Nainital Bank trying to revamp itself as a digital bank
Mumbai: Nainital Bank Ltd, a subsidiary of India’s third-largest public sector lender Bank of Baroda (BoB), is trying to revamp itself as a digital bank.
Nainital Bank has plotted a two-year digital banking road map starting this financial year and is building a team and getting external help for design and implementation.
“Nainital Bank is an old private sector bank and BoB owns 98.6% in it. Last year, BoB looked at the opportunity of a digital bank and an infrastructure-light bank that can take full advantage of all the stuff that is happening around us in the tech space,” said Manish Shah, head, digital bank, Nainital Bank.
“Further, it was felt that it makes a lot sense to do it in Nainital Bank as it is smaller, easier to implement, (and has) lesser scope for cannibalization as the bank has a limited physical presence in a few states outside its home state,” Shah added.
Shah, a former Citigroup Inc. employee and co-founder of financial services advisory platform bigdecisions.com, was hired in January this year.
“For all practical purposes, it is like building a new bank. There would be a new model and new set of offerings. It is more like one bank and two systems,” he said.
Even though founded as far back as 1922, Nainital Bank’s presence is limited to Uttarakhand, Uttar Pradesh, Rajasthan, Haryana and Delhi. The digital model will be rolled out on a pan-India level.
“It is a good idea to experiment with Nainital Bank because making changes within BoB is a little bit convoluted and a complex exercise. With Nainital Bank, they have a little more flexibility. They can take the learning, experiment and bring it back to BoB,” said Rajeev Ahuja, executive director at private sector lender RBL Bank Ltd.
Calls and messages sent to P.S. Jayakumar, managing director and chief executive officer, BoB, were not answered. The lender is in a silent period ahead of declaring its financial results.
“What we bring to the table must be asset-light. The model cannot entail a lot of branches and people on the ground. Our goal will be zero physical. We would have failed our customers if we say we cannot serve you without branches,” said Shah.
Unlike other banks, Nainital Bank is not looking to start with opening bank accounts.
“It will be a very weak proposition to tell people that it will be a great account and so they need to bank with us. Our starting point itself is that nobody is looking to open a new account simply because the tech platform looks better,” said Shah.
The focus is on retail banking—individuals and small business—and the target is the under-banked segment. Assuming the target customers already have a bank account, Shah wants to directly convert them into credit customers—a model initiated by Citibank in 1990s to tap non-Citibank customers to sell credit cards.
“We are looking to offer credit solutions and help the customers build their credit profile in cases where they do not have a proof of income or a credit score, We will test our offerings between January and July next year in Delhi and Dehradun in the closed user groups,” said Shah.
The bank is yet to get its core team in place—six core members are to come on board by next month—and it is yet to be decided whether the digitization process will be funded by BoB directly or through funds raised externally.
“There are positive signals from the government for raising capital. The option for BoB is to divest as RBI (Reserve Bank of India) has asked either to merge or to divest as one bank owning another is not advised. The tailwinds very much support raising funds directly through divestment. There is potential to go solo. And the idea of divesting is to go solo,” said Shah.
If the digital initiatives at Nainital Bank are successful, a similar strategy could be replicated at BoB.
A banking expert said it could be a possibility.
“In Poland, mBank was launched in 2000, the first Internet bank. It was branched out from an existing larger bank, BRE Bank, in Poland. mBank was so successful that they reverse merged the original bank into the new one. Obviously, we might have to see how it works in India,” said a partner at one of the Big Four audit firms who declined to be identified.
As part of the underwriting process for credit customers, the Nainital Bank is betting on the Aadhaar infrastructure that the government is building, IndiaStack, data analytics and mobile phones.
“A lot is happening on the authentication side through IndiaStack and double checking of GST (goods and services tax) registration. Authentication is being solved in many ways. We need to partner and architect meaningfully. Lending is a function of who you are, ability to repay and willingness to repay. There is work happening on the telecom side where you can build surrogate scores. We are looking to partner with such firms. The idea is to build digital footprint for their earnings and offer lending solution,” said Shah.