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India’s Banks in the Technological Race

by internationaldirector

Written By: David Winter – International Director

India’s growth was estimated at 7.2 percent for 2017 by the International Monetary Fund (IMF), while its last estimate of Chinese growth was 6.6 percent. If India’s growth has been revised slightly downward by the IMF due to the demonetisation (exchange of old rupee banknotes for new ones) that transpired at the end of 2016 and which induced cash shortages and payment disruptions, Indian banks can count on this solid growth while continuing to  invest in their digitalisation. Indeed, the profits of India’s banks are rather good, in spite of the bad loans that burden their balance sheets.

Nonperforming loans (NPLs) represent about $ 191 billion, or 16.6 percent of the banking system, according to The Economist—$100 billion is due to 10 big borrowers. However, according to the IMF, 2017 nominal gross domestic product (GDP) is $2,454 billion, and the situation does not seem unmanageable, when compared to what some European countries are facing (Italy, for instance).

If we take the example of the Indian Bank’s January-March 2017 profit, which was just published: profit jumped 3.4 times to Rs 319.7 crore compared with Rs 93.6 crore in last year’s first quarter, and the interest margin improved by 22 percent. And despite higher provisions, the Indian Bank said its nonperforming-loan provision coverage ratio improved at 58.14 percent. Net profit of HDFC Bank, India’s second-biggest lender by assets and third highest in market capitalisation with about $58 billion, just announced a profit that rose 18.3 percent from a year earlier to Rs 3,990 crore for its fiscal fourth quarter to March 31. The bank confirmed its stable bad-loans portfolio, representing 1.05 percent of total loans.

While profits are there, and the bad-loans situation is in the process of being solved, Indian banks are turning to technological transformation.

HDFC Bank confirmed that it focuses technological development in its retail and corporate commercial activities. For the second quarter in a row, there was a massive drop in HDFC Bank’s headcount, which came down by more than 6,000 to 84,325, owing to increased digitalisation in the March quarter, and the bank expects the trend to continue. HDFC Bank is ready to gain in efficiency, thanks to the technology that will help Indian banks to jump rapidly in digitalized processes.

“We do believe that with increased digitisation, certain lines of transaction like counters’ ones will actually reduce,” said Deputy Managing Director Paresh Sukthankar in an article reported by Financial Express.

India’s banks see huge potential for deployment of technologies. While most banks are burdened by legacy systems and processes, India has leapfrogged into the era of innovation in banking by adopting the latest in technology. The main areas in which banks are investing are:

  • blockchain technology in funds transfers, payments and digital-identity management, but also trade finance and remittance;

  • web and mobile services for India’s middle class, which is developing, leading to self-consumption of banking services rather than dependence on standard modes of transactions;

  • modernization of processes, both for clients and back-offices.

Technological progress for Indian banks could be fast.

In payments, the launch of UPI (Unified Payments Interface) by the National Payments Corporation of India (NPCI) has opened the gates for innovation in the open banking space. UPI will allow payments-service providers to create state-of-the-art products and offerings without being limited by underlying account relationships.

According to a PwC (PricewaterhouseCoopers) report entitled “Fintech: Redefining banking for customers”, more than 75 percent of India’s banks are involved with the services of fintech companies, focused on consumer banking, payments and remittances. But for retail customers, Indian banks are also expanding mobile and web-channel services. As published in a PwC India report: “Engaging the customer through the most relevant, preferred and convenient channels has become key to maximising customer value and creating newer and more innovative revenue streams for Indian banks”.

Indian banks are even ready to use the cloud’s capacity to store some of their systems. For instance, The National Bank for Agriculture and Rural Development (NABARD) brought 201 co-operative banks on to a single cloud platform to take advantage of operational efficiencies.

But risks are coming with technological development.

Due to the cyberattacks that are repeatedly performed against banks’ transactions and data, risk management in that field is also a top priority. In 2016, 3.2 million debit cards of major Indian banks such as HDFC Bank, ICICI Bank, Yes Bank, Axis Bank and State Bank of India (SBI) were hacked. It was one of the world’s (sadly) most famous bank attacks.

Another report from Accenture “Building Confidence: Solving Banking’s Cybersecurity Conundrum” revealed that 78 percent of executives were confident about their overall security strategy; however, the survey showed that one-third of cyberattacks were successful.

The overall picture gives the impression that Indian banks could overcome in 2017 the negative consequences of their past dynamic era of granting loans. And they are ready to sustain India’s growth and its people’s development with modern technologies.


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