Why digitisation of banks cannot be complete unless financial inclusion is achieved

Digitisation of banks is a reality in India that no bank can avoid anymore. It is essential to survive, and how banks look a few years from now could be dramatically different from how they look right now. This was the predominant mood and tone of chiefs of leading banks in the country in the first panel session of the international banking conference in Mumbai.

Chanda Kochhar, CEO and managing director of ICICI Bank said that the reduction of cash from the system that has been achieved till now is only the tip of the iceberg. Shikha Sharma, managing director and CEO of Axis Bank echoed the same sentiment when she said that digitisation is not about what banks want to do, but what they need to do. So what are the issues that digitisation is supposed to take care of? It is supposed to provide better service to customers, reduce costs for banks and make life easier for bank employees.

As Kochhar spoke of her experience, when ICICI Bank first introduced tablet banking, it was to improve customer experience. However, what it ended up doing was reduce costs and improve productivity of the
sales persons as well. The session went on for a good 75 minutes where the bank chiefs said that not only did the older employees accept technological change happily, but also wanted to learn it to keep up with the younger lot.

When asked if the CEO also would have to be aware of all technological advances, Pramit Jhaveri, CEO- India, Citibank, said, the age of the CEO also comes into play along with the age of the children. The age of the organisation also matters as the technology is a part of the DNA of the younger lot in their daily lives anyway. Then what is it that is holding back banks from transforming into digital completely? Shikha Sharma explained that the hurdles in different banks depended on their size. Big banks have too many walls and departments and find it more difficult to let technology tie all the ends. Also, since banks are under heavy regulatory oversight, the perception of risk is very high. "People fear change. However, in a start up, there could be people who do not know how it is supposed to be done and can thus experiment with new things."

Another challenge to digitisation is the other major goal of the present government: financial inclusion. The group general manager and CEO, India, HSBC, Stuart Milne said, around 25 years back the United
States had 17000 branches which has come down to 9500 now. In another 4-5 years it could go down to 7000. However, this reduction in number of branches has occurred because banking has already reached a majority of the population. So "reduction (in number of branches) can only happen after expansion is over. India still has a long way to go."

Chairman and managing director of Punjab National Bank, KR Kamath agreed but said, that at least in the big metros where financial inclusion had been largely achieved, bank branches could see more
consolidation and digitisation. But for the rest of the economy, expansion would have a long way to go. However, digitisation could find both a hurdle and a friend in financial inclusion. While banking must reach most of the population before the services are digitised, it is new technologies that could aid the process of inclusion as well. SBI chief Arundhati Bhattacharya said that a lot of people say that banks have been running after financial inclusion for many years. So what is it that could make the Jan Dhan Scheme successful now? "Connectivity and digital technology is available today which could drive the inclusion," she said. 

But as Raghuram Rajan reminded earlier in his inaugural speech, banks must make sure that the poorest people should not be taken for a ride by banks. For an industry that is obsessed with opening accounts and not always focusing on right customer servicing, financial inclusion in the right sense of the term will have to be achieved before digitisation is complete.

As chairman and managing director of Capital First pointed out later in another session of the conference, "Mobile phones cannot solve banking issues of the country or the savings issues of the country."

Digitisation is a way whereby banks can remain omnipresent, while at the same time, provide immense sense of self-sufficiency to the customer. This then must be preceded by not only reaching out to even the poorest in the country, but assuring them that the banks are truly interested in providing financial services beyond just opening of an account.