Our Bureau Mumbai, Sept. 5
Banks have not optimally leveraged technology to increase banking penetration and improve productivity and efficiency, according to the Reserve Bank of India Deputy Governor, Dr K.C. Chakrabarty.
“Has banking technology been optimally leveraged? Has banking penetration increased? Has it improved productivity and efficiency? There is a paucity of empirical evidence backed by hard data to conclusively establish this. Much of the anecdotal evidence and broad indicators suggest that it has not happened,” said the Deputy Governor at a technology conclave in Mumbai.
Underscoring the fact that improvements in efficiency of the banking system are expected to be reflected, inter alia, in a reduction in operating expenditure, interest spread and cost of intermediation in general, Dr Chakrabarty said, net interest margin of banks has not reduced much; especially when the structure of business has not changed. Further, there is enough empirical evidence to show that the cost of small transactions has not gone down.
Unless low-value transactions are not cost-effectively done, it is not going to impact efficiency drastically, he said.
“The deposit and advances per account has shown a rising trend, which signifies that the rise in business is not due to acquisition of customers on the lower end of the pyramid. The intermediation costs of banks in India still tend to be higher than those in developed banking markets. Thus, the penetration has to increase and the cost per transaction has to decrease,” said Dr Chakrabarty.
PSU Banks and Technology
Technology implementation in public sector banks, according to the Deputy Governor, appears to be more for regulatory and policy compliance. This has oriented the banking technology to be more employee friendly rather than customer friendly.
“Majority of our banks have implemented CBS (core banking solution) in their branches. From a customers' perspective, a single window facility remains unavailable for facilitating and expediting the varied regular transactions and business that he/she needs to conduct at the branch,” said Dr Chakrabarty.
The Deputy Governor said business process re-engineering — integral to leverage manpower for business growth and increased profitability, and to derive optimum benefits of technology up-gradation — has not happened at the desired pace.
Globally, after technology adoption, only 10 per cent of the banking staff is involved in “back-office” jobs and the remaining 90 per cent of the banking staff are freed for performing “front-office” jobs of customer acquisition, servicing and retention by ensuring customer loyalty.
Emphasising that there is clearly an absence of vision of how technology is going to drive business and customer relationship, Dr Chakrabarty observed that technology adoption in banks is a result of external pressures rather than a vision shared by the bank staff percolating right down from right up or a corporate vision of the positive externalities that will result.
“Lack of long-term vision and strategy has impacted the way technology has been utilised. It has been ‘implemented'; it has not been embraced, optimised or leveraged to the full,” he added.