Banking's Soul-search

The jury is out on whether the bank of the future will be a bank as we know it or the business of banking would be hijacked by a tech firm like WhatsApp, Google or Apple! After all, banking today is more about technology than about handling money. Curiously, even the latter is managed - by technology.

Both sides are readying their armoury and neither is short on ambition. Banks are adopting technology at an unprecedented pace and tech firms have already made forays into payments. That provides them the customer data to cross-sell other banking and finance products to the customer in the future - anything from personal and auto loans to insurance and pension products. Whether banks will pivot to resemble tech firms or tech firms will resemble banks is an iconic tussle already playing out. Until the models settle down, the churn in the industry is conspicuous.

Coronavirus just fast-tracked that transition many years ahead in less than 12 months. The bank of the future will likely be invisible, services will be customised to the micron, AI and machine learning will be a norm more than an exception. Video KYC, fully digital savings and loan products and the rise of fintech, all point towards a tech-dominated world, even in banking. No wonder, the business of payments and value-added services is seeing a massive influx of smart, innovative firms, thanks to government-owned NPCI's UPI interface.

It will be fascinating to watch how Indian banking navigates through the maze of this rapid tech transformation, rising stress and non-performing assets, consolidation and upcoming privatisation of public sector banks. And yet help catapult India out of the Coronavirus-induced recession.

If the Indian economy has to accelerate to rapid growth, the Rs 180-lakh-crore banking industry will have to play a pivotal role. But, for that, its loan book will have to expand multi-fold. India's credit to GDP ratio is just 60 per cent. In comparison, one of the reasons behind China's stratospheric growth is that its credit to GDP ratio stands at 221 per cent.

Centre has finally set the ball rolling to unshackle banking from the clutches of public sector. Two mid-sized banks (out of the six left from an earlier consolidation) and a general PSU insurance firm will be privatised in FY22.

This 25th edition of BT-KPMG Best Banks and Fintech study comes in the backdrop of this exciting phase in Indian banking. It also heralds the return of private sector ICICI Bank to the top position as MD & CEO Sandeep Bakhshi has turned around the bank that saw troubled times after former CEO Chanda Kochhar's removal. South-based Federal Bank was the jury's choice in the mid-sized pack for cautious use of capital and focus on the long term. Spanking new private sector Bandhan Bank has topped the chart among small banks for unrelenting growth even during uncertain business environment. Among fintech firms, PayMate and Zeta made it in the payments and VAS categories. Read about their journey, the trials and the tribulations.