Imitating a fintech firm not the right business model: Former RBI Deputy Gov

Banks should avoid ‘imitating’ fintech companies in their attempt to re-imagine themselves but should look for meaningful co-operation with such companies to enhance their business.

According to SS Mundra, Former Deputy Governor, Reserve Bank of India (RBI), the process of re-imagination of business models for banks has already started. However, increasingly a number of banks have been evolving like fintech companies.

“Banks have to realise that fintech companies are competitive and nimble. So a bank trying to imitate a fintech company in totality is not the right approach to my mind and it is not the right business model. I think what is beneficial for both of them is to have a meaningful co-operation,” he said at the 14th edition of the two-day Banking Colloquium organised by CII, held virtually on Tuesday.

Such co-operation would help them both leverage on their respective strengths, Mundra said. While fintech companies have the strength of being nimble, innovative and fast-footed banks have the advantage of having a good resource base, reach, faith and trust of people and these can be complementary.

Banks should further avoid the temptation of introducing too many products or too many processes at too short an interval as it tends to leave both their staff and customers confused.

Rationalise branches

“There has to be a well-designed and well-decided pace at which such changes are introduced. Otherwise we have seen in some cases it may lead to unforeseen problem or a regulatory displeasure so one has to be conscious,” he pointed out.

At a time when digital has become a way of life, it is very important to take a “hard look” at the traditional branch-led business model, he said, talking about the need to rationalise branches.

“I am not suggesting that branches should go away but there is a need to reimagine the business model. One has to see which are the branches that are loss-making, contributing positively, can be downsized and can be completely done away with, and where you can rely completely on technology and where you can rely on agency arrangement. For every bank, it is important to do a complete holistic assessment of their branch network and how to derive maximum value from this,” he said.

According to Mundra, corporate lending, which once constituted the biggest chunk in banks’ loan book, has shrunk, with corporates deleveraging and finding alternative methods of financing themselves.

It would no longer be profitable for a bank to sell only a product to a corporate, as most corporates are now expecting “solutions” from banking system. “You need to adopt a solution-based approach if you want to do corporate banking,” he said.

One of the sectors which banks could look to ramp up is the MSME portfolio as there is more availability of information, date and GST has changed the entire landscape of the sector, Mundra said. “But here again the gradual movement would have to be from product to solution. In the retail sector, banks should leverage on the co-origination model,” he added.