Is Technology Important In Banking?

'Just the amount of work which is there just to become more and more successful in banking.'
'For this to happen you need to have leaders who understand technology.'

Technology is important in banking but not to the extent of turning banks into technology companies.

Banks take deposits from customers and work on the foundation of trust.

Differing approaches to risk management and compliance may determine the extent to which technology influences banking, according to the chiefs of some of India's largest private and foreign banks.

At the 'Business Standard' BFSI Insight Summit 2023 'held in Mumbai, they shared their views during a panel discussion on the theme 'Do private banks need to become tech companies?' Tamal Bandyopadhyay, the newspaper's consulting editor, moderated the discussion.

Edited excerpts:

The participants included Amitabh Chaudhry, managing director (MD) & chief executive officer (CEO) of Axis Bank; Zarin Daruwala, CEO - India, Standard Chartered Bank; Ashu Khullar, CEO of Citibank India; Hitendra Dave, CEO of HSBC India; Rakesh Sharma, MD & CEO of IDBI Bank; and V Vaidyanathan, MD & CEO of IDFC First Bank.

One Indian private bank has picked a CEO from a technology background. How important is technology to today's banks?

Hitendra Dave: I think it's clear that not just banks, every business needs to be technologically enabled much more than we were historically.

Even if you're running a little store you need a QR (quick response) code, new billing system, new payment systems, new cash collection systems. So it's nothing unique.

All of us realise now that because close to 100 crore (1 billion) Indians are, whether they are financially literate or not, are digitally literate now because of Google Pay, PhonePe -- all these fantastic companies which have come about and taught us as an industry a few lessons.

So, the answer is yes and the answer is no. The core part of banking is still taking care of people's deposits and lending it out to people who repay you on time.

That process largely will remain. But the delivery of services whether it is KYC (know your customer), assessing credit risk, enabling payments -- that last mile is very, very technology driven.

So the answer is yes and no, so that we don't become a complete technology company and forget that at heart people deal with a bank because they feel comfortable placing their money with us.

I think, for the benefit of the audience, banking is a unique business.

Many people don't tell their spouses about their income, wealth or where they've taken a locker. But they come to a bank branch and tell a complete stranger to please keep this money.

It is a business of trust. In our quest for technology we should not forget that part. Trust is the most important word associated with banks and banking.

And wherever that trust has been broken we have seen the consequences for that institution.

V Vaidyanathan: Banking has these four or five typical needs.

People look to banks for savings, borrowing, investment, protection, and finally payments or transactions.

These needs are time immemorial. I'm sure these needs were there a thousand years ago, they're there today and will be there tomorrow as well.

But most of these services, traditionally in India, have been made available to the top of the pyramid.

As we take this to the bottom of the pyramid, with all these services, we will also improve lives and it will also be a huge banking opportunity.

How does technology change for Citi in light of its recent business changes?

Ashu Khullar: I think the question of technology is critical to any industry. Should banks become technology companies? I would say no.

Technology companies have taught us very well to take a single problem, go deep and find a solution.

I think as banks we need to make sure we partner with them; we learn from them; we are not paranoid about them; but I don't think given the principle of trust and regulation -- and I think it's almost demeaning in my mind to try to equate it to just being able to process a transaction faster because of data.

Our business will now be focused on the institutional side. It will be dealing with small, mid-sized and large Indian companies as well as global companies and investors.

It's a question of building a relationship. That doesn't happen because you process data faster. It's because we build a long-term relationship, a relationship of trust based on the right advice.

You want to make sure you use the full power of technology to make them more efficient and give better customer solutions.

We look at technology as fundamental to our business. India is a major pivot to technology globally for us.

Two-third of Citi's global tech and analytics is done out of India playing on the talent card. A number of them are coders.

Citi today has 40,000 people who code as part of their day-to-day job. And we are going to give generative AI (artificial intelligence) to each one of them.

We believe that is going to be a major change, a lot of the use-case is already there.

A lot of people ask us "you sold your retail bank, how are you going to fund your assets?"

We fund it well because we have this incredible business, cash management and working capital solutions, which are all technology-based now with UPI (Unified Payments Interface), using API (Application Programming Interface) and using more and more test cases.

So using it, but banks will not become tech companies.

Amitabh Chaudhry: Whatever we do for our customers, our thought process has to change -- to think technology first.

How do we use technology to make our customers' lives and the solutions we provide for them simple and easy to use, seamless and easily scalable?

You need to have enough people in technology who understand this and tech-savvy people who can combine business and technology together. And if that makes us a bank, a tech-company so be it.

The intention is not to be called a tech company for its own sake. Yes, you need to have many more people who understand technology.

Who knows how it can be used and harnessed to better customers' lives.

Technology companies believe that their motto is to scale fast, fail fast. We have to be careful from a risk management perspective.

From a compliance perspective, maybe a tech company feels they can ask for forgiveness. We don't get a chance for forgiveness.

We have to seek permissions, clarifications and ensure that we are following the law of the land and what the regulators want.

It is very easy to say that become a tech company, or tech-savvy company or become a company dominated by tech people.

There are a number of elements of banking where you can use technology innovatively to continue to bring solutions, have heavy usage of it, have more people who are involved in it, but to become a tech company overall I think would be a tall order.

As IDBI, you're in many ways a private sector bank and in many ways a public sector one. You are massively into retail; how do you view the issue?

Rakesh Sharma: All those banks who are not upgrading themselves in line with technological advancements will not be in a position to compete with their peers.

In the last ten years, the digital transactions in volumes have increased by more than ten times. It has doubled in value.

The RBI (Reserve Bank of India) Digital Index has increased from 100 to 395.

Technology in my view is an enabler. We have our core competence.

Regulation is so strong for banks, if we go for becoming a technology company it will be difficult and risk prone.

So the best thing will be, in my opinion, there are fintech companies which specialise in core technical activities.

We can partner with them and benefit from that while also developing our own digital capabilities.

IDBI has a subsidiary which handles all our IT (information technology) part. So that can also be one way. So there is no need to become a tech company.

But yes, we need to move towards digitalisation.

Zarin ma'am, you have the last word.

Zarin Daruwala: If I look at Standard Chartered, we have two pure digital banks coexisting with our regular banks in Singapore and Hong Kong.

We find that pure digital banks cater to a certain segment of the youth who are very comfortable and don't really need branch servicing.

There are different models you can use. It's all a function of what kind of customer segments you have and what kind of customer digital evolution you have.

Based on that you can offer different models. It's been a very successful digital bank for Singapore and Hong Kong for Standard Chartered.

Should a bank be headed by a banker with techies working under him, or vice versa? Also, could we have a similar bifurcation for pure digital versus others for Indian banks?

Daruwala: My personal view is that you should have a banker who understands compliance and risk because that is the backbone.

You can have a very high quality tech team which builds that part. As a CEO, that doesn't mean that you don't understand technology.

As a CEO you need to understand technology and the trends for sure.

Today, if you don't have a CEO who has a big focus on risk, governance and compliance you can almost be risking your licence, right?

And having seen the way that banks have embraced technology and most CEOs have been non-techies, I would say that there is evidence of how well they have fast-forwarded on technology despite CEOs being non-techies.

Your question on the digital bank and whether India is ready for that. For example, if you look at Standard Chartered India, almost 100 per cent of our servicing and onboarding is digital, large credit decisioning is digital.

We are almost there in our digital journey. We just give the best of both to our customers, digital and branch. And customers have the option to choose what is more comfortable for them.

To my mind, that hybrid model is very suitable for India. And you can keep enhancing digital tools.

Any customer who does not want to visit the branch can completely do everything digitally.

Would you prefer your hypothetical successor from tech or a banker with techies working under him? And how far away would you say you are on your tech journey?

Chaudhry: Firstly, you are making the assumption that a banker cannot be a technology person and vice versa. I think you can.

I worked in a technology company and later became a banker. I think you have to find the right CEO for the job.

As Zarin has pointed out, any CEO has to have a balanced view across every element of the business.

The minimum job requirement is that you have to understand risk, compliance and some of those issues very well.

If that is not there, forget about what you are, you will never become a CEO. Or if you become a CEO, you will be out of a job very quickly.

Understanding technology and being comfortable in it. You don't have to be a techie to be comfortable with technology.

You need to understand what technology can do for you, the advances and how it can be applied to your business and then find the people who can apply it.

You don't need to do that application but you need to understand what can be done with it.

As far as a digital bank is concerned, it is pretty much a given. Whether it is a separate licence or it is part of the bank it does not matter.

Ultimately, there is a part of the bank which should be thinking digital.

When I joined Axis five years back, we launched a digital banking unit which was separate - nobody had done that. We have 2,000 people working there.

We recently launched a campaign to convert our mobile app into a new brand.

The statement and message we are giving to the market is very, very clear. We want to create a digital bank within the bank. We want to create assets and liabilities at scale within the bank using a digital platform.

And we will continue to invest in it as we go forward because we believe there is no other option but to embrace it and try to take advantage of it. Rather than say because everyone is doing it we will do it.

If we want to be at the forefront of what is happening, and not just the mobile app, but the RBI's innovation hub and other platforms-we believe and you will see Axis at the forefront of each of those initiatives because we don't know which one will succeed, we don't know which one will scale up rapidly.

We don't want to be waiting on the side-lines when it scales up. I've always said that when the tsunami comes we want to be standing in the middle of the river and flow with the tsunami rather than waiting for it to go, and then say we will now swim.

It doesn't work. You have to be in the middle of it. You have to see which one scales up, keep trying, when you succeed you will be ahead of everyone by a margin.

Vaidyanathan: All of the internal processes that lead you to serving the customer in an assisted manner have to be massively upgraded to be relevant.

All the customer-facing interfaces need to have massive upgrades. All the employee-facing applications which are enterprise applications need massive upgrades.

Our banks have to be connected to all the ecosystems whether it is Aadhaar, or bureau or Open Network For Digital Commerce (ONDC) or other ecosystems which are coming up.

Just the amount of work which is there just to become more and more successful in banking. For this to happen you need to have leaders who understand technology. Otherwise you will have leaders who are running technology for you.

You will not know what language they are speaking. They will spin circles around you. They will throw jargon at you like crazy. And you will be clueless and run around in circles. It doesn't work.

At the end of the day you are managing people. And people are implementing technologies.

I find that our ability to manage the human resources that are managing technology becomes super important. And even to make organisation change within the technology layer, is important.

I really spent time on this because I believe that without this knowledge I will be a superficial leader.

Do you feel threatened by the inroads made by technology?

Dave: I think the customer determines whether you serve them digitally or in the conventional sense. We can't, sitting in our corporate offices, decide that.

What do your global corporate or institutional customers say about India?

Khullar: I think the India story is very positive. I think we've seen India come close to breaking out and something happens.

I think it's a confluence of factors which are coming together which are absolute and relative.

I think our global customers are perceiving it in the way that the Indian government, the RBI presents it, and how all of us on this panel see the India opportunity.

I think there is no other market which has the size and growth rate which India offers.

There was a cosmetics global company, he said, "I don't care about 1.4 billion people, but even if I can sell to 100 million people, that's a journey".

I think people are very excited about India on three parameters. It is India as a market. It is India as a talent source which has been driving the growth of Indian Global Capability Centres (GCCs).

A number of tech companies and automotive companies that I met recently are all trying to put their best product design, and research and development capabilities in India.

The third one is India as a manufacturing story which is the supply chain diversification and China-plus-one story. There, what I hear is that China is too important for them to leave. Nobody is going to leave China.

If you look at some of the big German companies, forty per cent of their value of sales are coming from China. But they do not want to be dependent on China for non-China operations. So it is China for China.

India, I think, is one of the beneficiaries. We are not the only ones. There is Vietnam, Mexico and the US with their Inflation Reduction Act and CHIPS Act. India is going to get a piece of the action. But this takes time.

How is life after the acquisition?

Chaudhry: Almost seven months into the acquisition, attrition is extremely low. Customer retention is extremely high.

We have seen new business come in. We have seen synergies and benefits flowing. Overall we are extremely happy with where we are.

A milestone is coming up, we are working on Citi systems currently and we need to transition to Axis systems by the middle of next calendar year (CY2024).

We are very confident. From our perspective, things are going very well.

What is the timeline for privatisation?

Sharma: Process is on. Now recently, DIPAM (Department of Investment and Public Asset Management) has advertised for valuers also.

The department is also doing such a bank disinvestment for the first time. And they have to follow all guidelines and the system has to be perfect and transparent. I think as DIPAM has said quickly it can be done.

Tell us about the new HSBC.

Dave: I don't think it is the new HSBC. At present, it is just an easy part of spending money on advertisements and sponsorship events etc.

Easy part is done and I think from next year onwards we need to see the flow-back of customer acquisition.

All of us spoke about this wealth effect. All of us can feel the number of people affluent, and wealthy and very wealthy.

That population in the last four-five years has increased quite tremendously. That is typically where international banks play at.

That is why, what you are calling the new HSBC is just a recognition that these people need an international bank who can help them when they send their daughter off to study abroad, they need a credit card on arrival, an account opening on arrival.

India is sending out million-plus students every year. Half of those will need services which a global bank provides.

Through advertisements, on which we are spending millions of dollars, we are being noticed. I still get asked by many people if they run a retail bank in a country.

IDFC First Bank has invested a tonne of money in technology. When you took over as CEO of a new entity (IDFC First Bank), whatever you promised to the investor community, you have fulfilled the commitments, except for the cost-to-income ratio due to investment in technology.
Can you tell us when the technology will pay off? When will the cost to income ratio would come-down?

Vaidyanathan: The reason why our cost-to-income ratio is high is because we are a new bank and to deliver services to customers we have to provide all the solutions given by the universal banks.

Everything is at the set up stage in the bank. So you have to put up branches to get CASA (current and savings account deposits).

There is no running away for the set-up stage and the bank to provide all of these. This has to be done because we are thinking long and not for this quarter or that quarter. Hence, the cost is relatively high and the bank is in an early stage.

It (investment) is already paying-off in a massive way. Just to tell you our bank's return on assets was zero on a core basis four years ago.

It is already one per cent which is quite healthy for a five-year old bank when many take seven to eight years to get there. So net-net our payback is coming very thick and strong already.

Our return on equity on retail lending, which is a big part of business, is 20 per cent, except that there are liability side branches which are dragging in terms of expenses.

We are looking 10-15 years ahead and if we want to get there, there is no substitute for building a good technology bank today.

You are heavily tilted in favour of retail banking. Is this the way to grow or will change the business model?

Vaidyanathan: It will remain a substantially retail proposition bank. When you go to rural India which has been banking for 100 years but any village or city you see people don't have credit, deposits. There is a big story coming up and we want to stay there.

Historically, foreign banks in retail have rarely done well in India. Many of them invested a lot of money and they withdrew.

If I am not mistaken Standard Chartered also invested hugely in retail. But if I see your numbers, the returns are 80 per cent-plus from corporate and others like retail is 20 per cent. So, retail is not exactly paying-off. You may say it is too early.
But at some point would you also think of withdrawing from retail or what is the way forward?

Daruwala: We are not looking at withdrawing from retail at all. In fact, we are the largest foreign bank in retail and focused on it after I took over.

It has improved substantially in performance and in terms of asset book, it (retail) is about 40 per cent of book. We want to keep that balance at least 60:40 or 50:50.

Also, retail is a great source of CASA for us and clearly one of the things that we are doing extremely well as a bank is wealth.

As a foreign bank we are able to offer wealth management as a proposition and we do it very well in my view.

Feature Presentation: Ashish Narsale/Rediff.com