The most intriguing narrative in India’s growth story is its youth – more than 50% of the population is under the age of 28. Banking sees the first generation of digital natives. In their opinion, the most attractive job opportunity in banking is data scientist or experience designer! Fifteen years ago, these roles didn’t even exist in IT. The reality is: 1/3 of Indian bank customers have very high expectations for data-driven lending products, experience-driven self-service models and 24/7 service availability.
The pandemic impacted the performance of Indian banks in fiscal 2021. Signs of recovery are visible in the third quarter of fiscal 2022. Gross bank lending increased by 8.4% at the end of December 2021, compared to 5.6% in March 2021. Continued recapitalization of public banks, capital raising by private banks and higher margins have strengthened SCBs’ capital to risk-weighted asset ratios. The ratio was 16.6% at the end of September 2021 and 14.8% at the end of fiscal 2020. Asset quality has improved, with the GNPA ratio falling to 6.9% at the end of the second quarter of fiscal 2022, compared to 8.2% at the end of fiscal 2020. The private sector has outpaced the growth of the public sector continued to outperform, with the exception of the Bank of Maharashtra, which posted notable growth in the third quarter. Banks with relatively increased digital presence and operations clearly perform better on all parameters.
Indian banks have changed significantly over the past decade. Leveraging technology has become inevitable as new-age private sector banks build strong, customer-centric omnichannel capabilities. Public sector banks have also partnered with consolidations and large operations to support their ability to invest in digital assets. Banks take a differentiated approach to collecting and analyzing customer data to uncover insights into delivering better experiences, anticipating future needs, and building bespoke products. Data is also the driving force in managing asset quality with more accurate credit analysis.
Partnering with fintechs helps banks reap the full benefits of investing in digital assets and create an innovation-driven culture of collaboration. These alliances help banks accelerate growth, meet transformation challenges and target new customer segments.
Despite the adoption of technology, India has 190 million unbanked adults, making it the second largest nation in the world after China in terms of unbanked population. This is a unique combination of advanced digital adoption and high growth potential.
Traditional banking services are being transformed, but customers today are demanding hyper-personalized digital banking services. In the age of embedded finance, financial transactions are no longer viewed as a post-facto action. Banking products are embedded in social, business and consumer apps. While data and digital growth will continue to drive growth, building trust and maintaining human closeness will help maintain a strong customer base. Building a customized product catalogue, total transparency and seamless delivery while retaining customer loyalty will be key success factors.
As banks have started reaping the benefits of digital transformation, preparing for the next 10 years is becoming a priority. It is important for banks to identify their ecosystem services and align their capabilities accordingly. As all trading shifts to integrated platforms, banks need to figure out how to secure their positions on these new platforms. Considering Metaverse, successful OTT platforms, wearables and other integrated technology innovations as part of the strategy will be important. New asset classes such as green loans and ESG products will become more relevant in the coming years. Agility to develop new ecosystem-relevant products and maintain high levels of service will determine winners in India’s rapidly evolving banking sector.
Vishesh Chandiok is CEO and Jaikrishnan G. is FS Consulting Leader and Partner, Grant Thornton Bharat.
