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At US $1.5 trillion, Indian banking industry is the backbone of our economy serving consumers, SMEs and large corporations alike. While the industry has been in news over Non-Performing Assets (NPAs) and governance issues, the primary challenge for the industry insiders remains sustainable and profitable growth.

 100 banks and counting

Particularly on the consumer side of business, the growth can no longer be taken for granted. Consider this – with over 100 banks across public, private and foreign banks (excluding regional rural and urban cooperative banks), an average banking consumer has more choice than any other industry.

And the available choices have gone up substantially in last few years. From 1965 until 2014, India added 14 new banks while in last 3 years, we have added 21 new banks and many more non banking players. The result – 80% of Indians today have at least 1 bank account compared to only 50% in 2014. However, this growth in number of accounts hasn’t quite translated into commensurate growth in either liability or asset side of business.

There are multiple reasons – partly because of lack of capital (with public sector banks), hyper growth in non banking players and also due to increased cost to serve in traditional branch based business models. The cost of setting up and running a branch is not what it used to be in 1990’s. Moreover, number of branches a particular bank has is no longer a direct indicator of its market dominance.

Leading the way through Digital

Some of the new banks that got licenses in 2015-16 have looked at the problem inversely. These banks asked themselves whether they need to do what State Bank did in 1950’s to grow in 2020’s? Or could they leapfrog through use of Digital technologies. This is almost akin to how India bypassed the landlines to go directly to the mobiles. These banks are looking to effectively relegate the branch one of the many channels to acquire and service customers. And thus, they have created “Digital-First” business models and built Digital Products leveraging the game changing capabilities of India Stack and creating an omni-channel technology backbone.

And this has forced mainstream banks to react, follow and sometimes lead the pack. For example, today there are over 10 banks in India where you can open a savings account in less than 5 minutes.

This includes Kotak 811 that has become a household name thanks to their aggressive push. Similarly, Axis Bank’s ASAP account and RBL bank’s Abacus that has already started to see significant uptick without overt marketing. Equitas has launched SelfeSavings while fincare has 101 First – both of which are doing well and enabling these small finance banks to drive accelerated growth. Global banks like DBS and StanChart  have also launched digital products. And the big daddy – SBI has pushed the envelop with its Yono platform. Yono is not just a digital savings product but also a financial superstore as well as a marketplace. Not only you can open your account digitally, you can also buy  mutual funds, car insurance, apparel and designer shoes – thanks to over 100 partners onboard.

Pervasive Digital

This trend will continue and accelerate with more and more banks getting into the fray.  Over next 6 – 12 months, the focus will shift towards asset side for both existing as well as new customers. We already have several examples of Digital products on personal loan and auto loan. This will include relatively complex products like home loans as well. A few banks including some of the unlikely names are already in process of building digital home loan products.

Banks that continue to focus on their physical channel or take strategy of a late follower, will yield market share to these agile ones. It would not be unfair to say that Digital will decide who the winners in Indian banking industry will be. And I feel that the game will unfold within next 5 – 7 years only!