How technology can enable more Indian banks to achieve global scale

When S&P Global Market Intelligence, an arm of S&P Global, released its annual ranking of the world’s 100 largest banks in April, only one Indian bank made it to the list -- State Bank of India. The Indian banking sector’s poor showing on the global stage could be reversed with a little help from technology coupled with strong leadership, according to Oracle executive Guruprasad Gaonkar.

“In India, 70% of the market share for banks belongs to the PSB (public sector banks), which puts the onus of supporting the Indian economy on them. But their performance parameters suggest these banks are inefficient compared to peer groups,” Gaonkar told TechCircle. “...80% of them have non-performing assets, carry a bad debt book and the quality of screening and monitoring for lending needs immediate attention” he added.

Gaonkar is APAC SaaS leader, office of finance (ERP) and supply chain at Oracle.

As the fifth largest economy in the world, India should have at least six banks large enough to be admitted in the global top 100 list, the government’s Economic Survey 2019-2020 noted in January. “India’s banks are disproportionately small, compared to the size of its economy… If Indian banks were proportionately large in relation to the size of the Indian economy, we should have at least six banks in the global top 100,” the Economic Survey noted. 

Covid-19 impact on the economy

The Indian economy is expected to contract during the financial year 2020-2021 and recover sharply in 2021-2022. But the severe economic slowdown and the expansionary monetary policy is expected to have ramifications on the banking sector at least for the next few years, according to Arun Singh, global chief economist at Dun & Bradstreet.

The Reserve Bank of India’s financial stability report, released in July, estimates that non-performing assets of all scheduled commercial banks (SCBs) would rise from 8.5% of total as of March 2020 to 14.7% of total by the end of March 2021.

“The RBI is expected to keep a liquidity surplus in the banking system. The planned disinvestment of PSU banks would help in meeting the resources for recapitalisation of banks. The earnings of the banking sector will start reviving with the pick-up in the credit off-take,” Singh told TechCircle. 

A positive factor for India is its growing middle class, whose consumer spending is expected to double from $1.6 trillion in 2020 to 3.2 trillion by 2030, according to a report by London based IHS Markit. 

The government has also taken liquidity measures to ease the effects of the economic downturn and lastly, the growing investor confidence has helped with injection of foreign direct investment into the economy.

“The government’s step towards disinvestment in public sector banks would ensure capital infusion, efficiency in governance and enhanced accountability. The RBI has also ensured that the banking system has adequate liquidity to meet the credit demand of the economy. Both the government and the RBI are expected to support the banking system post Covid-19 as Indian banks need to operate without failure to support the recovery process of the economy,” Singh added.

How technology can help

Several technology giants such as Google, Facebook, Amazon, Foxconn have placed major bets on the digital transformation of India. Oracle set up its second data centre in India in June this year.  

One significant manner in which technology could aid Indian banks compete globally is by driving operational improvements towards international standards. One example, said Gaonkar, is the way in which London headquartered HSBC used Oracle’s cloud ERP (enterprise resource planning) to control fraud, increase transparency and reduce costs.

“There are a lot of in-house applications that they are used to, along with a huge shared service center in India. Using Oracle ERP, HSBC was able to have a unified back office function in all operations across the 70 countries that they operate in,” he said. The deployment of the solution was reportedly completed globally within eight months.

The second area where technology is currently helping banks is in moving away from a physical operating environment to a virtual one. For JP Morgan Chase, Oracle was able to deploy their HCM Cloud Core and recruiting management solution which helped the company virtually screen over two million candidates globally. 

“The third area that I would like to touch upon is around managing risk. Most banks now need to see integrating finance and risk management into a single entity and not as separate functions,” Gaonkar said.   An example would be how Thailand’s Siam Commercial Bank took its finance and risk architecture into the cloud to help it build continuous resiliency.  

While there is no one size fits all approach to how banks can better their technology implementation, mainly owing to different levels of digital transformation, most of the technology expenditure is spent on the front office aspect -- customer experience. Banks usually spend anywhere between 6-7% of their revenues on technology implementations or upkeep.

“There is little attention given to the back office functions, which includes financial risk and creating integrated finance centres,” Gaonkar said.   

While customer experience is also a critical aspect of banking, getting onto the global corporate market, more specifically into the small and medium enterprise segment, would require investments in the back office, Gaonkar added.

Some of the recent trends that Oracle has noticed includes a bigger focus on costs or having zero technology debt. Zero technology debt refers to the complete use of a technology implementation without losing out on any additional resources.

“Secondly, no executive wants to sign up for a three year five year transformation because nobody has that kind of time anymore,” Gaonkar said.

This leads to banks wanting specific scenarios addressed, such as recruitment as part of human capital management or implementation of financial analytics before the full transformation of the finances function. 

Thirdly, the most critical for all banks is to understand and implement when a new compliance or regulation comes into effect in terms of accounting standards, changes to IFRS (international financing reporting standards) compliance, Basel requirements among others.

Read: Cloud adoption rises amid pandemic but held back by compliance fears

In compliance, the recent trend is for banks to wait until an agency asks it to comply, but to invert the pyramid and treat compliance as an essential tool to survive.

“What banks need is a continuous compliance, not a one-time compliance or an upgrade to compliance,” Gaonkar said.