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MUMBAI : Public sector banks (PSBs) are exploring the idea of setting up a company to build and share digital infrastructure in response to the rapid digital adoption in the banking sector because of the pandemic, two bankers aware of the matter said.

The lenders are looking to pool in resources to set up a Digital Banking Infrastructure Corp. to facilitate tie-ups with fintech companies and develop software for doorstep banking and co-lending, one of the bankers said on condition of anonymity.

The idea of setting up the company was discussed last week at a meeting with the secretary, financial services department. An internal committee has been set up under the Indian Banks’ Association to work on the initiative.

Pooling resources
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Pooling resources

The banks expect the disruptions caused by the pandemic to transform how Indians access banking services, and the changes in consumer behaviour, including their tighter embrace of digital services, are likely to become permanent.

“Today, every bank is adopting digital lending platforms, and each one is investing in it. The size of the investment is quite huge, which all banks may not be able to do. If done collectively by an anchor bank or under the PSB Alliance, then a uniform platform can be created for delivery of loan products and other IT initiatives," said the other banker cited above.

To address the challenges, state-run banks plan to collectively float an RFP, or request for proposal, to hire service providers and technology partners for providing digital banking services.

Apart from sharing the same software, banks are likely to share the hardware that goes into setting up the back office and servers to achieve economies of scale and save costs.

State-run banks already share infrastructure created under the PSB Alliance, an initiative where 12 such lenders have come together to provide doorstep banking services.

This umbrella set-up, with UCO Bank as the lead bank, provides banking services with the help of two technology companies.

Bankers are also looking at the possibility of scaling up the existing online lending platform, PSBLoansIn59 Minutes, for the purpose of the Digital Banking Infrastructure Corp.

The platform, launched in 2018, was aimed at automation and digitization of loans, including small business loans, home loans and personal loans, so that a borrower gets an in-principle approval in less than an hour.

Borrowers have the flexibility to choose the bank and the product they like. They can compare the interest rates offered by different banks and finalize one before applying for the loan.

Borrowers do not need to have an account with that particular bank to avail of the loan. The platform uses advanced algorithms to analyse data from various sources, including income tax returns, goods and services tax and bank statements to approve loans.

“A common digital banking platform for even a few state-run banks, to begin with, can generate a significant competitive advantage for its constituents such as improved innovation, agility, partnerships and optimization of spends. For this to be realized though, it would be essential to ensure that such a common platform is equipped, through relevant policy and governance measures, with improved ability to attract relevant talent and implement leading practices for innovation (including procurement innovation)," said Vijay Mani, partner, Deloitte India.

The outbreak of the coronavirus pandemic has seen banks focus on digitizing all functions, processes and systems. Digital account opening was one such initiative where banks used the video know your customer service.

Many banks had also floated RFPs to set up early-warning systems to monitor their existing loan accounts.

Mint reported on 28 October 2020 that Punjab National Bank was looking to deploy an artificial intelligence (AI)-based early-warning signal system that trawls the internet for information on borrower’s activities, including news articles and social media.

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