New Business Models to Usher in Bank Consolidation

The Indian Banking sector has witnessed remarkable growth since the economic liberalisation in the early 1990s. With the introduction of positive and liberal policies, rudimentary banking services have given way to a modern universal banking system. Many finance companies that have been successful in tapping the credit needs of rural India would reinvent themselves as small finance banks and help expand the country's banking population base. Banks are innovating their lending portfolios with tailor-made financial products, tweaking their business models and establishing tie-ups with fintechs to give a technological edge to their service commitments. Technology investments and customised solutions to meet diverse customer requirements are the new buzzwords in the modern banking landscape. Having said that, a broader economic turnaround is essential to help banks manage NPAs for the long-term orderly growth of the banking industry.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
As any other industry, the banking sector is also witnessing a 'dialectical growth' that evolves through contradictions (hypothesis) and solutions (synthesis). Any churning of growth of this kind has three Cs - competition, coexistence and consolidation - as its developmental stages.

On the competition front, Indian banks, like their foreign peers, are trying to combat manifold issues ranging from poor credit offtake to rising bad loans and the resultant dwindling profits. However, there's hope in the form of technological innovations that are bringing a paradigm change in the way the banking sector functions. One of the major visible impacts of this tech-driven innovation is various digitisation initiatives undertaken by banks. Almost all private sector banks as well as many large public sector banks are driving digitalisation by investing in easily adaptable technology. Banks are revising their business models and aligning their business offerings with the customer's digital behavior. Banks are expanding their digital imprints through apps, which have emerged as the preferred customer interface, resulting in simplified banking transactions.

The mushrooming of fintech companies, riding on the back of digitalisation and big data, pose the biggest competition for banks today. According to a report, as many as 6,000 fintech start-ups have popped up across the global financial landscape in the recent past. A McKinsey report says that venture capital and growth equity investment worth $23 billion has been pumped into these fintech companies during the past five years. This indicates the penchant for disruption within the banking space.