Digital is here and now – The road ahead for Indian banks !

The most fascinating narrative in the India’s growth story is its young population with 33 percentage of population below the age of 35. Banking is seeing the first generation of digital natives who can’t relate to pre-digital banking era.?In their mind the most attractive employment opportunity in banking is of a data scientist or experience designer! 15 years back these roles did not exist even in Information Technology sector. The reality is 1/3rd of India’s banking customers have very high level expectations from their banks on data driven credit products, experience centric self-service models and 24/7 service availability. ?

Performance of Indian banks in FY21 was impacted by the pandemic and the economic contraction, signs of recovery is visible in Q3FY2022. Gross bank credit grew by 8.4% at the end of December 2021, as compared with 5.6% in March 2021. Continued recapitalization of public sector banks by government, capital raise by private banks and higher margins have strengthened the Capital to risk weighted assets (CRAR) ratio of SCBs which stood at 16.6% at the end of September 2021, which was 14.8% at the end of FY2020. Asset quality has improved with overall GNPA ratio declining to 6.9% at the end of Q2FY22, compared to 8.2% at the end of FY2020.Private sector has continued to outpace public sector in growth, except for Bank of Maharashtra, which has shown a remarkable growth in Q3 ahead of many private banks. Clearly the banks with relatively increased digital Prescence and operations are performing better across all parameters.

Historically, foreign banks like Citibank and HSBC introduced new age technology to retail banking in India, Indian Banks have transformed significantly in the last decade. It has become inevitable for banks to embrace digital with new age private sector banks accelerating the journey by building strong omni-channel capabilities keeping customer at the core. Public Sector Banks have also joined the party with the consolidation process and large-scale operations supporting their ability to invest in digital assets with flagship products like Yono and BoB world. Over the past 6 years , Indian bank’s have transformed substantial part of their retail operations using all available digital enablers .

Banks are taking a differentiated approach to capture and analyse customer data that yields insights on providing better experience, anticipating future needs and creating customized products to customer across segments . Data is also the driving force in managing asset quality with new innovative data driven underwriting and credit analysis becoming more accurate. Banks are offering personalized rates, terms and payment options ?to improve customer connect . The account aggregator framework and the other regulations on customer data usage will play a key role in driving this. Banks’ ability to manage data, maintain data quality and comply with regulatory requirements will be a key differentiator. Banks need to reinvent their operating model across origination, fulfillment, service, collection and reporting. An Integrated enterprise architecture across the front, middle and back office is key to success. Bankers today need skills that were not necessary in the past and upskilling workforce is a major focus for leadership

Partnerships with Fintechs help Banks to realize full benefits of investment in digital assets and create an innovation led culture of collaboration. These alliances will help Banks accelerate their growth, overcome challenges that come from transformation and help target new customer segments. Successful collaborations in the lending space has reached a mature stage and simple customer focused liability products are also gaining traction showcasing effective technology integration between banks and Fintechs.

Despite all the technology adoption in banking sector, India has 190 million adults not having bank accounts, making India the world’s second-largest nation in terms of unbanked population after China. This is a unique conundrum of advanced digital adoption and higher market potential of growth backed by the expected growth in industrial and agricultural sectors.

The Reserve Bank of India (RBI) has been focusing on growth to support the economic recovery and has maintained stability on interest rates. However given the rising inflationary pressure, the regulator is constantly re-assessing the situation and we are most likely to see a marginal rise in rates. To support the changing ecosystem and take forward the agenda of digital financial inclusion, 75 digital banking units are also planned to government of India.

Although traditional Banking services are being transformed and customers are today deeply rooted to avail hyper-personalised banking services digitally. In the era of embedded finance, financial transactions are no longer being thought of as a post-facto action.?Banking products are being embedded into social, business and consumption apps.?Ability to access data which is available in real-time and making decisions quickly based on algorithms have become a norm in Banking sector.?While the data and digital will continue to drive growth , building trust and maintaining the human touch will be strong factors to build and retain a strong customer base. Building a customised product catalogue, maintaining absolute transparency and delivering it seamlessly through simple customer journeys while keeping the customer engaged will be critical success factors.

As Banks have started reaping benefits of digital transformation, preparing for next 10 years assumes priority. It is important for Banks to identify their ecosystem play and accordingly align enterprise capabilities . With the entire commerce is moving to integrated platforms , Bank’s will have to quickly figure out how to be securing their positions in these emerging platforms. ?Considering metaverse , successful OTT platforms , wearables , and other integrated technology innovations as part of Bank’s strategy will be important . New asset classes such as Green Loans, ESG focused products will be more relevant to consider in years to com.?A case in point would be the new credit market created by Government of India’s vehicle scrapping policy. ?Agility to create new ecosystem relevant products and maintain high service levels will determine the winners in this fast-evolving Indian Banking sector.?