Banking will be all digital in 10 years: N Vaghul

From Indira Gandhi’s doodling at a meeting to discuss issues faced by the banking industry to how various powerful Ministers at the Centre and State tried to influence decisions at public sector banks, Narayanan Vaghul’s book, Reflections, is full of interesting and hilarious anecdotes that give a glimpse into the functioning of India’s banking sector after independence. businessline spoke to the 90-year-old veteran banker to understand how he perceives the banking sector today. Vaghul is optimistic that banking will increasingly assume a digital model in a decade from now, and professionals and professionally managed boards would increasingly helm the sector. Edited excerpts:

Narayanan Vaghul speaks during the launch of his book Reflections, in Mumbai, on Friday | Photo Credit: KUNAL PATIL

How do you see the future for the banking sector?

You cannot juxtapose the present with the future, which is going to be very different from today. The speed with which the things are getting transformed, banking in 10 years time will all be digital. It will be all fintech-oriented. Loans will be granted online. One of the reasons why I did not continue in the Piramal board, though could have continued for one more year, is because I didn’t understand the language. My language became irrelevant. People speak a new language, new terminology. The same way people of this generation in the next decade will be banking very differently. We are not lagging in technology. Those days we would go abroad and just look at the ATM machines. Today, it is not like that; we are leading in the space with cutting edge of the technology.

Do you use UPI, digital banking?

Naturally. I use it in everything that I do. Because ICICI Bank is the one that I use. I use i-Mobile, make all payments through that. When my granddaughter came from the US, she was amazed how easily payments could be made. And it’s been a lot of difference.

There’s a mentioned about need for privatisation in your book, and the government is in the process of privatising IDBI Bank. Are the right steps being taken?

ICICI Bank, HDFC Bank and Axis Bank are the largest private sector banks, and the characteristics of these banks is that they are publicly owned and more professionally managed. Management roles are not by inheritance but by selection. These are the characteristics I think which we have to impart. We should really divide this space into three – one is the state-owned. The other is public-owned, which is the likes of HDFC Bank, and the third is the private sector, where the development happens by way of succession, which is quite normal there. I want more people in the middle space. Ultimately [in privatisation], you are looking for a bidder. For that first you have to strengthen the bank by having a proper board and by a proper chief executive to lend credibility in the market. Once you lend credibility to the market, you don’t need to sell the bank to anybody. They will attract funds.

You also talk about building a fund to pump capital into banks…

That has all become outdated. Today, what is really happening is that if you have a good management team that is proficient, then it is simple to raise money from the public. We don’t need to have a fund or anything. After all, ICICI Bank and HDFC Bank raise money from the public. Today, capital adequacy is 18-19 per cent, and 99 per cent of it has not been contributed by anybody. Its all raised from the public. That is the only way in which we could contribute to trade; that we are sure that there is a sound money and a sound board. That is the way of safeguarding of the interests of the shareholders. That is the way in which the country should go forward.

Will the state-owned banks have a challenge adopting technology?

Today, they don’t make a difference. We used to play a game when we were younger – how do you make a line, how to make it smaller? You do it by drawing a bigger draw. The state banks sector is becoming smaller.

The standards of corporate governance has increased in India Inc. Does it set a positive premise for them to get into the banking space?

Corporates will not be dominating banks. It will be professionals will be dominating the sector. For diversified public holding, what the public would want first is professional boards and a process of selection rather than by succession. This matters a lot of difference. So, that’s the way forward in the next 10 years.

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