At the start of 2020, the world was operating normally like usual. Who knew that we were to be hit by something that would change our whole lives within a short amount of time. The Covid-19 pandemic has changed the lives of all. The way we function in our daily lives, how we utilise resources, and how we view the world in general.
In the same way, this pandemic has changed the banking industry too. According to a Deloitte report, Covid-19 created a short-term disruption in accessing banking by customers, shifting their preferences towards digital banking, structural shifts in consumer behaviour and changes in the operational model of the banks.
We, at Habile Technologies, recently hosted a webinar where Tamal Bandyopadhyay, an award-winning author and journalist and a famous influencer in Indian Finance and Economy, gave us immense knowledge about how the pandemic has impacted the banking industry and reformed it in so many ways. Check out this article to read more about it!
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2022: This year is considered the best year for the banking industry, according to the analysis done at the end of the FY 2022, in terms of profitability, resilience, capitalization and assets. On most parameters, the banking sector is doing pretty well.
2020: RBI instituted the first of its kind inspection in the banking sector called Asset Quality Review, which resulted in the massive clean-up of various banks. This is a huge clean-up drive in 2 phases:
The first phase just got over before 2020, and just when the second phase initiated, Covid-19 hit us in full force, and strict lockdowns were imposed on us.
The banking regulators and the government worked together to make changes to overcome this sudden situation in ways such as
Hence, as far as it is concerned, the banking industry is able to withstand the Covid-19 wave in pretty good shape despite various challenges it came across on the way.
RBI has made a series of reforms for the banking industry. Among them
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The only worry that persists is that the average loan given to a person by some banks in MSME has gone up tremendously, and they are finding unethical ways to make their balance sheets appear healthy. This is backdoor restructuring which can cause a negative impact.
The scenario is difficult to analyse as new fintechs are coming up with their own niches and spaces every week and we can’t say how many services they offer. What actually happens is
Overall, it is a complex ecosystem to subjugate and analyse; we just need to watch it closely.
The current scenario of public sector banks has changed. The reasons are:
Private Sector banks
People are shifting quickly to private sector banks due to various supported technologies. Incrementally, a large portion of assets and deposits of the banking industry is moving to this sector too.
Why is this happening?
All-in-all, public sector banks are losing out to private sector banks.
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According to the latest Financial Stability Report 2021, scenes with NPAs are average to bad. The RBI stated, “Gross non-performing asset (GNPA) ratio of SCBs may increase from 6.9 per cent in September 2021 to 8.1 per cent by September 2022.” And, in the worst case, NPA could increase to 9.5%. But, stability and resilience still prevail in financial institutions. On the one hand, banks have improved their credit appraisal, credit underwriting and monitoring systems. On the other hand, since they are making a profit, they also make provisions for bad assets. The provision coverage ratio of some banks is very high. It is suggested that close monitoring is needed to control the stress of the NPAs of banks. Overall, at this point, bankers are wiser and handling NPA in a much better & smarter way; they are more into creating quality credit for people.
Even though they are given the name “banks”, they are not generally RBI-licensed banks. They are raising deposits on behalf of certain banks. The situation of neobanks is still evolving, but for India to go to branchless banking, it will take a lot of time. All-in-all, they are digital banks which are still getting newly implemented into the Indian banking system.
The political issues depend from region to region in which the top-level executives are either able to or not able to withstand the pressure from the politicians. Nationalization in India has made sure that the banking sector is able to use it for the greater good & growth of the economy.
The government uses banks as tools for socio-political measures for the betterment and upliftment of people as well as profitability measures for the success of business organizations via privatization. Both the scenarios go parallel to each other. In other words, you can’t have the best of both worlds. You have a mixture of both good and bad.
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Due to the AQR review, frauds and scams in banks came to light. For instance, the CEO of Allahabad Bank was sacked in relation to the Nirav Modi scam case. Similarly, the Vijay Mallya fraud case helped get many prominent bankers arrested from their posts.
Every profession has its share of bad apples. Since the banking industry deals with public money, it is always in the public eye for any mishap. Hence, banks are regulated heavily and scrutinised by government bodies for fraud to not happen at all.
Internal factors that are responsible for fraud are
External factors that are responsible for fraud are
A solution to all this? There is only one word, “Technology”, especially data accessibility execution for various financial parameters.
It is not the right thing to do. But unfortunately, it is happening not only by the central government but also by the state governments. Loan waivers are also responsible for destroying the current credit culture of the banking sector. Thus, there is a direct and indirect impact on the financial industry.
We lived to tell an unexpected tale through the Covid-19 pandemic which changed our lives drastically. Every sector was affected by it, including the banking industry. India’s economic growth impacted badly and it has seen its worst GDP figures. But, even with bad scenarios in 2020, the banking regulators and the government worked together tremendously well enough to strengthen the country’s economy in just two years. The most drastic change we saw was that the banking sector had shifted into digital, easing customers’ experiences with amazing technological advances. Hence, we can applaud India for doing an awesome job in overcoming a sudden issue within a short span of time.
We hope that you enjoyed reading this narrative. Watch our webinar video with Tamal Bandyopadhyay, to learn more about how the pandemic has changed the banking industry.
We conduct monthly webinars, and we hope you will participate in them for more knowledgeable ventures. Please feel free to share any suggestions with us. And don’t forget to stay tuned for upcoming blogs!
Disclaimer: The views and opinions expressed herein are those of the speaker of the webinar and do not reflect the views of Habile Technologies. Any content provided is of the speaker’s opinion and is not intended to malign any organization, company, individual or anyone or anything.
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Technology has found a home in every industry. In other
It's that time of the year where people flood your
The “American Dream” was one of those overused buzzwords until
After smartphone penetration, people are not watching their SMS at all. They use SMS only for OTP related transactions. That’s it.
But What can a Lender see in your SMS after you consent to them?
Lender can see income, expenses, and any other Fixed Obligation like (EMIs/Credit Card).
1) Income – Parameters like Average Salary Credited, Stable Monthly inflows like Rent
2) Expenses – Average monthly debit card transactions, UPI Transactions, Monthly ATM Withdrawal Amount etc
3) Fixed Obligations – Loan payments have been made for the past few months, Credit card transactions.
It also tells the Lender the adverse incidents like
1) Missed Loan payments
2) Cheque bounces
3) Missed Bill Payments like EB, LPG gas bills.
4) POS transaction declines due to insufficient funds.
A massive chunk of data is available in our SMS (more than 700 data points), which helps Lender to make a credit decision.
An interesting insight on vehicle loans for lenders.
A trend we are seeing today – the first-hand vehicle ownership is decreasing with time. Why? People are upgrading their vehicles in every few years because of technological advances. And, this can be seen more with the millennial generation.
So, what should a lender do in terms of financing?
– Estimating the residual value of the vehicle at the start of the financing period.
– Charging a borrower only for the residual value (which is the difference between the value after a few years and the current value)
Example: A bike currently is INR 1 lakh. You want to buy the vehicle for 2 years. A lender will estimate the residual value of that bike today and what it would be after 2 years. If the estimated residual value = INR 45,000, the lender will charge you only that (say, INR 55,000 with interest for this instance) during your tenure.
At the end of 2-year period, you have 3 choices:
1. Return the bike and upgrade to a new one without going through the struggle of selling it.
2. Pay the lump sum remaining amount to own the vehicle outright.
3. Extend the financing and own it by keep paying the EMIs for the remaining amount of the vehicle for the next 12 or 18 months.
Benefits for the borrowers?
– Flexibility to use a vehicle and upgrade to a new one.
– Affordability to not pay for the complete value of the vehicle with the intention to use for a lesser amount of time.
– Convenience in owning the vehicle.
Say goodbye to the old lending option and embrace the new way of financing for vehicle by lenders!
How many of us know this?
1) Tiktok does Lending ( is it an entertainment company or social media company or a fintech company?
2) Youtube China does Lending
3) Top 100 internet companies in China(no matter what business they are in) do Lending
The team which was heading Lending in Tiktok was the Advertisement team. If we do Ads, we do X no of revenue. But if we do lending, we’ll get X+30% more revenue. This is on the same Ad spot.
Ad team has transformed into a lending team, and in today’s world, it’s possible because the subject matter expertise can be put in as an API and given to you.
Embedded Lending as a service is becoming popular in India too, and I am happy to be part of this ecosystem.
The answer is No. Only the top 10 crore people have access to many credit products in India. Almost all Banks focus on this market.
Once you go beyond that, the credit access rate has dropped significantly due to multiple factors.
1) Customers who are having low income(30-40K per month)
2) Not earning from an employer who belongs to Category A or B
3) Not from Tier 1 or 2 cities
NBFCs and Fintechs focus on the above segment, pushing another 10 crores of people.
But in India, 70 crores more people are formally or informally employed, which still needs to be tapped.