Tech emerging as greatest enabler for banks

Banking credit flow during April to August has been negative, a recent Reserve Bank of India (RBI) data showed. This is despite the fact that private sector lenders like ICICI Bank, HDFC Bank growing their loan books in double digits. Meanwhile, the Securities and Exchange Board of India (Sebi) data showed that the equity market fundraising has been to the tune of $1 trillion by August. Also, the loan book of fintech players is rising every month. It shows enterprises and individuals are increasingly tapping other sources of fund raising than depending on banks. And technology is playing a big role in such migration.

While Indian economy waits for the revival in capital expenditure cycle, retail loans are likely to provide the necessary support to the credit growth. And technology is a game changer in this segment.

Many fintech firms and non-banking finance companies (NBFCs) are stealing the show in this segment. With attractive digital interfaces and easy lending processes that get completed within a few minutes, retail loans-especially small ticket personal loans- are being increasingly disbursed by the fintech firms. Innovative consumer loans such as 'buy now and pay later', zero interest EMIs are supplementing this growth trend. And digital technologies like artificial intelligence (AI), data analytics are powering this trend.

For instance, AI-powered solutions are making the system intelligent to understand the specific need of a customer. Whenever the customer feeds relevant data on salary earned per month, and loans outstanding among others, the system pulls out the customer history from other data bases like credit information companies and design a customized product suiting the requirement of the customer.

Usually, this process is completed within a few minutes. Such instant approval and disbursal through digital platforms make the process highly efficient. As fintech firms add much data on their platform, they are able to gauge the prime customers from others and lend more in subsequent transactions. Even many fintech firms are starting to lend small ticket loans to blue collar workers- a segment which has remain untouched by traditional banks so far. Fintech firms are also coming up for providing working capital loans to small & medium enterprises (SMEs), which is a large sector with high growth potential.

No wonder, Indian fintech firms have raised more than $2 billion in the first six months of this calendar year as per KPMG study. Though the fintech universe is fairly large comprising all kinds of companies like payments firms to payment gateway companies, many are into active lending. As the Indian economy revives from the lows of the pandemic, loan growth will definitely go northwards. Therefore, traditional banks, especially public sector banks, are well-advised to build their technological infrastructure for attracting new age customers.

Many have also started to actively participate in this trend by partnering with fintech firms. However, much more needs to be done. Working capital support to SMEs is a big growth area which the banks can tap through development of digital interfaces. The ways of banking are changing very fast and technology is acting the greatest enabler. So, it is better for traditional banks to embrace technology to tap the emerging growth spots and protect their market share in Indian banking system.