Tarun Bhatia, Managing Director and Head of South Asia in the Business Intelligence and Investigations practice of Kroll, a division of Duff & Phelps recently shared his views in the Banking Frontiers magazine May 2020 edition. He states that this pandemic will prove to be a challenge as well as an opportunity for banking firms and financial institutions. He highlights this by presenting four scenarios that can be witnessed in coming months.
Firstly, he says that,” Technology will become a central driver of business and growth and institutions which have invested in technology over the last decade will immensely benefit. Over the last six weeks, more customers would have consumed digital banking than they might have done during the demonetization phase. Secondly, on the asset side, there will be increased stress. In the medium term, NPAs will increase and likely move again in the 12-13% range. Thirdly, to help us slowly move to 5% plus growth, investment in infrastructure will be important. However, with a weak bond market, we will once again need to rely on banks to fund infrastructure projects. However, for this they will need lot more Tier 1 capital which may not be available or will be very expensive. Lastly, the entire NBFC model will have to go through a compete reboot – quite a few won’t survive, and others will need to re-engineer.
Tarun Bhatia also foresees a time when financial services industry employs lesser number of people and operate with fewer branches and to avoid this state, the government has to take immediate measures, he says. Additionally, he feels that the impact of COVID-19 will be severe and government will need to provide a much stronger stimulus package to support the economy. Without government’s intervention, towards job creation, there will be a prolonged stress in the economy and banking sector. He also maintains that the government will also need to find ways to capitalize PSU banks.
Tarun predicts heavy investment in technology to support new products and to enhance cybersecurity. He explains, “It is likely to take months before our life moves back to pre-COVID times and hence more and more people will rely on digital banking and also online payment for meeting day-to-day needs. Given our telecom penetration, most financial institutions will now have to look at technology as a means to survive and not a differentiator.” For smaller entities in the sector like cooperative banks, small finance banks and some of the weaker NBFCs, it’s a fight to survive. They are running a serious trust deficit at the moment and a lot of focus will be on recovery and paying their liabilities on time. However, some of the small finance banks will find this a good opportunity to create their own space. They are well capitalized so growth is not so much an issue. It is important that they focus on building stable liabilities and invest in technology. He further emphasizes that cyber fraud is a major concern for the financial services industry and it is rampant at present. “In India, while we have invested in technology to protect ourselves from cyber frauds but the people (employees/ customers) are either not aware or are lax resulting in large number of digital frauds.
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