Indian financial institutions face significant hurdles in digital expansion, with outdated technology, regulatory complexities and a talent crisis hampering their ambitions. The country’s largest shadow lender, Bajaj Finance Ltd., recently halted credit offers for two products found non-compliant with digital lending regulations.
At the same time, state-owned UCO Bank experienced a temporary suspension of its online instant payment system due to discrepancies in credited accounts, while Bank of Baroda initiated an investigation into irregularities related to customer onboarding through its mobile app.
The technology challenges extend beyond compliance issues, encompassing clumsy legacy systems, data difficulties, and a lack of skilled professionals.
In a landscape where competition for deposits and customer loyalty is intensifying, financial institutions are grappling with the imperative to modernize their technology infrastructure. Many operate on outdated systems, prompting a collective acknowledgment of the need for comprehensive solutions.
To attract a wider clientele, banks and NBFCs are aggressively expanding into underserved areas, strengthening physical branches and leveraging digital programs to acquire customers.
The opportunity
Some 40 to 60 percent of retail value loans are now digitally sourced by banks, underscoring the industry’s pivot to digital channels.
The critical importance of “technical resilience” is emphasized in the current landscape, with financial institutions actively working to build in-house teams and partner with fintechs to improve the resilience of their technology systems.
Despite these efforts, the industry faces the challenge of modernizing its systems comprehensively, with banks allocating large parts of their revenues, between 5 and 8 percent, to technological infrastructure development.
Smaller shadow lenders and financial institutions show greater agility compared to their larger counterparts, effectively adapting to market demands and integrating and managing operations more effectively.