'Incumbent banks that adopt fintech may benefit more than fintech players'

We are sitting at a Starbucks discussing new opportunities for the banking sector over a cup of Americano. The India story makes for great pastures for anyone wanting to experiment with financial start-ups and explore the new banking landscape with the fresh banking licences. I am catching up with Gunit Chadha, formerly with Deutsche Bank who has returned from Singapore after four years as CEO-Asia. He is yet to reveal his next plans but clearly, he remains curious about India's fast growing, fast digitising financial space. Superimpose this with what seems to be a relatively brighter economic scenario of the Indian economy compared with the rest of the world. "Investment into India is front and centre topic in every Fortune 500 boardroom. While historically a mixed bag, the focus on ease of doing business and structural reforms has been globally admired. India must not let this opportunity pass. Structural Reforms: Tick. Execution: In pipeline. Lots remains to be implemented and executed at the ground level."

Chadha comes back at a time of wallets, cashless economy and mobile money. Many sub-sectors from retail lending including mortgages to SME working capital financing to distressed credit to structured finance, all are recalibrating given the new market scenario. Fintech, he believes can substantially change the rules of the road be it in client origination or risk management or operational excellence. But he isn't euphoric without a word of caution. "The biggest beneficiaries - apart from the customers - may well be the incumbents who adopt fintech rather than fintech players themselves." Even for traditional banking he is cautious but qualifies the scenarios for winners. "The global universal banking model has become extremely challenging with even the top quartile of banks struggling to consistently deliver double-digit ROEs (return on equity). No surprise that the most valuable banks in the world - measured by price to book multiple - are the pure-play local universal banks in secular growth markets. Be it HDFC Bank in India or BCA in Indonesia. India banking and shadow banking is an extremely interesting place."

Chadha is more inclined towards the way new caps are growing to push large banking houses into change by way of how they may adapt to tech and new financial scenarios. So while he hails RBI's move on new licenses, he hopes to see nimble footedness and reactions from traditional incumbents. "Even if only a few of them gain scale and prosper, the collateral change impact on incumbents like HDFC Bank or Axis Bank who re-invent themselves by importing the fintech shall be dramatic. No different than what Citibank foray into retail banking in mid-1980s did to unleash and transform ICICI or technology-driven cash management did to reinvent Corporation Bank. RBI has virtually created a sandbox for innovation, which can transform the incumbents even more dramatically than what some of the new players may achieve. It's all very exciting in whichever end of the banking spectrum you belong. More new universal banking licences for professionals augers well to continue unleashing innovation".

But like a good banker, Chadha seems quite impressed with what the RBI has achieved for the NBFC growth story. "RBI has regulated NBFCs very well, providing enough oxygen for credit innovation and yet enough controls to avoid any systemic risks. This must continue as financial services in India will grow manifold before India as a nation becomes economically developed and rich, with less economic disparity than currently. More professional expertise and global capital will be drawn into this great secular opportunity". Is that then the direction Gunit Chadha is heading towards?