Future tense: tech disruptions threatening the very existence of banks, says RBI’s R Gandhi

The very existence of banks in future is under threat due to disruptions caused by technology, and changing consumer preferences besides tightening regulatory requirements on capital and leverage, according to R Gandhi, Deputy Governor, Reserve Bank of India.

Sounding a caution to existing banks, Gandhi invoked Bill Gates’ statement: ‘Banking is necessary, but banks are not adding... it is the emerging trends in technology, regulatory changes, and consumer behaviour and expectations which are redefining banking and banks’ role and even endangering banks’ existence.’

He chided banks for overlooking the small and medium enterprise (SME) business — a $2-trillion opportunity for banks in emerging markets, according to IFC report.

“You vacated SMEs because of your lacklustre attitude. It is there for your rightful reclaim if only you make a concerted and conscious effort.”

He observed that SME financing was neglected the world over despite being the size of half the world’s GDP and employing about two-thirds of the workforce.

He said that fintech companies and marketplace lending companies had entered this vacuum and had become successful. It was imperative for banks to change their current reluctant attitude towards SME financing for making themselves socially relevant besides having hopes of existing in the future.

This trend has the potential to be a game-changer for small businesses. Fintech is efficient/effective and their disruptive power at good display. If only banks can change their reluctant attitude towards SME financing they can be a good antidote for these risks and, therefore, will display their socially relevant role which, in turn, can justify their existence for the future.

Gandhi said: “The clear prognosis is that either banks will be dead or least the banks of the future are not going to be the banks of yesterdays and todays. What to do. I regret that I sound a little pessimistic. I have to paint such a dismal future for your existence as banks. We have to recognise the realities of the day.”

He urged banks to take advantage of tech to meet customer expectations.

“The new consumer is addicted to connectivity convenience and freedom. They don’t just want value-added services, but such services anywhere, anytime, anyhow.”

“Banking is no longer what a bank does but it is also what a non-bank does. Banks are no longer those entities which do banking exclusively. Now others, the non-banks, also do those,” he said.

“Is there any element of banking today which remains the exclusive privilege of banks? Sadly no,” he concluded.

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