T N Manoharan, Former Chairman, Canara Bank
Banks need to look for ‘sunrise’ sectors, for prospective business opportunities in the rural sector which remain unexplored despite efforts to support it. They need to look at start-ups, renewables, logistics, value chains and other such potential areas. Banks can support transforming ideation from incubation to market delivery. Banks can be catalysts in the growth trajectory of start-ups maturing into unicorns, said T N Manoharan.
Excerpts from an interview:
How do you see the banking sector by 2030?
The transformation has already begun with the change in customer behaviour and their higher expectations. Banks are facing challenges due to emerging technologies and new business models. Smart devices and platforms, wherein the entire journey of loan travels digitally, shall bring down the visibility of the bank to the customer. IT system and its readiness to integrate with fintech companies, shall play a vital role in rendering services, based on the customer’s need and connecting finance with homes, mobile sets, vehicles…
By 2030, public sector will have fewer banks and private sector will have more including foreign banks. With more and more tier II and tier III cities emerging as smart cities and digital banking ecosystem getting established, the services will be intrusive into semi-urban and rural areas at par with urban areas. There could be emergence of ‘Digital currency’ in lieu of the conventional currency for transactions and settlements.
What new products are expected to be rolled out?
All the new financial products and services to be rolled out in the banking sector shall have robotic automation feature. There may be lot of innovation in the digital lending space with traditional banks already offering such services. For instance, State Bank of India’s YONO, DBS digibank, HDFC’s “Milk-to-Money” programme, which tracks regular ATM deposits to establish a credit profile for dairy farmers, many of whom have only recently opened bank accounts.
Challenges currently faced in banking
With the advent of various fintech companies, competition is at its peak. The frequently changing business models and rising expectations from customers have kept stakeholders on their toes. Regulatory compliance is also a key area of concern. Safety of data is a big challenge considering the cyber risk and spurt in cybercrime.
Banks need to tighten their underwriting and credit monitoring standards and ensure that incidences of frauds are reduced by early detection and are followed up by initiating appropriate legal action against the fraudsters. Artificial intelligence, can be leveraged to study the patterns of such incidences and causes.
The regulator, bank, fintech and IT service provider shall have to work together to minimise, if not eliminate, risks associated with digital banking space.
What are the Expected reforms?
Merger of public sector banks has been done to achieve stronger and bigger banks. Privatisation of certain banks are in the offing like it was done in the case of IDBI. With a view to issuing licenses for the establishment of universal banks and small finance banks in the private sector, a standing external advisory committee (SEAC) has been formed with Shyamala Gopinath, former Deputy Governor of RBI as Chairperson for evaluation of applications and I am serving as one of the members.
The policy on factoring has already proved to be a catalyst in supply chain finance wherein MSMEs are reaping benefits of bills discounting. The policies on start-ups have started yielding results and many companies are coming up with the required competences.
RBI has constituted a task force with me as the chairman for making recommendations for establishment of secondary market for corporate loans. Based on the recommendations submitted, a Section 8 company has been formed under the name Secondary Loan Market Association (SLMA) and the soft launch was done on 11 August, 2021. The loan sales platform and other logistics are work in progress and expected to be operational in the near future. This would pave way for the corporate loans to be traded just as equity and bonds. – Pattabhi Ram
