Digitisation in banking faces key risks: S&P
S&P Global Ratings on Monday said India’s banking system’s low profitability and weak asset quality present some difficulties in significantly boosting digitalisation for several state-owned and smaller privatesector banks.
In its report titled ‘Tech Disruption in retail banking: Top tier banks lead the change’, S&P said India’s digital disruption, however, poses a relatively low risk to its top-tier banks’ longstanding market position.
“The banking system’s low profitability and weak asset quality present some difficulties in significantly boosting digitalisation,” S&P said. It said that Covid restrictions have been a boost for India’s major digital payment system Unified Payment Interface (UPI).
The value of transactions processed via UPI almost doubled in June to November 2020 from the year-ago period.
“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,” S&P added. It said many banks in India have been quick to embrace technologies to cater to a vast and growing, young, techsavvy customer base.
“We believe India’s top-tier private-sector banks and State Bank of India are well-placed to deal with tech disruptions, given
their dominant market positions and continued investments in technology,” S&P Global Ratings credit analyst Deepali SethChhabria said.
Some non-bank financial companies have made considerable traction in having technology-led solutions omnipresent in their core business models. In addition, financial institutions use artificial intelligence and machine learning not only in loan underwriting, but also customer onboarding, cross-selling, servicing, and fraud management, S&P said.
In India, mobile payment users are shifting away from e-wallets towards UPI, which dominated the payments market with 51% share in number of transactions in October 2020. UPI does not lead to deposits moving out of the banking system. That allows India’s banking system to maintain an edge in the payment system.