on Trend and Progress of Banking in India 2022-23.

This suggests a high degree of interconnectedness of SFBs with co-operative banks, with the possibility of any shock to the latter sector spilling over to the former, it added.

Out of SFBs’ total deposits of Rs 1,91,372 crore as at March-end 2023, term deposits accounted for 67.53 per cent, with the balance being accounted for by CASA deposits.