Modern Indian Banks: Navigating The New World Order

The sparks of distress in the US and European banking systems have set off alarms around the world even as the murmurs of an impending recession grew in early 2023. But the resilience of the Indian banking system, often called ‘conservative’, has been the highlight for the financial services industry.

A large chunk of this resilience in Indian banking is due to the secure parameters of capital adequacy, percentage of stressed assets or liquidity coverage ratio of individual banks or issues like provision coverage ratio, the profitability of banks and more. These were noted by RBI Governor Shaktikanta Das last month at a press conference in Washington. But another aspect which is ensuring performance and survival is their strategies to remain relevant by keeping customer at the centre of all things banking.

Finding Relevance

In the last few years, FinTech companies and startups have clearly chipped away at the market shares of many banks by offering financial services to the underserved. They have addressed the gaps which were largely beyond the reach of traditional banks due to their evolving understanding of technology and leveraged them to expand reach.

But this is changing as banks increasingly step-up collaborations with FinTechs and tech conglomerates to stay relevant to the times and constantly changing consumer behaviour.

With over 480 million customers in its kitty and a market capitalisation of over USD 60 billion, the State Bank of India (SBI) has been leading the charge of relevance for Indian banking without losing an inch of its market cap. “SBI is the only public sector bank (PSB) which has retained its market share always,” says Nitin Chugh, DMD and Digital Head, SBI.

The post-pandemic world has been highly dynamic and a customer’s life is changing very rapidly which is, in turn, affecting behaviours as well. Hence, banks have had to be agile to redeem relevance and their role as meaningful contributors to their customers. Notedly, SBI has been on this journey of relevance through its YONO (You Only Need One) integrated digital banking platform since 2017 in partnership with IBM.

“Today, consumer behaviour is not consistent. It differs on hour-basis, day-basis and even in relation to time of the day and events of the world. So, we have to keep narrowing down the level of personalisation by contextualising data available across channels to be relevant by leveraging technologies available,” Chugh explains.

He adds that SBI’s single-minded focus today remains the effort of being relevant to each of its consumers.

Commenting on the current banking scenario, Viswanath Ramaswamy, Vice President, Technology, IBM India & South Asia says that the only thing certain in the world of banking today is ‘uncertainty’.

“With the looming uncertainty and dynamic changes all over the world, it is important for the banking segment to be healthy. And it can happen on two driving factors Technology and People,” he emphasises.

Ramaswamy explains that these two elements are key to the digital transformation journey of banks, which has accelerated 3-4x in the post-pandemic era.

As Indian banks take on the topic of technology in their board room discussions to identify new revenue generation streams, drive cost-efficiencies and productivity, they are quintessentially turning into technology organisations. “Today, banks are technology organisations with a banking license,” Ramaswamy quips.

Despite the disruption in banking, financial services & insurance (BFSI) affected by the FinTechs, there is plenty of opportunity for the traditional banks, albeit they leverage the latest technologies to keep up with times as the world undergoes a fundamental restructuring. A McKinsey & Company article highlights that there could be an opportunity of up to USD 20 trillion for the banks that successfully manage to sail through this transition period.

Security – Integral Component of Banking

The age of classical computing has largely reached a plateau in 2023 as the world has agreeably moved on to a new type of computing backed by artificial intelligence (AI). As a result, banks that have been frontrunners in automation are now exploring avenues to apply AI to get the most out of the data they handle on a day-to-day basis. This also means that a newer set of security challenges emerge in this highly-regulated and protected industry where enterprise security has been at its core. And now with accelerated digital transformation, enterprise security has become equally important at the edge.

“Digital transformations cannot happen if there is no enterprise security available. It’s not possible without underlying enterprise security being available – not just at the core but also at the edge. And with 5G coming into the picture, this is only going to accelerate,” Ramaswamy says.

Last year, Union Minister of State for Finance Bhagwat Karad told Parliament that between June 2018 and March 2022 India’s banks recorded 248 data breaches. Out of the 248 data breaches 41 were reported at public sector banks, 205 at private sector banks and two at overseas banks. While the Reserve Bank of India (RBI) has issued guidelines on Cyber Security Framework for Scheduled Commercial Banks (SCBs), more needs to be done by banks and their technology partners on the security front in today’s ever-evolving tech and computing landscape.

According to an IBM report, manufacturing tops the list of most-attacked industries in the Asia-Pacific region with 48 per cent of cases, followed by Finance and Insurance at second place with 18 per cent of cases. As the threat of data breaches increase, the cost of data breaches also soars (average cost has climbed 25 per cent since 2022 to Rs 17.6 crore in 2022 in India).

In this scenario, the adoption of ‘zero trust’ model has been suggested as the best strategy for banks. In fact, IBM data from 2022 reveals that oganisations in mature stages of adopting zero trust deployment witnessed Rs 15.1 crore to be the total cost of a data breach. Meanwhile, organisations that have not yet started zero trust deployment witnessed the total cost of a data breach to be Rs 24.6 crore.

“It is imperative that digital transformation is highly secure with zero trust,” Ramaswamy emphasises.

He adds that IBM runs security operations centres (SOCs) for many large financial institutions in India and has made huge investments in the country including a cyber range that gives clients an immersive experience and educates them on how to handle cyberattacks.

Spotlight: Sustainability 

It has been long-established that climate change will have dire consequences and the business world has felt pressure from all sides to do more than just talk about green initiatives. Banks have not been immune from such demands of transparency and accountability from customers, regulators, investors, and employees. Being the largest bank in the Indian banking ecosystem, SBI has taken substantial steps towards sustainability.

Chugh shares 3,000 SBI ATMs are powered by solar energy and many of the bank’s large offices are already certified green buildings with ‘platinum’ or ‘gold’ certifications. “In fact, our corporate centre at Nariman Point (Mumbai) is one of such buildings.”

He adds that most of the SBI residential premises have their own solar-based power generation. “That is our effort at making sure that we contribute less on the carbon footprint and we continue reducing that,” Chugh affirms.

Today, banks and financial institutions are undergoing a basic shift in mindset under the pressure of evolving demands around financing and making investments to support greener businesses and renewable energy. Green finance has been on a high-growth trajectory to help businesses and public sector organisations lessen their carbon emissions and move towards net-zero emissions.

Chugh says SBI is doing its green finance bit through partnerships at a conglomerate level. “We have a partnership with the Tata Group and work with Tata Solar Systems. In terms of financing, we support the electric vehicles (EVs) industry and solar installations. The next one for us will be battery manufacturing.”

He also shares that SBI has raised green bonds to the tune of a billion dollars which are listed on the Luxembourg Stock Exchange. “We do this as part of our international business,” he adds.

Since banks are now big proponents of technology, digital sustainability is a new area they are ruminating over to reduce their net power consumption through optimsations. “We have not finalised our approach with digital sustainability but we are having discussions on how to consume lesser energy. For instance, we are looking at data centres and applications in this regard. And we are also looking at creating customer journeys that inherently consume lesser energy,” Chugh says.

While SBI’s presence in India is massive, its footprint is extended to 30 countries globally. This means that the bank’s strategy around sustainability will potentially have a large-scale impact which could be a significant growth driver for green initiatives on a global level.

Unchartered Territory

The world of big banks manages an estimated USD 370 trillion in worldwide assets and its growth continues to be on an uptick. As the banks navigate a new world order with a mental reset and tailwinds of technology, McKinsey projects their global assets to grow to the tune of USD 500 trillion-550 trillion in the next decade. With such large availability of headroom and unlimited avenues of growth, evolution seems to be the only way forward for the banks.