Banks and non-banking financial companies are betting big on digital technologies that will help make credit decisions and lending faster but believe that a physical presence is still needed and phygital will continue to be the way forward.
The issue was discussed at length at the Business Today Best Banks Awards in Mumbai on February 20 during a panel discussion on Banking: A Bridge to Viksit Bharat 2047. Industry veterans – Sunil Mehta, Chairman PSB Alliance and Umesh Revankar, Executive Vice Chairman, Shriram Finance underlined that the physical presence of the bank or NBFC will always be needed.
“The next phase of achievement will be when the entire rural and the semi urban area that gets totally digitised. And that space will require a long period of time. So till that time, phygital banking will be the need of the country,” Mehta said, adding that even there will still be several “assisted journeys” for hand holding of borrowers and a banking intermediary will be required for activities like filling up forms.
“Until we reach a level of literacy, not only in terms of the education but also in terms of financial literacy, where customers understand cyber security and the impact of it, I think we will have to continue the journey as phygital,” Mehta said, adding that public sector banks, have got a large branch network, which also gives a lot of confidence to the customers living in the rural, semi urban area, because they believe that they can approach the branch in case of any problem.
However, with more adoption of digital banking, bankers will have to diversify from their traditional banking model of deposits and lending to the service model, wealth management model, insurance advisory models, he said. “The nature of services will change, but the physical structure will be the need for a country, and maybe because of the diversified demographic situation we have,” Mehta underlined.
Revankar also noted that Shri Ram Finance, which has 3,000 branches, adds 200 branches every year. “It is still necessary, because there are certain activities, certain lending, which needs a physical presence and access to customer. When you create access to customer, then you have to be within a certain kilometre range. You cannot be in a remote place and operate. You cannot have a faceless organisation,” he underlined.
Pointing out that as per data from the Reserve Bank of India, nearly 30% of the bank accounts have zero balance, he said that this indicates that awareness about banking remains low. He further highlighted that apart from the challenge of unbanked customers, there is also the problem of underbanking where customers do not receive timely service or credit. NBFCs are working to bridge this credit gap.
“I was told there is around 20% of the people do not have proper banking access…we need a physical operation for creating that awareness and offering product. The physical presence and being a financial partner to small enterprise is important,” he underscored.
Revankar however, noted that over the next four to five years, the speed of credit related decision making will be much faster with greater usage of digital technologies.
“All credit delivery, plus the other activity around credit delivery, will become much better, and NPAs and NPA resolution will be much easier going forward. The credit cost has been coming down, and it will come down further, is what I believe,” he said.
Mehta also noted that public sector banks have a huge repository of data as generations have banked with them. Now with the use of digital banking channels like UPI, the data footprint of customers is further expanding, giving lenders more information about their transaction data and spends, thereby helping create predictive models.
“This classification of the spend of individual provides a lot of date for customising and creating digital lending products and which can be serviced through these straight through processes. Public sector banks are now gearing up for this. They have already taken a big call in adopting some major technologies. PSBs are going to take the benefit of the historical data, they are adopting the technologies, and that is one area where the technology is helping,” he said, adding that banks are using predictive models to create early warning signals and make pre approved loan products and this will go up further in coming years.