Banking's daily tech, no more just service

As RBI notes as part of a recent report, digital banking is hollowing out mid-tier employees as bigger chunks of the business are handled by tech. Three distinct tech transformations are underway in Indian banking, now among the most digital globally. One, cloud computing, which helps banks to keep costs low. Two, data analytics that offer banks deeper insights into customer behaviour and risk management. Three, generative AI, which is shaping the client interface. Future of banking is decentralised, and that knocks off a considerable part of complex organisation structures banks have built up. There is also the remote existential threat of widespread disintermediation if digital currencies have interest programmed into them. The prospect is remote because of regulatory, not technical, constraints.

These transformations are improving bank balance sheets. But the efficiency gains aren't as much on display in spreads between lending and borrowing rates. Banks have absorbed a wave of financial tech disruptors because of their access to data, but also face continuous disintermediation from capital markets. Regulators are also asking banks to work on their risk management in a new era of high global interest rates. Banking has to gear up from being a service to being embedded into customers' daily interactions. This requires improved banking processes like credit appraisal and tech platforms to deliver them.

This transition is happening in relatively sheltered conditions, with a protective moat against competition from abroad. The country's banking system operates under conservative regulation that complements internal risk management. Changes to bankruptcy resolution have freed up bank capital locked in zombie companies. Financialisation of the economy provides banks a one-off opportunity. HR adjustments to technology transformation should lead to a more efficient and robust banking system in India. Future of banking is already upon us. Indian banks must be ready for the accelerating changes.