State-run lenders explore digital banking infrastructure plan

Public sector banks (PSBs) are exploring the idea of setting up a company to build and share digital infrastructure in response to the rapid digital adoption in the banking sector because of the pandemic, two bankers aware of the matter said.

The lenders are looking to pool in resources to set up a Digital Banking Infrastructure Corp. to facilitate tie-ups with fintech companies and develop software for doorstep banking and co-lending, one of the bankers said on condition of anonymity.

The idea of setting up the company was discussed last week at a meeting with the secretary, financial services department. An internal committee has been set up under the Indian Banks’ Association to work on the initiative.

The banks expect the disruptions caused by the pandemic to transform how Indians access banking services, and the changes in consumer behaviour, including their tighter embrace of digital services, are likely to become permanent.

“Today, every bank is adopting digital lending platforms, and each one is investing in it. The size of the investment is quite huge, which all banks may not be able to do. If done collectively by an anchor bank or under the PSB Alliance, then a uniform platform can be created for delivery of loan products and other IT initiatives,” said the other banker cited above.

To address the challenges, state-run banks plan to collectively float an RFP, or request for proposal, to hire service providers and technology partners for providing digital banking services.

Apart from sharing the same software, banks are likely to share the hardware that goes into setting up the back office and servers to achieve economies of scale and save costs.

State-run banks already share infrastructure created under the PSB Alliance, an initiative where 12 such lenders have come together to provide doorstep banking services.

Bankers are also looking at the possibility of scaling up the existing online lending platform, PSBLoansIn59 Minutes, for the purpose of the Digital Banking Infrastructure Corp.

The platform, launched in 2018, was aimed at automation and digitization of loans, including small business loans, home loans and personal loans, so that a borrower gets an in-principle approval in less than an hour.