Digital Agility Will Decide Bank Winners

The most fascinating narrative in India’s growth story is its youth—more than 50% population is below 28. Banking is seeing the first generation of digital natives. In their minds, the most attractive employment opportunity in banking is data scientist or experience designer! Fifteen years back, these roles did not exist even in IT sector. The reality is: 1/3rd of India’s banking customers have very high expectations on data-driven credit products, experience centric self-service models and 24/7 service availability.

The pandemic impacted performance of Indian banks in FY2021. Signs of recovery are visible in Q3 FY2022. Gross bank credit grew 8.4% at the end of December 2021 compared with 5.6% in March 2021. Continued recapitalisation of public sector banks, capital raising by private banks and higher margins have strengthened the capital to risk weighted assets ratio of SCBs. The ratio was 16.6% at the end of September 2021 and 14.8% at the end of FY2020. Asset quality has improved with GNPA ratio declining to 6.9% at the end of Q2FY2022 compared to 8.2% at the end of FY2020.Private sector has continued to outpace public sector in growth, except Bank of Maharashtra, which has shown remarkable growth in Q3. Clearly, banks with relatively increased digital presence and operations are performing better on all parameters.

Indian banks have transformed significantly in last decade. Embracing technology has become inevitable with new-age private sector banks building strong omni-channel capabilities keeping customer at the core. Public sector banks have also joined with consolidation and large operations supporting their ability to invest in digital assets. Banks are taking a differentiated approach to capture and analyse customer data for insights on providing better experience, anticipating future needs and creating customised products. Data is also the driving force in managing asset quality with more accurate credit analysis.

Partnerships with fintechs help banks realise full benefits of investment in digital assets and create an innovation-led culture of collaboration. These alliances help banks accelerate growth, overcome challenges that come from transformation and target new customer segments.

Despite technology adoption, India has 190 million adults without bank accounts, making it the world’s second-largest nation in terms of unbanked population after China. This is a unique combination of advanced digital adoption and high growth potential.

Traditional banking services are being transformed but customers today demand hyper-personalised banking services digitally. In the era of embedded finance, financial transactions are no longer being thought of as post-facto action. Banking products are being embedded into social, business and consumption apps. While data and digital will continue to drive growth, building trust and maintaining human touch will help retain a strong customer base. Building customised product catalogue, absolute transparency and seamless delivery while keeping the customer engaged will be critical success factors.

As banks have started reaping benefits of digital transformation, preparing for next 10 years becomes priority. It is important for banks to identify their ecosystem play and align capabilities accordingly. With entire commerce moving to integrated platforms, banks will have to figure out how to secure their positions in these emerging platforms. Considering metaverse, successful OTT platforms, wearables and other integrated technology innovations as part of strategy will be important. New asset classes such as green loans and ESG products will be more relevant in years to come. Agility to create new ecosystem-relevant products and maintain high service levels will determine the winners in the fast-evolving Indian banking sector.

Vishesh Chandiok is CEO and Jaikrishnan G. is FS Consulting Leader and Partner, Grant Thornton Bharat.