S&P Says Top-Tier Indian Banks Will Lead Digital Change By CIOReviewIndia Team

S&P Says Top-Tier Indian Banks Will Lead Digital Change

CIOReviewIndia Team | Tuesday, 19 January 2021, 03:42 IST

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Digital disruption in India is relatively low risk for the longstanding market position of its top-tier banks as recognized in a report ‘Tech Disruption in Retail Banking’ by S&P Global Ratings on Monday.

The Covid-19 restrictions did boost Unified Payment Interface (UPI) as the value of transactions processed using UPI increased twice in June to November 2020 from the same timeline of the previous year.

Standard & Poor’s (S&P) says, “We expect this shift in consumer preferences to remain. Rising smartphone penetration, increasing internet connectivity, and the young, tech-savvy demographic segment present vast opportunities in India for existing banks and new players.”

The Reserve Bank of India and the government have also played a major role in laying the foundation and raising the bar for development of the fintech in the country and many banks quickly adopted new technologies for catering to a vast and rapidly evolving young tech-savvy customer base.

Deepali Seth-Chhabria, S&P Global Ratings’ credit analyst, said, “We believe India's top-tier private-sector banks and State Bank of India (SBI) are well-placed to deal with tech disruptions, given their dominant market positions and continued investments in technology.”

Some of the non-banking financial companies (NBFCs) also stepped traction in having technology-led banking solutions omnipresent in their core business models, where the financial institutions use artificial intelligence and machine learning not only in loan underwriting, but also to onboard customers, cross-selling, servicing, and fraud management.

The rating agency said, “Although we believe the industry's competitive dynamics will continue to evolve, new entrants have failed to make their mark so far. Payment banks in India have less than 1% of the deposit market share and remain unprofitable; restrictive licenses render the model rather unviable.”

China’s utilization of the digital payment is uniquely positioned from India said the report, which added that Ant Financial’s Alipay and Tencent Holdings Ltd.’s WeChat Pay dominate mobile payments in China for depositing leakage from banks as money gets transferred out of the banking system to these wallets.

In India, mobile payment users are shifting away from e-wallets toward UPI which took over the payments market with 51% share in the total number of transactions in October 2020. UPI however does not lead to deposits moving out of the banking system, which allows the banking system in maintaining an edge in the payment system.

S&P concluded, saying, “Collaborations between traditional banks in India and fintech companies are likely to increase. At the same time, we believe traditional banks require considerable investments to upgrade legacy systems.”

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