Future banking. Banks need to up their game on IT investments, says IBA chief Mehta

The banking sector must make greater investments in the IT space, creating infrastructure and utilise new age concepts such as cloud storage and blockchain technologies so that new generation digital products can be sold to customers, Chief Executive, Indian Banks’ Association (IBA), Sunil Mehta, has said.

There should also be a ramp-up in investments on cybersecurity, Mehta said at an Assocham organised virtual summit on digital banking.

“Long-term success of digital banking depends on the security you are able to offer users and that can be offered only when we are vigilant about cybersecurity threats getting manifold everyday,” Mehta said.

He said the entire financial system has to look at investments as managing cybersecurity risk has become an important enabler for the continuation and escalation of the country’s digital banking journey in the future.

He highlighted that banks have to find ways for investment in new technology and may even be required to redesign their business models.

“Yes, our digital journey is on. Banking system is doing its best to adopt innovation to meet changing customer aspirations to adopt technology,” he said.

The most enabling thing that will facilitate the ecosystem will be maintaining a good credit history. “Bankers have to change the technology and how products are delivered to customers. Customers should also be more attuned to the changing environment by having a better track record and maintaining financial discipline that will make the entire system more efficient in creating ease of banking and ease of doing biz in the country,” he added.

Mehta said the banking industry had responded well — duly supported by the regulator and government — to help a lot of entrepreneurs in the country sustain in these pandemic times.

He highlighted that MSMEs have since the pandemic outbreak last year utilised ₹2.5 lakh crore out of the ₹3 lakh crore funding support given by the government through several rounds of dedicated credit guarantee lines.

Digitalise or perish

Former Finance Secretary Subash Chandra Garg said that private banks have aggressively adopted digital technology though their cost of doing business is very high on account of relatively high manpower and non-performing loans.

The public sector banks have been technology hesitant and are still hugely manpower-based. The credit side of the public sector banks is still digitally laggard, he added.

The quality of credit decisions made in this traditional system have been below par and this is evident from the high non-performing and fraud cases in the public sector banks.

It seems likely that most private banks will transform themselves by aggressively fintechalising credit delivery. These banks will thus be able to withstand the threat posed by fintech. “However, public sector banks don’t seem to be generally readying themselves for new age banking. This will be another reason for their relative under-performance and weaker finances. The PSBs will probably fintechalise once these are sold. Most of the rest will probably perish,” Garg added.