The fintech world is in awe of its banking brethren for their deposits, comforts and security. The banking world is also warming up to this new realm.

“Banking” means the accepting for the purpose of lending or investment, of deposits of money from the public repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise according to the statute.

Banking now goes beyond the legal definition into payments, investments, asset management, insurance, pensions, new modes of financing the ecosystems, etc. But are banks strategising the ‘beyond banking’ consciously and sufficiently?

Our vast banking network reaches customers with nearly 29,000 metropolitan (19 per cent), 28,000 urban (18 per cent), 43,000 (28 per cent) semi-urban and 53,000 (35 per cent) rural branches. Banking correspondents’ network expands banks’ reach further.

Current bank deposits and credit outstanding are about ₹175 trillion and ₹131 trillion respectively. We are now a $3.25-trillion economy and are aspiring to reach $5 trillion by 2025. Our credit-to-GDP ratio is about 56 per cent and increasing. Despite this rapid growth, gaps in financial inclusion exist. The gaps appear even larger, when seen in the context of, emergence of the new-age of aspiration, both at the individual and nation levels.

If banks continue to do what they have been doing, can they meet these aspirations? What might help banks scale-up efficiently and continuously innovate, without large risks? There are no easy answers to these questions.

The banking system doesn’t have a clear roadmap yet. But nimbler new-age fintech lenders may provide some cues. These players have fewer restrictions on products, processes or innovations unlike their banking counterparts. They have no fixed loan size, no fixed loan tenor, no emphasis on collateral, etc.

They do not look at the borrower alone but the ecosystem in which she is embedded. Some of the questions they ask are: what the borrower does for the inputs and outputs, where she has been getting credit from, with whom she deals with, what are the borrower’s dealings in the entire ecosystem and what are their income flows?

In other words, cash flows of all key players in an ecosystem of an enterprise and their overall requirements are the basis for credit appraisals. It is akin to value-chain financing, but with a difference. The focus here is on the requirements of ‘players’ and entire ‘ecosystem’ and not designing a credit product per se.

They provide life insurance, health insurance, other financial services that borrowers require, all at a price and as add-ons. Their endeavour is to move the customer from ‘satisfaction’ to ‘delight’ and engender loyalty.

The days of getting technology to make our systems work better at low costs are over. Today technology drives business to scale, engages with the customer and empowers banks with market position and pricing power. But then, banks should be willing to tread that path, invest in technology and people that enhances their users’ experience as the fintechs demonstrate.

This requires data capabilities and a technology core. The RBI’s nudge to banks towards digi-banking has to be seen in this light. The co-lending policy is also a step in the right direction. This will help make banking a truly inclusive sector.

The writer is Deputy Managing Director, Nabard

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