Technology and the Future of Banking

Prof. Kamal Kalra, Head, Examination Department,  BIMTECH

Mr. Kumar was recently invited by Wharton’s Mack Institute for a talk entitled “Technology and the Future of Banking”. The moderation of the event was by Prof. Harbir Singh co-director at Mack Institute for Innovation Management and the guest was later in conversation with Prof Saikat Chaudhuri, ED of Mack Institute which  brought out the following  insights & information:
SBI is a 212 year old bank which brings unparalleled scale viz. 43 crore customers, Assets of Rs.35,00,000 crores, 2.6 lakh employees and 22,500 branches.
Under Mr. Kumar, SBI is harnessing technology to advance economic development in the country and prudence in lending with early warning signals for bad loans/ fraud prevention. One of the latest innovations is the mobile app YONO (You only need one) provides banking services and “lifestyle” shopping. There are plans to extend this to agriculture and corporate sectors. The 5 insights from the conversation are as follows:

Insight 1: Purging Bad Loans
Indian banks have combined NPAs of Rs.3,20,000 crores as on March 2018 of which Public Sector Banks account for 85% of the total or Rs.2,70,000 crores.  Kumar believes the worst is over for SBI’s NPAs. In year ended 31.3.18 SBI incurred a loss of Rs.6,574 crores but bounced back to a profit of Rs.945 crores in the first quarter of the current year. While Kumar is optimistic about reduction of Gross NPA to single digits the picture is bleak as per RBI for other PSU banks which are expected to increase NPAs from 11.2% to 12.2% by end of the current year.

Insight 2: Currency & Liquidity pressures
India’s Financial System faces liquidity pressures in the current year. While the initial trigger was the rush of advance tax payments by corporate debt default by Infrastructure Leasing & Financial Services (IL&FS) a major infrastructure lender extenuated the crisis. Mutual Funds and other investors shunned NBFCs and IL&FS withdrew mutual fund investments leading to mutual funds stopping finance of commercial paper from NBFCs.

Weakening of the rupee against USD also due to increase in US interest rates and the strong crude prices added to India’s problems. The price of oil has since dropped from $76.41 in October to $54.29 in end December 2018. The rupee as per Mr. Kumar should stabilise at Rs.70 to a dollar.

Insight 3: Infusing Technology
SBI has 3 major technology programs with about 500 projects underway. They are in Risk Management, CRM and YONO its mobile app Kumar said. The Bank has 30 million mobile banking customers and 47 million internet banking customers but the untapped potential is huge given 500 million of India’s population have smart phones. The  journey is transforming from digital to physical for a customer. From 1984 when SBI needed the permission of Unions for PC purchase to a contract less SME lending platform it has been a transformational journey. In less than an hour the a loan can be approved. Design principle of YONO is that no transaction should take more than 3 clicks. Right now its between 3-5.

Insight 4: Collaboration as a growth lever
As per Mr. Kumar, India is growing at a rate of 7.5% and this would drive SBI’s growth. SBI is not planning any merger and acquisitions as it first has to digest the recent mergers with subsidiary banks of SBI. The need of the hour is to be more cost efficient and profitable. If SBI were to acquire any company it would be a Fintech rather than a bank.

Insight 5; Fintechs as partners not disruptors
Mr. Kumar said instead of perceiving Fintechs as disruptors that may eat into SBI share he aims at a “symbiotic relationship” based on collaboration.

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