Public sector banks (PSBs) have historically lagged behind their private peers in terms of adoption of digital technology and systems. That could change, as a pandemic that refuses to die requires all financiers to take a close look at the way they do business.
For PSBs, the need for change has become even more relevant as mergers have broadened their scale and competition from tech-driven players only intensifies.
Several large PSBs have started the process of digitizing various functions in recent months. Most of these projects are focused on redeploying staff from more mundane workflow-driven processes to sales and other productive divisions. In March, the State Bank of India (SBI) launched a call for tenders for the overhaul of its operating model and the implementation of new strategies with the use of digital tools in its micro, small and medium segment. companies (MSME).
The Punjab National Bank (PNB) is seeking to develop an end-to-end system for reconciling ATMs and handling customer complaints. Union Bank of India (UBI) wants to smooth the entire collection function with a software solution that will automate the workflow for collection procedures, including those involving courts
Bank of Baroda (BoB) was among the first PSBs to consider a completely redesigned, digital operating model last year. He commissioned consulting firm McKinsey to develop the model, which even includes a permanent work-from-home adjustment (WFH). Sameer Narang, chief economist, BoB, said banks have a huge customer base and can create sophisticated models based on customer demographics and transactional data. The analytical model-based approach usually gives the customer a better deal than what would otherwise be available. “Another way to look at this is a retention strategy in which banks offer their customers pre-approved limits on certain financial products or services such as personal loans or car loans that will otherwise be offered by the competition,” he said. he declared.
PSBs are now more aware of the need to increase efficiency as a strategy. Nitesh Ranjan, Executive Director, UBI, said the bank has a large number of accounts in the retail and MSME categories, where managing recovery in physical mode is very difficult, especially things like the monitoring of Sarfaesi proceedings and DRT hearings. “We have also developed an internal recovery application, where there is a geolocation of properties attached to a particular loan,” said Ranjan, adding that the pandemic has pushed the digital reader that UBI was already considering. “This is part of the bank’s overall digital strategy which includes direct processing of loans to individuals and MSMEs,” observed Ranjan.
In a memo dated April 9, ICICI Securities said the digitization campaign in Indian banks was in line with global trends. He cited a global study that shows retail banks that digitize their customer journeys are seeing revenue increase 520%, costs 15-35%, and customer satisfaction 10-15%.
PSBs had a large customer base even before mergers in recent years, but the expansion of that base justifies the cost of digitization. The fixed cost of digitization can be spread over an even greater number of customers, thereby reducing the unit cost. There are economies of scale in these investments, said BoB’s Narang.
PSBs recognize the challenge of their competitors, who now include not only private lenders, but also payments companies, fintechs and even global tech majors. “We are competing with very tech-oriented players, so there is no reason that banks themselves shouldn’t be more tech-oriented,” Narang added.
Avisha Gupta, Partner, L&L Partners, said PSBs are now entering the next phase of digitization (after payments) through the implementation of artificial intelligence (AI) and machine learning in assessment credit and transaction monitoring. “As part of this phase, the large-scale adoption of digital regulatory initiatives such as the Account Aggregation Framework, will provide a significant boost to MSME awareness of PSB loans by enabling access to alternative data agreed, ”she said.
Correct use of data and digitization not only increases borrowers’ better access to funds, but also facilitates better lending decisions and greater profitability for lenders. With loans to MSMEs being a priority sector, the digitization of systems and processes will facilitate profitable lending in the long term, said Vidisha Krishan, partner at MV Kini.