Why banks must refocus on growth

Of late, the world has witnessed a few Indian Public Sector banks as well as Private Banks spooky exposures to non-performing large and medium industries. Clearly, the time bomb was already ticking on the inevitable! The current situation may be the start of an unwanted saga before the sentiments turn sour and actioned upon. Not discounting the fraud and money laundering cases, there are other pains the Indian banking industry is grappling with.

The cost of compliances and provisioning costs are mandatory overheads that erode the bottom-line of every bank. Ramifications in terms of compliances with every changing regulation, provisioning costs towards non-performing assets (more so Indian PSUs in the current scenario), change in accounting standards and capital requirements for liquidity, are all unavoidable poison pills.

Indian Private Banks, cannot afford to ensconce in comfort, either. There is perhaps even greater threat from set ups like FAG (Facebook, Amazon, Google), respective cousins (including Fintechs). FAG have significant business model centered around customers, thereby managing to earn and hold customer delight with great aplomb. It offers great core strength to re-orient quickly, be nimble, expand and diversify swiftly into innovative business models. On the other hand, the legacy banks have always been product-centric consequently limiting elbow room to change wishfully fast. This fundamental gradient between the schools of thoughts, would enable such FAGs to influence other key, yet often ignored, aspects and dimensions.

Few western banks are partnering with FAGs in the hope to create win-win situation. However, it remains to be seen, how symbiotic the partnership model would flourish in the long run. Before soon, FAGs would have gathered such a vast pool of loyal members and associated data. Cambridge Analytica (CA), a British political consulting firm, is already applying advanced and connected algorithms by mining heaps of personal data of Facebook users to influence political results. It is a separate debate then that has compelled thinkers to start re-drawing data privacy lines of control. But it is only a matter of time, such effects permeates the Indian banking sector. Now imagine a world, when few of these start becoming quasi-banks or full-fledged banks. A nail-biting scenario for legacy banks since FAGs seem to have got all right.

The silver lining is that there still is a window of opportunity for Indian banking industry to seize. The need is to vigorously focus on getting growth right, across the entire length and breadth of banks i.e. volume-based consumer banking level and value-based non-consumer banking. While transition from product-centric to customer-centric may be assumed to be left to talking points in board-rooms for few banks, it is imperative to harvest and harness data on real-time using cutting edge-technology to make data- driven decisions. Few examples:

Artificial Intelligence helps in automation and straight-through-processing, driving operational efficiencies in ChatBots or VoiceBots by enabling interactions in a way that uses natural language. Machine learned algorithms for prediction and forecasting now include on-the-go finesse and auto-tuning capabilities making them more self-aware. Such advanced analytics is done over well managed big data across data types like (structured, images, video, streaming, geospatial, digital documents and files). Banks may use it to acquire and retain the most profitable customer having a good lifetime value, who enjoys vintage and has least propensity to default or to be delinquent or commit fraud or launder money.

Open API takes the data democratisation journey forward by enabling banks to easily exchange data within or across other banks and agencies. Blockchain has made its way beyond KYC to business applications in areas of Trade Finance, Cross border payments, Loyalty & Rewards underlining more need for analytics on such transparent, immutable, append-only, distributed multi-party common transaction data fabric.

Above disruptive forces will power the banks of tomorrow. Technology disruption is helping un-limit human expressions. Opportunity to tap this to weave a growth story could not have been more pronounced. Those who survive and sustain this transformation would thrive and flourish in the new world.

(The author is Principal Industry Consultant- Banking (India, Sri Lanka, Bangladesh), SAS Institute India)