Neo banks can change banking landscape; why year 2021 will be crucial for Indian banks | INTERVIEW

In an effort to enhance financial inclusion in India, Neo banks can play a vital role as they are cost-effective and faster than conventional banks. Even if they are small, Neo banks — fintech companies — can tie up with banks to increase the capital base, S Ravi, Former Chairman of Bombay Stock Exchange (BSE), and Managing Partner at Ravi Rajan & Co, told Samrat Sharma of Financial Express Online in an interview. A few PSU banks which were not part of mega-merger may be disinvested, S Ravi added, who is also on the Board of Directors of over 45 companies and organisations including IDBI Bank, LIC, ONGC, BHEL, and more. Banks in the year 2021 would focus on retail, SME, and priority sector lending, instead of large corporate lending, he further said. Here are the edited excerpts from the interview.

How much can Neo banks help in increasing financial inclusion in India?

Neo bank will act as a catalyst to the existing banking system. Neo banks will enlarge the reach of the banks. They have the agility as they would have a leaner structure for being technologically driven. Though they will have an inability to lend beyond a certain quantum, they can increase capital by tieing up with banks. The turnaround time of providing service would enable seamless service at a lower cost. While Neo banks are primarily fintech companies that have their own limitations but they can complement the banking industry. Financial inclusion would be most cost-effective and faster through Neo banks. 

What can take Indian banks away from the mounting cybersecurity risks?

Digitisation has been tested in this pandemic. As per some reports, digital transactions have increased by approximately 30 per cent in this pandemic. Even direct benefit transfer given as a package by the government has been successful primarily because of digitisation. The biggest threat to the digital world is cybersecurity breach. This threat cannot be eradicated but can be mitigated by digital literacy, testing the present IT infrastructure, and raising IT security measures. Some of the measures have to be taken by banks and institutions. The most elementary measure is to create awareness of not giving information to perpetrators. Basic data like debit card info, password, OTP, etc. Cybersecurity has to be enhanced on a continuous process. 

Will loan restructuring help banks clean their books or will it make them more cautious while lending?

Loan restructuring is a necessity as economic activity was hampered during lockdown due to the pandemic. Banks had no choice apart from restructuring as businesses and the economy had to be revived. Lockdown had severely stressed the cash flow, and businesses are recovering slowly from its aftermath. Lending environment would depend on bankers being supported and making the process of decision making more conducive. It is important that all stakeholders need to differentiate between business failures and malafide intent. Every sector has different challenges that need to be assessed by bankers. The bankers would be encouraged to lend if restructuring becomes a success and businesses become viable.

How do you see the large scale privatisation of banks that happened in recent years?

Privatisation of banks will happen but in a phased manner. Our country has already seen a mega consolidation in the PSU banking space this year. Giving licenses to small banks and payment banks has happened recently. IDFC Bank and Bandhan bank got licenses as full-fledged banks. The failure of Yes bank though is a dampener for this cause. Looking ahead, it is my personal assessment that a few PSU banks which were not part of mega-merger may be disinvested. IDBI bank was also taken over by LIC. New License would be issued but would on a very selective basis and a stronger focus on governance.

How do you see the year 2021 for Indian banks?

The year 2021 would be a crucial year for the Indian banks. Post pandemic and consequential restructuring the banks would stabilise their operations. The banks, post-mega-merger would navigate in a conservative manner. NCLT process which was on standstill would also enable better recovery. The banks in the year 2021 would focus on recovery and also implement the government’s Atmanirbhar initiatives. The year 2021 would be the year when banks would closely monitor the after-effects of the pandemic. However, banks will be closely monitoring global factors and economic parameters.