Yesterday, on July 29th Wednesday, Prime Minister Mr. Modi held a meeting with stakeholders from top Banks and NBFCs. The purpose of the meeting was to ‘discuss and deliberate the vision and roadmap for the future.’ as stated in the official release by the PMO. A few hours after the meeting, it was announced that he will also be meeting heads of financial regulators, like RBI, SEBI at 4 PM today. 

While the economic stress produced by Covid-19 has already been acknowledged, these meetings are encouraging as they point towards the government’s public acceptance of the fact that the problem cannot be solved by ‘throwing money’. With the moratorium ending on August 31st, the real impact and severity of the economic situation will unfold in the coming months.

It was emphasised that the Government is firmly behind the banking system. The government is ready to take any steps necessary to support it and promote its growth.

While there aren’t many details out yet on what has been discussed at the meeting on Wednesday with Banks and NBFCs, the official release can be distilled down to 3 points –

1. Digitize Operations

“Banks should adopt fintech like centralised data platforms, digital documentation and collaborative use of information to move towards digital acquisition of customers  to increase credit penetration and lower costs – PMO

The message here is loud and clear. Prime Minister Modi is highlighting a fact that banks and NBFCs have known for some time now. They cannot continue to be slow, asset heavy, and operationally inefficient. You can’t afford to be a dinosaur in the age of Olas and Flipkarts. Being able to open a savings account or applying and receiving a loan must be as hassle free as ordering your favorite food and technology will drive this. 

This is not purely to drive a better consumer experience, but to also drive down costs. High cost of customer acquisition due to lack of digitisation and low ticket size while serving SHGs and rural makes it unviable for many institutions to lend. Companies must look at how digitisation can help drive down these costs so as to make rural lending viable. 

Fix your leaky bottomline.

But to do all of this, Banks and NBFCs need to partner with the right tech companies who can help digitise the entire loan journey end-to-end.

With video KYC and digital document collection, onboarding customers has never been simpler. Omnichannel customer acquisition, data driven up-selling and cross-selling to existing customers and driving a digital-first collection process is essential to reduce costs and increase efficiency in the system.

The handoffs between various teams, customer conversations and interactions with agents, be it call center or field sales must be seamless and digital to reduce leakage and time lag.

Optimise your processes using tech and build a digital journey for the entire lending cycle.

2. Ensure timely credit support for scheme beneficiaries.

“While it was noted that significant progress has been made in most schemes, banks need to be proactive and actively engage with the intended beneficiaries to ensure that the credit support reaches them in a timely manner”

While acknowledging that most schemes like emergency credit line for MSME, additional KCC cards, liquidity window for NBFC and MFI have progressed it is clear that the government expects banks and NBFCs to work towards ensuring that credit disbursal makes its way through to ones who need it. 

This is purely a matter of principle and ability to execute. While we can only hope and believe, as bystanders that these fine organizations do right by the people, ability to execute is again a challenge that is operational in nature. 

Having the right tools and digital systems in place to pre-screen, prioritise and disburse the loan with minimal intervention so as to fast-track this whole process is of utmost importance.  

The ability to integrate with various core banking systems, process information faster, reduce lag between teams and ultimately disburse loans faster is going to be essential.

Tech can help reduce loan disbursal cycle and ensure right customer communication to ensure schemes reach the needy.

3. Encourage institutional credit for working class

“It was noted that the small entrepreneurs, SHGs, farmers should be motivated to use institutional credit to meet their credit needs and grow.”

Don’t use past NPAs to turn down deserving credit proposals. With various projections on how NPAs are set to rise, lenders are increasingly wary while looking for new borrowers.

However, institutions, cannot in the name of ‘credit worthiness’, bet against the economy.

India will bounce back and it will be on the backs of small businesses and entrepreneurs and the foot soldiers of the Indian economy – farmers, labourers and the rest of the working class.

In the process of building a conservative or healthy credit spread, organisations cannot solely look at customer behaviour in the last few months to deny credit. In cases with limited credit history, banks and NBFCs must revise their parameters to judge credit-worthiness. 

Using data to then analyse performance and risk, to then feed it back into the system and correct appraisal parameters will help identify ‘right borrowers’. To implement this organisations need to be agile enough to adapt to changing processes. 

Powerful, yet flexible process automation is an absolute necessity to ensure speedy changes and zero bottlenecks from a tech standpoint. So if you’re a bank or an NBFC looking to digitise your lending journey, ensuring your vendor comes packed with a powerful process designer is a must.

New parameters to judge credit worthiness and disburse loans must be adopted and systems must be flexible to support process changes

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