Amity Institute Of Training & Development

Changing Landscape of Banking in India

Speaker: Mr. Priyam Alok, Executive Vice President & Chief - Business Banking at AU Small Finance Bank

Mr Priyam Alok is Executive Vice President & Chief - Business Banking in AU Small Finance Bank, which is among the largest Small Finance Banks in India, focusing on retail and MSME loans. He is an MBA from BIM, Trichy and graduates from Kirori Mal College, University of Delhi. He has over 18 years of banking experience across retail and commercial lending and liabilities and wealth management. He has worked across India and has worked with Kotak Mahindra Bank, Citibank, ING Vysya Bank and now he is in AU Small Finance Bank. He is currently the National Head for Business Banking at AU Bank, where he was instrumental in starting this business, catering to working capital requirements of MSMEs, which is the most important sector in banking and at large Indian economy.

Click below to watch the recorded conversation.

 

AITD: I welcome you to the show, Mr Alok. The emergence of innovative financial technology has revolutionized financial services in India as well as the banking sector. The rise of FinTech companies, Internet Banking, Mobile banking payment banking, are some of the classic examples of emerging trends in the banking sector and financial services. A recent innovation in the Indian banking structure has been the formation of a new banking institution called Small Finance Bank. These banks are expected to penetrate new financial inclusion by providing basic banking and credit services with a differentiated banking model to the larger population. In this context, the new Small Finance Banks have multiple challenges coming out with a new differential business model, and the challenges include building a Low-Cost Liability Portfolio, Technology Management and Balancing the Regulatory Compliance, On basis of these Mr Alok I welcome you on the show and ask you, my first question on this context is what according to you are the latest trends in banking and financial services in India, that are changing the entire economics scenario of the country.

Mr. Priyam Alok: Thank you Mr. Sahu. Thanks a lot for inviting me. Well, too many things are happening too rapidly in the Indian banking space in the last, I would say in a decade or so. I think the focus of financial illusion and all the efforts that are being made today are in line with our objective of financial inclusion. A big leeway was when UIDAI came up with the Aadhaar card. The Aadhar card was used and, as we talk around 120 Crore Indians have the Aadhaar card today. And this Aadhaar card is being used for various banking transactions, so then we created the India Stack. India stack, obviously, Aadhar KYC is one of the main things there. Digi locker, UPI we came up with the United Payment Interface in 2016, Bharat Bill Payment System, the Bhim App. All these things happened in the last seven, eight years or so. The first step of PMJDY is which around 45 Crore accounts have been added. That coupled with the India stack, increase the banking penetration significantly. As we talk four out of every five adults have a bank account with them. And there is immense penetration. Now that was backed with certain other initiatives taken by the Government of India and RBI. In 2015 applications were invited for Payment Banks, Small Finance Ban. It was a new concept for financial inclusion. There were some 11 Payment Banks, with the objective of ensuring that payments are made easy and digital. Small Finance Banks had the objective of higher priority sector lending targets and financial inclusion support these were born then. 2016-17 lot of them started their operations and this was in the backdrop, he was after I would say 2014, a lot of action has happened from the Government of India and from the RBI since 2014-15 when India stack was created, and a new set of banks, Small Finance Banks, and Payment Banks were given licenses, and in 2014 IDFC first, Bandhan Bank was also given license. Bandhan Bank was also a microfinance institution, and such licenses were encouraged in Small Finance Banks space, apart from AU, 8 banks and got the licenses were microfinance institutions, and they were made banks. And in the payment bank space, a lot of big corporates also took part, and they, ended up getting the licenses and that was to encourage digital payments. Now, this was in the backdrop of PMJDY, 40 crores accounts have been opened to date. And, in the backdrop of internet penetration going up. So, as we talk, the Internet penetration in India has gone up to 45% from around seven odd per cent some 10 years back. And if I talk about the real-time digital transactions that there, India was ranked number one in 2020. Some 70 billion odd real-time transactions were done and out of those some 25 million odds was done in India. So, that coupled with the increase in the number of smartphones. I think some 50 Odd crores in the country have smartphones 50 odd crores have feature phones. So, internet penetration, mobile penetration, coupled with India stack and a new set of banks for financial inclusion has given a very good architecture for Financial Inclusion. More steps are being taken. In Jan 2021, RBI announced the creation of this payment infrastructure development 45 Crore funds to boost digital payments in the North-Eastern States and in tier three and tier six centres. And that will also encourage deployment of, point of sale infrastructure.

Open API would be accepted in the banking space. So, artificial intelligence, blockchain technology, data, big data analytics, robotics, process automation, a lot of these things are happening in the landscape and in that backdrop, I think it's a very exciting time to be in the Indian banking space, and see so many things happening so rapidly.

AITD: Thank you very much for giving insight into the trends which are happening in the country. Now, there are a couple of things. On one hand, we see that the Banks are being merged and on the other hand some banks have been privatized. In this scenario, we see that new banks are coming up like Small Finance Bank. So, what are the major differentiators between Small Finance Banks, Payment Banks, and other Scheduled Commercial Banks? So, I mean, we would like to know more about the differentiator between them?

Mr Priyam Alok: Sure. So, Small Finance Bank is akin to a Universal Bank as we call the other banks like SBI, ICICI and the likes. So, the other universal banks and Small Finance Banks can do all the things except that the targets for various parameters are different. So, for a Small Finance Bank, the priority sector lending target is 75% as against 40% of Universal Banks. Payment Banks, on the other hand, cannot lend they can only take deposits and that to up to one lakh. So, any individual can keep deposits only up to one lakh, they can distribute mutual funds and insurance, but they cannot lend. So, their model in terms of profitability becomes a little longer because banks do earn money in lending. And in terms of other parameters, Small Finance Banks are 82 banks so there are some limitations to do forex transactions. The other universal banks are 81 banks, so the forest transactions are easier to be done. PSL I already mentioned 40% was 75%. And last but not the least, we have a target that 50% of our loan book must have an average ticket size of less than equal to 25 lakhs. Now that's a big differentiator because the regulator is promoting retail loans and saying that you need not go on the corporate side in a big way, your average ticket size has to be 25 lakhs or lesser for 50% of your portfolio. So, these are the main differentiators. That three kinds of banks have, and as you rightly pointed out, RBI has been reducing the PSBs is the public sector banks, they have brought it down from 27 to 12 now, and 10 PSBs were merged to 4. So, as we talk, we have around 12 public sector banks around 21 private sector banks and 10 Small Finance Banks, and some 7 to 8 Payment Banks which are operational although 11 got licenses, some of them backed out. So, 7 to 8 Payment Banks.

AITD: So very good, interesting insights which you gave. The major one which I could understand is the priority sector lending, which is 75% in your case, as against 40% of other commercial banks. And another thing which is important is the ticket size is 25 lakhs or less. And from that perspective, I see you are handling a very important portfolio of MSME because the major economic upturn and downturn depends on the MSME sector. Now, how has been the journey of AU Small Finance Bank so far. What is the vision and its desired future because what I could understand is what I have read and what I have understood is that you are among the top banks which are doing pretty well in the MSME sector?

Mr Priyam Alok: That's correct. So, we have had a very great journey this bank was earlier NBFC first-generation entrepreneur Mr Sanjay Agarwal started this and we grew to this level and got the license. As we talk, we have a lending book of around 35000 crores. And our average ticket size is 5 lakhs which I was mentioning you know; the task is to maintain 25 lakhs for 50% of the portfolio we are at five lakhs at the core of portfolio level. 85% of our book is classified in the Priority sector in PSL and around 84% of our book is a book of retail loans. And again, retail term deposit and retail casa contribute to around 43% of the book. So, it's everything about us as retail lending to the micro and small enterprise segment, lending to small businesses. That is our forte and that is where we want to grow. We now have 22000 employees when I joined this bank five years back, we had some 7000 employees. So that's gone up to 22000 now. And our vision is to be the world's most trusted retail bank and a coveted employer, and we want to be admired as the epitome of finance. We are a set of people working for the financial inclusion drive of the government and the country, and we want to be a bank that the customer trusts and has confidence in. And we also want to be known for customer delight. So that's the vision with which we drive ourselves. Going forward, yes, we would want to graduate to a Universal Bank, and that provision was also there with RBI when they give the licenses, they would be monitoring us for five, six years and then they might choose some of us to become a Universal Bank.

AITD: Thank you so much for telling us the vision and how you are growing with leaps and bounds I would say from 7000 to 22000 in 5 years is a massive expansion I would say in terms of manpower, and you aspire to become a universal bank and lot of things which are AU Finance Bank is doing in the right direction. I think you may like to switch on your video if the network is alright. We would like to see you as well. Now we have seen a lot of digitalization over the years, and it has been said that digital acceleration has taken place and what we would have intended to do in the next seven odd years is like preponed in one or two years. How digital banking has brought innovative products and services to India and what are the key elements of change in the Digital Era? I would say why it's important since you are a new bank and digital space is so rampant and you must compete with different business models. So how do you think that what innovative products and services digital banking has brought in India?

Mr Priyam Alok: I think the first set of digital transformations happened when we got the core banking system, there was a time when the banks had to make prepare a trial balance all the branches had to make the trial balance send it to their higher authorities and consolidation of that used to happen, that got changed. So, this type of banking happened 20-25 years back. With the advent of the core banking system, and later IMPS, NEFT etc. I think it got expedited in the last few years in the backdrop of two things. One was demonetization, and two is the pandemic. In the backdrop of both these items happening last 4-5 years. I think the transformation has been immense smart enough to create the India stack. This is not a borrowed stack it is our own stack, which in fact we have sold to a few Southeast Asian countries. So that is a big achievement, because of which a lot of transformation has happened. I would say that coupled with internet penetration, distribution of mobile phones. So those are the drivers because of which the digital banking story has got. Now the customer expects all kinds of right experience on the mobile app on the Internet bank the platform on the IVR on the phone, and he wants everything to be very-very seamless, be it, additional payments, be it his transactions online and at the same time we have to ensure that it's full-proof, that there is no data leakage, the data security is intact. And if I say, in terms of innovation, WhatsApp banking has happened with video banking has been approved by RBI recently so video KYC can now happen in the backdrop of the pandemic, that was approved. Those are great enablers because one can now open accounts without meeting the client on the video, one can talk to the client and do that and I think that’s the better happening, going forward, I must also highlight that some 2100 odd FinTech companies are there in India, out of it some 350 odds are into lending 400-450 odd are into payments. There is insured tech today, investment, insurance, everything is happening through technology. This is all technology-driven, but 2100 is a huge number for a country to have. Already pointed out that the real-time payments that happened in India were around 25 billion last year. There is an ecosystem that has been developed which is helping FinTech’s, Neobanks, New banks. And one must keep pace with the changing technology. Banks like us also will have to ensure that the customer is demanding, you must ensure that you have to match the technology if you won’t match, somebody will replace you. So heavy investment goes in that direction all, but that's the future. That's an investment that you make for a long term and that's something which you can't evade anymore, you have to spend money on technology, and ensuring that the whole digital transformation process happens for the company and the customer gets a very enriching experience in terms of digital interface. So, the banks like us will have to have a twofold. two-pronged vision. Obviously, there is a set of customers who is still figuring out the way to go digital. In the rural and semi-urban areas there is a set of customers, which still wants the physical branches. At the same time, there is another set of customers, where he expects a very high quality of digital. So, both are important. And innovation in this space is extremely important.

AITD: Very interesting. And I must say that you are a man of data, and all this data is at your fingertips. And the very interesting thing to talk about is 2100 FinTech companies, it's a large number in India and out of that in 350 companies which are into lending, lots of new banks, a lot of excitement, a lot of things happening in the financial sector. Now, you also talked about customer experiences. Now, we are talking so much about digital transformation, so how does this transformation achieved major business goals of improving customer experiences and operating or rather operational efficiency in the banking sector because these are two very, very important aspects.

Mr Priyam Alok: So I think digital transformation helps in saving time, saving the resources of the workforce coupled with the fact that it can help the bank scale up at a very fast pace and scale up the operations also in a big way. So, the banks become more and more economical due to digitization as we go along, scalability improves drastically. And digital transformation presents enormous opportunities for innovation and improve operational efficiency. Traditional operating models are being replaced by consolidated back-end processes. Now with integrated core banking systems being made available in real-time on the cloud. Banks are saving a lot of time effort and cost obviously. Apart from that the omnichannel approach ensures that the customer experience is uniform and customer is offered solutions on the basis of big data analytics, on the basis of customer behaviour and a lot of that is now happening in real-time, a geolocation mapping also happens and on the basis, that customer has given options, chatbots, the artificial intelligence side, chatbots are helping and also ensuring as we are going along and customer's onboarding journey is becoming simpler and servicing is becoming faster. So now if WhatsApp bank is allowed, a lot of servicing happens thru that. And chatbots connect with the customer in a big way. So, I think digital transformation is the top priority for all banks today. So that's the future of banking and with her diminishing margins or deposits ever-increasing competition in the space and an evolving mindset of the consumer, digitization is a necessity for the banks and the businesses of the banks, at the same time.

AITD: Very, very rightly said and you touched upon a very important aspect which I wanted to ask you is the Omnichannel approach. So, what is the Omnichannel approach to marketing per se, selling, and interacting with consumers. Though you did mention certain aspects like chatbots and other things, leading to a seamless and cohesive way of transacting. So, these are certain irrespective of the consumer touchpoint or device because today it is no brick-and-mortar banking, it is more on the device. So, once again I would like to ask you is what is the omnichannel approach to marketing, selling, and interacting with consumers, leading to a seamless and cohesive way of transacting, irrespective of the consumer touchpoint or device.

Mr Priyam Alok: So, an Omnichannel coach takes up a customer-centric view instead of a bank-centric view. And that customer-centric view is to ensure that customer has a positive and consistent experience on each channel. Now the customer engages with us on multiple platforms, be it internet banking, mobile banking, brick, and mortar branch. And the idea is to ensure that the customer journey is consistent and enhances customer experience, which should be uniform, and experience must be integrated and seamless and keeps the overall comprehensive end to end customer journey top of the mind. So, by focusing on the customer and not on the platform. that companies can drive more sales and better retention rates better customer retention, also having a seamless strategy across channels means that your brand is easily identifiable across multiple touchpoints and channels, and the brand strategy is more comprehensive, which will result in better brand loyalty and more targeted messaging. So not only that I would say these increased and diverse engagements across platforms at each stage of customers journey happen simply is the revenue as I said earlier, and there was a study by BCG that in such cases, the customer who deals with the banks at multiple touchpoints and get the right customer experience, there tend to be 30% more valuable in terms of revenues. So, to sum it up, it must be a client-centric view against a bank-centric view. It must be interaction with the customer versus transaction and the shift must be towards the interaction with the customers, and then relying on the big data versus the service-oriented architecture. Big data throws a lot of insights into customer behaviour and the Omnichannel approach is innovative and helps in that.

AITD: Very true like you said that it is more important is the customer experience than the platform. So that is the reason why we are talking about Omni channels, there are multiple channels. And since you are growing bank and would like to do more sales, because we are also in the business of skilling people in selling, and various other performance enablements, skill development, which they do. So it's very important as you rightly said is that the platform is not important, the customer is important, big data analytics understanding the customer in and out, and depending on that coming out with solutions that are customer-centric. And this is what, leading to this is my next question is that customer relationship management which is normally called CRM provides a modern customer-centric approach to service that helps in a competitive edge and win more business, I mean, since you are competing with so many as you rightly said that will be 2100 FinTech companies 350 leading companies, or 12 Public Sector Banks, and so many private sector banks and multinational banks of in India. So, what is the importance of customer relationship management in Small Finance Banks? How do they see and how do you see customers relationship management in AU Small Finance Bank?

Mr Priyam Alok: I think it's of paramount importance and we in fact we changed our CRM systems the moment we got the license, and we got the best-in-class system which was being used by a lot of top-class banks. CRM helps in effective sales management from the generation of leads to the onboarding process with a sales module. It helps in retaining the right customers it helps an increase in productivity in a very big way and helps and establishing customer relationships, the right kind of communication. Overall, experience is enhanced drastically if you use the right CRM tool and it gives a complete 360-degree overview of the customer and gives a very good insight on the customer behaviour if all the details are rightly captured and the process is duly followed. This tool throws a lot of data to give insights about the customer. So very important for us or for any bank I would say. And we did spend on this and went for a bigger, better tool.

AITD: Now, governments across the globe view retail banking as a key to achieve complete financial inclusion and the basic genesis, or the premise on which or the foundation I would say for Small Finance Bank is financial inclusion, which is the top priority of your bank that will shape the future of retail banking in India, which is a very crowded space and everybody's buying for that.

Mr Priyam Alok: First and foremost is the objective at which we are born, is to cater to the small businesses marginalized, farmers to micro enterprises, small enterprises and be the preferred bank in that space. We do have certain products, which are very niche products and unique products. The other banks were unable to emulate. And we had those products even on the NBFC platform. And we improve those products in the product suite as we became a bank. So, the first and foremost is to ensure that we are the preferred bank in the semi-urban and rural areas where we operate in and that's a big market for us, that's a market where we have a fantastic brand recall. And at the same time parallelly we also want to become a very good digital bank now. It might sound like two different countries, but the fact is that today you must have that phygital model you must have a model where you are working, for rural and semi-urban areas, it's just a matter of time when they will demand digital banking. A lot of them are already demanding that and doing that. So, one is working on their products to ensure that inclusion happens to ensure ease of banking happens. In fact, we did come up with a few innovative kinds of stuff like we had done away with the default slip requirements, a lot of times, villagers, or people who are not literate, they find it very difficult, they find the banks very difficult thing. They must enter they have to pick up a deposit slip, they must ask somebody to fill it for them then deposit the money so the bank for them is a big thing in the old of Avatar. So, what we did was with the advent of the AEPS Aadhar Enabled Payment System, we said we don't need a deposit slip. There is no point in keeping some mundane exercises still and we said you just come show your thumb we will do the Aadhaar link verification and deposit your money or withdraw your money. You need not go and search for an educated guy for a pen and paper and start writing so. So, we want to ensure that in that space will create more and more innovation for ease of doing business, ease of transacting, ease of banking transactions, and come up with some good lending products also to ensure that the gap, because a lot of experiments happened in the past like Regional Rural Banks, were also formed and RRBs are there and a lot of banks. Banks are always given targets on PSL, but a particular segment was always ignored because they didn't have the papers, they didn't have the requisite papers and nobody wanted to take that effort of doing the assessed based analysis, assessed income model, go and sit and figure out from that customer how much he earns because they don't have papers, they don't have balance sheets etc. So, there we came over to get a new innovative product and is still innovating, and we have captured the space and we want to increase that space, and the portfolio is very well, unlike what the traditional thinking goes that, a particular segment doesn't behave well. You must just start to assess them right. So, there we have our forte we want to continue with this forte and for classes and the set of people, and that's a big set of people, 75 crore people use the internet in this country out of 135 odd crores use the internet. Now there is a big chunk of people that require digital banking. So, therefore, for that sort of people again we want to become a very classic digital bank and a lot of efforts are happening in that direction. And a lot of investment has happened in that direction. So, these two would be our, key items being the flagship bank in semi-rural areas be a world-class Digital Bank at the same time.

AITD: So, what I could understand that your focus areas small businesses marginalised farmers, and you have come out with several niche products which other banks, find difficult to emulate. And that is the key to success also talked about the phygital model, yes, we agree that as the pandemic doesn't seem to be ending it will be more of phygital model and has given a big boost to a phygital model it has to be blended it has to be phygital. And that's the order of the day and the very interesting thing which you also talked about is that you have done away with the deposit slip. And believe me, I have also done a lot of banking training and when we go for induction and see mystery shopping into banking and trying to understand the consumer behaviour and particularly in rural areas these guys find it so difficult, and they just look forward to somebody helping them around to deposit by filling these forms and slips. So that's a very very innovative and very interesting thing which you talked about. I am getting some questions in the chat, but I will take it later. I will come to a very-very important question now which must be very close to your heart because you are looking after the business in the MSME sector. So, what are the key initiatives taken by Small Finance Banks to boost financial inclusion in India keeping the critical MSME sector as the primary focus? And I am talking particularly as far as AU Small Finance Bank.

Mr Priyam Alok: So, despite getting the banking license we ensured that the segment that built us the bank should be properly catered to, and innovative products are made for them. So, you need one product where our trade officer goes to the small-time shop, small-time traders, small-time wholesalers sits with them, understands what the cash generation is happening there. And then assesses based on what he sees and then he stipulates that for the month, then figures out from the diaries how much he is earning and then lends him money. Obviously, that profile that they do not have papers so that is one, where we went an extra mile and we have a bigger team in smaller stuff towns where we do this exercise and with great success, we know that book is around 15000 Odd crores for us. Then comes the templated product so we also thought there is a segment, which is banking already, and which might be a segment that is filing returns. So, based on GST returns, we are giving loans we are lending we are saying that we don't want a balance sheet, GST returns are good enough. Similarly, in the cases of banking credits, we give working capital facilities to somebody who is already banking, and one can see those credits happening in the bank, we consider the credits to be the turnover and on the basis of that, we lend. So some templated surrogate products have been devised, even if the customer is having the balance sheet it is highly mismanaged either because of the customer's ignorance or because of the lack of attention of the CA dealing with but the customer is wealthy or the customer is having enough money and maybe he's not getting money at the right price just because his balance sheet is not in the right shape. So, for that segment, we have these surrogate products for the segment which is not having anything at all we have this assessed income model where we go and assess the income. And as I mentioned ease of banking transaction, is something we are constantly, there is a particular team that is into innovation and constantly keep on thinking as to how what better we can do to enhance customer experience. So, these are some of the key initiatives that we have taken. And we continue to do so and expect that there will be more innovations coming in the banking space through us.

AITD: Very interesting. Innovation in banking which you have said is that you are giving loans on the basis of GST returns, you are also giving loans on the basis of banking credits the customer has and also talked about various surrogated products and there is a team, and the focus is on ease of banking transactions I think which is very important if you are focusing on a geographical area which is more rural banking and semi-urban. So, all these things are very important, and which is very critical also I would say I mean if you must promote the MSME sector. So, I think you are doing a phenomenal job in those cases and that's your primary focus. Now coming back to us like we are people into learning and development. And for us, it is very important or interesting to know because we have been supporting banks and become their knowledge partner in supporting them in their ways of skilling and upskilling. So how do you think Small Finance Banks can prioritize upskilling and reskilling their employees and develop operating models which are capable of responding to changing demands of the customer, economic conditions and position themselves at the forefront of future-proofing the workforce because it's an uncertain time you don't know how things are. How do you think your bank is upskilling and reskilling employees to get over demands?

Mr Priyam Alok: You rightly pointed out because again digital banking is a new concept not many bankers forget the customers, many bankers are also not too skilled about it or skilled about the technology evolution which is constantly happening. So, I think the multiple training programs that we have started, we have also tied up with certain online learning platforms like Coursera or Udemy as similar platforms where we have tied up with. Employees have access to those platforms to upskill on a particular item. And if it is required for his job bank sponsors it. On certain items on the adoption of technology or app, we have to do a lot of training exercises because we talked about the CRM thing earlier. If you bring the best of CRM but it's not properly used and adopted and all the parameters, all the fields is not properly filled in or front line is not adopting it, operations are adopting but the front line is not then it will not give you that kind of result that anticipate. So, for that also we do a lot of training on the ground with the ground staff. And now training is a very continuous process, the team in fact has certain menace we also target for some menace. We also are upskilling our senior management on certain items on digital transformation. There also we do a lot of upskilling thereby again registering for certain courses from people who know the subject. So, I think there is a constant thing now because the dynamics are the levers that keep on changing fast. So, one needs to constantly be abreast about what is happening on the ground and change or improve our skill sets that's a continuous process and that will remain.

AITD: Thank you very much for telling us the insight about the skilling because that's where we would also be interested, and we will see how we will be able to associate with your bank sometime as a knowledge partner because we do work in performance enablement sales and so on so forth. And one thing which is really interesting what you said is, I also believe is, it has to be a holistic approach, I mean it has to be top-down approach is that until from frontline to the leaders and middle management everybody is not involved then it's not fully integrated then you will not be able to achieve. You have talked about something called the adoption part. So digital technology transformation to succeed is very important, the entire bank at all levels is adopting it wholeheartedly and they are skilled to do their jobs in the right manner. Alright so, I think we have some questions in the chat and I would like to take one question from Brig. R. K. Sharma, my colleague. What he is saying is most small finance banks are NBFCs or microfinance institutions that have asset portfolios funded by banks loans and borrowings but not low-cost deposits. So, what are your thoughts on building a liability portfolio and offering a wide range of liability? So that's a question which I wanted to ask you from the audience.

Mr Priyam Alok: Yes. So, in fact, SFBs are working towards, and you are right out of the 10 SFBs (Small Finance Banks) 8 are microfinance institutions. We were a diversified assets-based finance company. And one of the local area bank capital local area banks of Punjab. And the transition that we made was also because of the kind of trust bank generates. This conversion from an NBFC to a bank is a costly affair, you have to spend on technology, the operational cost of putting up with branches, the core banking system is a costly affair. So, the cost of operations, over a period your cost of borrowing goes down. So, we do come up with some innovative products some, certain products are there in yesteryears offered by certain large banks on the sweeping sweep-out facility to FDs if you are having above a particular threshold balance of say three lakhs above two lakhs the banks used to transfer that to the FD platform and that would fetch you better rates. So, as we talk to generate to mobilize deposits the SFBs is selling more money viz-a-viz Universal Banks. So, at an average SFBs sell-out 8 and 8.5, 8.7%, as compared to 4.5, 4.7% even lesser, including FDs I am talking not just saving account rates. So, we are good at 300 basis points higher so that is a big incentive for anybody to open accounts with us because we give the higher rates on balances on the savings account. We give higher rates of FD, and that's been consistent. Now, why so. So earlier as pointed by Brig Sharma that NBFC is to borrow money from the banks and that money was to the tune of 12% 13%, 11% in the best-case scenario. By becoming a bank that cost goes down to 8 to 9%. In the very first year operational stage it would have gone down to 10%, so there was saving for these companies in terms of cost of borrowing. And over a period of four years, five years now we are four years old. The cost keeps on going down further. Right now, for all the SFBs put together it's again around 8, 8.5. Eight MFI went at a much higher rate because in MFI rate is very high. So, the why is the cost is higher by 300, 400 basis points cost of borrowing. And so, as the cost of deposits, you end up lending at a much higher rate of interest, so your cost of returns is also, very high. It's 10% more than the average bank because you are in that segment. So, initially this issue of investing, but over a period it's a very profitable thing for any MFI because the cost of borrowing keeps going down with the scale of operations. And innovation in liability production is a constant process as all of them are trying to obtain with good rates for senior citizens good rates for even normal customer in ICICI and HDFC all these big banks their saving rates is uniform it's very less. We give 5 to 6%, so does Universal Banks like IDFC or Yes Bank, people who have fewer deposits end up giving you more in terms of, innovative liability solutions with high returns.

AITD: So, as we were talking about the challenges of Small Finance Bank from the compliance perspective. I mean, tight rope so there is another question which is on that basis is with the RBI being strict on not relaxing the CRR and SLR norms for Small Finance Banks. How difficult will it be for Small Finance Banks to maintain a good net interest margin or lower the cost of funds? Are regulatory costs too big a burden for Small Finance Banks?

Mr Priyam Alok: You could say that. Things are totally different because of the pandemic. The banking system at on average has surplus money of six lakh crores. So, the surplus a bank has is supposed to be parked with RBI under the reverse REPO rate which is 3.35%. So, six lakh crores today of the banking system has been parked with RBI at 3.35% and therefore you would have seen that the bank's interest rates on home loans and all kinds of lending products have gone down drastically because if you are borrowing at 8% and keeping the 3.35% with RBI because you are not lending enough you are actually having a dent of 4.65%. So, it's better that you lend money at 8-9% than keep it with RBI. So right now, the liquidity situation is such that because of the pandemic. The last year it should not be how it is there should be more lending happening. And I don't think the structure for banks has to be uniform. Why we are talking today about some banks going down the fact is some banks have gone down and therefore it's so important to have a robust compliance architecture robust control architecture and they should not need to create if we have to keep a certain SLR for that which is 25%. We should have enough money to safeguard the interest of the depositor and that regulatory framework is perfectly fine and banks who went for the license were very much cognizant of this not just the cost even the compliance is from an NBFC to a bank the compliance goes down drastically. But that's how it should be. That's how it should be otherwise nobody wants another PMC to happen in this country.

AITD: Okay thank you very much for the very interesting response to the question from the audience. What are the final words from you on the entire discussion Mr Alok?

Mr Priyam Alok: I would say we are living in very interesting times where we are seeing a sea change in the way people bank and a lot of innovation is happening in this country. I think we are leading right on innovations and on the FinTech space on the banking space and that would continue so I think my only request is that everybody should adopt the technology not refrain from it. Trust your regulator, your money would be saved we have seen a few banks, facing different troubles but nothing happened to any universal banks, nothing happens to the deposited and money and all banks take care of everybody’s money. Use the digital platforms, when you use it, you understand it, and then you adopted and then you also have to become more demanding for better services, which is what we should aim for I feel that going forward while we say that the banks are synonymous with trust, I would say going forward technology will be synonymous with the trust and 10 years hence, we will have a very different game to play with a lot of technology angle to banking. So, thank you so much for having me here. And it was a pleasure to talk to you.

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