Digital brought a welcome change to the way of banking in India | RBI

Reserve Bank of India Deputy Governor Mr. N S Vishwanathan today inaugurated FIBAC 2017, the largest annual conference on finance and banking in India, organised by Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Banks’ Association.
Drawing insights from the book Homo Deus, he described the importance of data in today’s digital world. “Control of data is going to give human beings the power of divinity,” he said. The intersection of information technology, bio-genetics, artificial intelligence and nanotechnology is revolutionising the world at breakneck speed, and mankind may not be able to apply the brakes on it. Digital brought a welcome change to the way of banking in India, he observed.

The growth in digital has increased in recent times because of several policy changes and an enabling environment. “In India, the environment is so conducive to digital adoption that one could say the country is in a very sweet spot in this area.” This advantage, Mr. Vishwanathan felt, can help India leapfrog over the developed countries. In the future, digital services will facilitate business even further with the introduction of a public credit registry. He went on to describe how digital will impact the banking and financial services industry.

The relevance of banks’ ‘brick and mortar’ branches is diminishing. Transactions are carried out
digitally, and activities have become less labour intensive with centralised processing and KYC.
Branches are now being replaced with banking outlets as the point of customer services.
Payment banks now act as banking channels of regular banks. Their entry can revolutionise
banking services. Many institutions now combine to provide financial services to the customer.
The need for intermediation has reduced. Fintechs provide c-2-c services without the bank
being an aggregator. Customers now have a range of choices through the click of a mouse.
“What took hours now takes a few moments”, he added.
However, all these benefits also come with challenges. Cyber security is an issue. “Banks will
have to put in place strong IT systems that prevent fraud,” cautioned Mr Vishwanathan. He
disclosed that two-stage authentication is an RBI-enabled framework to prevent fraud. Banks
need to be alert to various risks and institutionalise mechanisms to deal with them. “As our
digital footprint expands, the threat of cyber security cannot be ignored.” The risks may be
known, but the outcomes cannot be known fully. He called upon banks to keep their customers
well-informed about risks and measures to counter them. On the other hand, the digital
ecosystem has brought advantages to the regulator, and enables policy-making. He informed
the gathering that RBI is working with banks to create an automated data flow system.
Mr Jatinderbir Singh, IAS, Chairman, IBA and Chairman and Managing Director, Punjab & Sind
Bank, also spoke on the occasion. He observed that initially banks adopted computerisation
with apprehension but today they have embraced it totally. They use technology extensively to
improve the ease of business, speed and accuracy. The last three years saw several innovations
in the digital payments space. UPI recently crossed 1 billion transactions. Technology also plays
a big role in financial inclusion. “Innovations are taking place so fast that it is difficult to keep
pace,” he said. The key differentiator, he felt, will be customer service.
Mr Saurabh Tripathi, Senior Partner and Director, BCG, made a presentation on the conference
theme. He pointed out that India ranks within the first 30 countries in the world in getting
credit. “Indian banking is the pride of the nation; it has achieved what many people will find
difficult to achieve,” he said, alluding to the herculean task of opening of millions of accounts.
He pointed out that other countries are surprised by what is happening in this country. The
heights that Indian banking has scaled are not possible even in countries like Singapore and the
US.
Describing the trends brought about by digital and technology, Mr Tripathi said that deposits
have been growing and will continue to grow to about 56 per cent of the revenue pool for the
banking industry. Distribution income will be a phenomenal part of banks’ revenue pool. Retail
will continue to grow. But fintech companies and NBFCs may pose a threat to retail in banking.
MSMEs will play a much larger part in the banks’ business. “The paradigm of how to do
corporate banking has to change,” he said. He also called upon the regulator and policy makers
to do the right credit analysis, and share the data with banks.
Mr Tripathi later moderated a panel discussion on ‘Finance in Digital Era: Navigating the
Knowns and Unknowns’. The panellists included Mr Jatinderbir Singh, IAS, Chairman, IBA and
CMD, Punjab and Sind Bank, Mr Rajnish Kumar; Chairman, State Bank of India; Ms Chanda
Kochhar, MD and CEO, ICICI Bank; Mr C S Ghosh, MD and CEO, Bandhan Bank; Mr Vishwavir
Ahuja, MD and CEO, RBL Bank; and Ms Zarin Daruwala, CEO – India, Standard Chartered Bank.
Mr Tripathi introduced the panellists and observed that they represented the entire banking
industry. He admitted that their collective achievements have not been recognised by the
country, while the focus has been on NPAs.
Agreeing with him, Mr Rajnish Kumar pointed out that NPAs are not unique to India. Indian
banks have made rapid achievements in terms of outreach and financial inclusion. He hoped
that the country will be able to look beyond the problem of stressed assets and give due credit
to the strides made by the banking industry.
Describing how banks have benefitted from the deployment of data in the last few years, Ms
Kochhar’s view was that today, it is not just about data and automation. Real success comes
with a combination of data analytics, machine learning and artificial intelligence. On the lending
side, there is structured data such as credit rating scores. To this is added unstructured data
such as behavioural analytics, and then it is made almost real time. Finally it is linked to the
workflow and method of delivery. Mr Kumar agreed that today’s employees are all tech-savvy,
which itself is a big enabler of adoptability.
Responding to where corporate banks would be heading over the next five to ten years, Ms
Daruwala felt that banks will need to re-look at what skill sets are needed. “Clients want to lock
into fixed rate instruments.” Corporates look at the bond market from that point of view, she
said. Mutual fund liquidity is also creating a vibrant bond market. RMs will need to do
acquisition, and be “much more nimble in how they do things.” But Mr Rajnish Kumar felt that
only very large corporates with better credit ratings will be able to access the bond markets.
Risk is a problem since it is not priced adequately. The major challenge will be to manage
liabilities, since corporate are not dealing with their own money.
Speaking about his own bank, Mr Ghosh said, “we are high touch, but technology is helping us
grow.” Bandhan Bank relies on both touch and technology to reach out to 1.2 crore customers
on a weekly basis. “High touch cannot be replaced by technology, but can go together with it.”
He disclosed that banks are focussing on the MSME segment because the corporate sector is
not doing well. His bank has been disbursing enterprise loans to small players. But there are
issues with the amount of paperwork still needed, and the difficulty of rural customers to use
technology. This is where the high touch model becomes useful. Mr Singh also drew on his
experience of serving clients in rural areas. “The needs of segments of society are diverse,” he
said, describing PNB’s model of using ‘bank mitras’ to reach out to local communities. Bank
mitras have had success in training rural customers in digital methods of banking.
Mr Ahuja mentioned that partnerships with fintech companies and NBFCs are central to RBL
Bank’s growth strategy. Banks need to create models of working together. “Our mindset is to
think like a start-up.” They are trying to bring in the minimum viable concept and see if that can
deploy the space and speed they need to grow.
Earlier, Mr Vishwanathan released a Knowledge Paper prepared by Boston Consulting Group,
and launched the FIBAC 2017 Digital Tool. Dr Sanjaya Baru, Secretary General, FICCI, welcomed
the gathering and Mrs Usha Ananthasubramanian, Deputy Chairperson, IBA and CEO, Allahabad
Bank, proposed a vote of thanks.