What does India’s financial services realm look like and how has it evolved?
According to expert Indian banker Kalpana Morparia, “The digital public infrastructure that India has created has been a phenomenal game-changer for financial services touching every aspect of everyday life of Indian citizens. Not only has it covered a very wide population, but it has, also, deepened the overall penetration of financial services in India. Years ago, we were struggling to ensure that everyone had, at least, a basic bank account and that conversation has moved into exploring how a suite of financial products could be offered even at the lowest end of income”.
Morparia remarks, “I give credit to state-owned banks on how well they’ve migrated to new technology tools available to them. In some ways, India was lucky, because we could leapfrog a lot of technologies and now with DPI, the incumbents have to, very rapidly, create front-ends, which are extremely user-friendly. This is because FinTech can only play a limited role, banking is a highly regulated industry and the RBI is going to be extremely careful and prudent, rightly so, when it comes to awarding new banking licenses. I think the incumbent banks can actually forge very good partnerships with FinTechs, where they bring in a great user interface and can leapfrog faster than some of the monoliths can, but the monoliths have the database, understand regulation and how to provide a suite of products. So, it’s a win-win for both, rather than saying one is going to cannibalize the other”.
“I think we’re so blessed today because of the mounds of data available in the system today. If I cut back to 25 years ago, we had to go to a person’s home to figure out where they actually lived, go through bank statements to ascertain whether they had the wherewithal to actually service a loan they were seeking and more… Today, it’s possible for us to pre-screen all these individuals and proactively offer them a loan… So, I think this has opened up a myriad of opportunities for consumer credit penetration in India”, adds Morparia.
And what about the Digital Personal Data Protection Act 2023? What could it mean for financial services?
According to Cyril Shroff, Managing Partner at Cyril Amarchand Mangaldas, “The DPDP 2023 is the foundation of a safe financial services industry, because the last thing you want is unprotected data falling into the wrong hands and then, the entire system coming into disrepute. So, I think it’s the very foundation of a digital data-based financial system and now, we have it, it’s going to take a few years to see how the law on this evolves, but I think we have a very good starting point and I think there’s enough public consciousness about it. India does a billion transactions a day, be it payments or banking transactions. It’s mind-boggling the amount of data that passes through the system and without legislative protection like the kind we’ve achieved now, it would be very difficult for public faith to develop, so we’ve taken one of the most important steps in protecting the customer. Having this data privacy regime, it’s going to be a fairly new paradigm in how financial sector providers, be it banks or FinTechs or insurance companies or consumer-tech companies are going to deal with this new paradigm”.
And what about NPLs?
Morparia declares, “I think we’re at a historic low on NPLs (Non-Performing Loans) in the banking system, which is a great place to be in with relative under-penetration of credit across customer segments… Gone are the days when we were a protected economy, one got an industrial license and was protected on all sides and even if their products or services were shoddy, they could be sold; today, we’re competing in the global village and it’s absolutely critical to ensure that plants are at scale, there’s the right technology & suppliers and long-term contracts are fully embedded and in place and financial closure has fully happened… So, a very careful structured project finance approach is what’s required and large banks in India have got a lot of experience and learned from some failures in the past. Therefore, I do believe that they shouldn’t be shy of actually financing India’s large-scale manufacturing capacity. I have a very strong belief that we’re going to see a manufacturing renaissance in India and while the SME and consumer sector certainly need access to bank financing, let’s not forget we need a thriving infrastructure and manufacturing financing primarily to be led by banks until the project goes into commercial production, whereafter insurance and pension companies & debt markets can take over”.
Watch the entire interaction here:
