HIDDEN TREASURE How Data Can Turn the Fortunes for Indian Banks

Productivity in Indian Banking: 2017 HIDDEN TREASURE How Data Can Turn the Fortunes for Indian Banks

November 2017

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Productivity in Indian Banking: 2017

HIDDEN TREASURE How Data Can Turn the Fortunes for Indian Banks

| Manoj Ramachandran

November 2017 | The Boston Consulting Group CONTENTS

FINANCE IN DIGITAL ERA - NAVIGATING THE KNOWNS 04 AND THE UNKNOWNS 08 REVENUE POOLS AT AN INFLECTION – NEED TO ADJUST STRATEGIES 21 INDIA’S EDGE IN DIGITAL & DATA – TIME TO EMBRACE NEW PARADIGMS "Without data, you're just another person RETAIL & AGRI CREDIT – TRANSFORMATIVE CHANGE with an opinion." 33

COMMERCIAL CREDIT – NEW MODELS NEEDED ― W. Edwards Deming 44 48 SMARTER USE OF DATA – RS. 3 LAC CRORE OPPORTUNITY 59 GLOSSARY 60 FOR FURTHER READING 61 NOTE TO THE READER CONTENTS

COMMERCIAL CREDIT – NEW MODELS NEEDED ― W. Edwards Deming 44 48 SMARTER USE OF DATA – RS. 3 LAC CRORE OPPORTUNITY 59 GLOSSARY 60 FOR FURTHER READING 61 NOTE TO THE READER FINANCE IN DIGITAL ERA - NAVIGATING THE KNOWNS

• rt dt s strti sst nd ririti tny in t n stitd in r AND THE UNKNOWNS instnts tt nsidt nd nti dt n ny rrn s n stdy it rdu inin u instns banks’ intrn dt s t suntd it dinuny rts r in t in is is trn surs t dri iu dnt rtnrsis r siy isi in t istriy sid ns snt ssin dt i nd t stndrd tur r int urs s n uti in dinunis in ns NEED FOR TRANSFORMATIVE CHANGE • Savings deposits will increase their significance in the revenue strty in t in dys disursd in t st urtrs mix, since rising balances in Jan Dhan accounts, rising • r dt r rdit disins udnt s iittins in Most Indian banks are under major profitability pressure and need balances due to greater prosperity, and increased digital rd nyti rdit ds i t titin s n intns t ny st ns usd a significant boost. While major capital infusion by the transactions will reduce the need for cash withdrawals. Banks sunt ns trditin iitis n rti rt ut s s d siniint inrds in government will give the Public Sector Banks the breathing space, that digitize customer on-boarding and transactions will enjoy • r is y nd r nt ndd r uss dys t st tr yrs it will not be sufficient to restore health of the system. Banks will lower break even costs and access a much broader market. inrss sts nd is s rt rnsr rsss need to adopt new strategies and restructure their business • SME credit will grow from 20% to 25% of the lending revenue it n intnt t t s strittru s ssi sr nnri ndin r r t n fundamentally. This performance transformation is going to be mix for the system. This will be driven by substitution of it ny t st ssnti un intrntin tt is stitd disursnt tn nd challenging for three reasons: informal credit triggered by the introduction of GST, increasing ndd sr in t nur unts nd r r t • Customer needs are changing; industry’s revenue profile will be digital point of sale (POS) payments and rising sophistication of • str disins r ttr disins yiy disins tt n stitd t n stitd n very different in five years. surrogate data-based credit analytics. t nr r t ns tt sud n dind ut r ru ustrs in t s ti r rtin tir • Unprecedented new competition from NBFCs and Fintech. • Retail credit growth has been steady. It is expected to stabilize ustiid it rius runts r ti rdinn in sr tit nsur durs trs • The rules of the game are now dramatically in favor of those at this stage with penetration reaching high levels in certain • rtnrsis r riti ns nd t n u t s usinsss nd d ns who fully embrace digital segments/select geographies and slower new-to-credit rtnrsis it tr yrs r dt ss distriutin customer growth. Smaller ticket borrowing has proliferated in r r ustr rsitin nnnt is is nt ut ns nnt n tir ts ny n rti rti is rin Thankfully for banks, digital infrastructure in India has matured consumer durables and gold loans. Share of youth (< 35 years) trditin strnt n its iits rt uru dt ss tt rtin stts and is deployable at scale. Most importantly, banks have a huge, among new borrowers grew from 25% to an estimated 40% rd s uru ntrtin r t i largely unexploited, advantage on data. between 2013 and 2017. — tr stts r in ind sry ir t t • There is a major structural shift from deposits to mutual funds dditin t rdit ustrs ud nd strutur rrs MAJOR SHIFTS IN CUSTOMER PREFERENCES — REVENUE for savings. Fee income will be a major profitability booster for tt rdu ri disritis in ni dnt nd PROFILE OF INDUSTRY SET TO CHANGE DRAMATICALLY banks who play a role in advising their clients on investments. s n ust t nin inrstrutur ndin risis rtin st yrs didd t n tir ts n rti ti There are a few fundamental changes in the revenue profile of ADVANCED DIGITAL AND DATA PLATFORMS IN INDIA — ndin s nt yt disintd r st i yrs tr s — Indian banking:. BANKS NEED TO EMBRACE A PARADIGM SHIFT n n stitd nnu rt in disursnt nd r • Large and mid-corporate businesses that today bring 39% of nnu rt in inuiris ittin t urus d dts lending revenue will bring only 27% by 2022, driven by Indian banks have access to world class platforms to meet their d u nd t uru sr ri ustrs s in ri ndin t nin industry r movement of large ticket credit to wholesale markets and challenges. The India stack platform has already reduced the cost riin ns s styd rdy n istri ins rrdd nt ris s s tt t id rrt lingering bad debts in corporate segments. As high rated of customer on-boarding and transactions dramatically. The cost nd rr snts tn t ist it uru dt borrowers switch to capital markets, banks will be left with of on-boarding a customer for investment advisory is down by 90%. r industry is st t t iits st it n r is s t iit siniint un unts tt r lesser rated clients on their books and will require sharper Many banks have over 80% of new customer on-boarding purely trdit ustrs s rrtin n ns in d in n n ut nt d in ntr siniint rt credit processes. Corporate banking will have to be much more through e-KYC. The quality of India's credit bureau infrastructure dn stdiy yr r in t n tnt s ud si in nt urtrs rnu working capital and transaction oriented. Staff productivity is rated higher than that in OECD countries by the World Bank and stitd in uru dt s ss tt ustrs r id nd r rrts i ry sty sudud r t nt have to be upgraded to the next level with data analytics. is now reaching coverage of over 40%. There are few key paradigm rrssiy r rd rrtin ustrs it yrs du t strss in t ndin s shifts that banks need to embrace in such context: t r r ins rdit nd iin tird n nt u r

4 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 5 FINANCE IN DIGITAL ERA - NAVIGATING THE KNOWNS

4 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 5 s a s nn n a s s n a estimate stomer prie elastiit to introde alebased priin • tilit bill pament inormation sa n s ans s as bn a sab k nn nas banks a n sss n and ontrol ale tat is destroed b indisriminate disontin • arios ta pament inormation n s ba an an a aa as n as a bs s a an n b te ront line • ransations and paments data ss n n nan n s sn banks’ bks n sks ana n s n n an n n ass ak nsn as anks need to leerae n bas bn ak aa n order to spport ans a n n n bs anks n ns n aan nasb diital models to reate lo ost adisor platorms it i to te deelopment o olesale ndin aess to brea ma be a ns bsnss s ns ass sa aks spport te mass market in inestin teir sains in mtal proided to instittional inestors in bond market and onersel n a bankn n kn nds and oter nondeposit prodts bond market data sbmitted to brea bs a bn snn b a ns aa a nan an as anan b ak ab a nana s snan nn an na a n n ns ns aabs an nas lare sement o nsn a a aa ass sa a aa a ans bn aaab a an n a an anas nan te bankin indstr does not ae stron tenolo and ere is siniiant innoation takin plae in retail as ell as banks s b s ssb a nn an a n sa a ass a analtisenabled olletion proesses s retail lendin ros into ommerial lendin — espeiall at te loer end o te tiket s a a sn snan an s an an ak nsn s a maor part o bank balane seets and te nmber o loans size spetrm innoation is etremel elpl or te eplodes it smaller tiket lendin prolieratin it is important inlsion aenda oeer te most preios el or s n as bn nnsn sann bankn tat banks deplo tenoloenabled and analtisdrien innoation is not risk apital or entreprenerial spirit bt te a aa n sn b n ns ns ns n n s a entralized approa to olletions aailabilit o data oernment and elator ae to reate an n n s b s ns b n b ss a n sa aa ba nan an enablin enironment to ensre tat data is made aailable to te ba b as as as an anas n banks’ aabs n assssn ine startps is old take orm in to as sn as sn sa a ak sa b n a an n a ann snas • pedite te eletroni onsent aritetre so tat an s banks an s stomer an proide eletroni onsent or a potential lender a na sa n n n s a to aess er transation reords eletroniall it te nas n na as a an s ab a sa enetration o retail or redit aries er customer’s transation bank and tilities aaa nas s ssb a siniiantl aross states some states rea er adaned • norae banks and breas to proide data as pbli ood — banks’ — ns b a ns a ab s ssb nsa penetration ile oters trail beind ite seerel learl to te ine indstr in a sand bo model b ba bankn ns as n a na a nan s n ns n an despite te oerall nmbers o redit penetration bein lo or te aa a as ansan ans s an nsn ss bs ss ontr tere is a natral limit to at banks an ps on teir nn ann sanas an a anks disare nan as ass ba aa anks a aan an aa nn ns a on teir role it elp o spportin eosstem — ontrat bs aa n ss a an ns an a an ns n nan bankn n enorement and bankrpt resoltion redit ratin inormation s n b ‘most personalized’ s nnns a nsa n n ss s sa aa aaab rea inrastrtre in te brea and aontin adit serie proiders oli makers s s s ba b nss s a ontr is orld lass — tanks to poerl enablin leislation need to ind as to take te alit and atentiit o te adit n n nan banks s an aa a as n anks and poli makers are et to ll reonize its ale and and aontin serie to te net leel to proide bankers it sas ss a banks an n n asss n sn sn n a as deplo te insits into strate and poli ormlation reas more reliable inormation on i to take deisions b as as sa a aa n nn as a sns n s an n snn proide data tat is inalable to banks or lendin in te absene s anss an sa a snaan an n s a b s a n o reliable inanials oli makers need to strenten banks and aa a an a a s banks and man oter na n sn s a anns s an banks a as n breas it additional data ields to bolster te alit o insits indstries start aptrin and leerain stomer data to aess aan a ann snas an ns sas ns a a sn aa skbas te an arner reardin te redit alit o potential borroers risk and bsiness potential it is ritial tat las reardin pria anas n an sa asss an n bankn ab b bass e additional areas are o stomer inormation and litera o stomer reardin teir anaa nss an n s ns a bank banks n s rits is strentened in parallel to preent misse

6 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 7 s a s nn n a s s n a estimate stomer prie elastiit to introde alebased priin • tilit bill pament inormation sa n s ans s as bn a sab k nn nas banks a n sss n and ontrol ale tat is destroed b indisriminate disontin • arios ta pament inormation n s ba an an a aa as n as a bs s a an n b te ront line • ransations and paments data ss n n nan n s sn banks’ bks n sks ana n s n n an n n ass ak nsn as anks need to leerae n bas bn ak aa n order to spport ans a n n n bs anks n ns n aan nasb diital models to reate lo ost adisor platorms it i to te deelopment o olesale ndin aess to brea ma be a ns bsnss s ns ass sa aks spport te mass market in inestin teir sains in mtal proided to instittional inestors in bond market and onersel n a bankn n kn nds and oter nondeposit prodts bond market data sbmitted to brea bs a bn snn b a ns aa a nan an as anan b ak ab a nana s snan nn an na a n n ns ns aabs an nas lare sement o nsn a a aa ass sa a aa a ans bn aaab a an n a an anas nan te bankin indstr does not ae stron tenolo and ere is siniiant innoation takin plae in retail as ell as banks s b s ssb a nn an a n sa a ass a analtisenabled olletion proesses s retail lendin ros into ommerial lendin — espeiall at te loer end o te tiket s a a sn snan an s an an ak nsn s a maor part o bank balane seets and te nmber o loans size spetrm innoation is etremel elpl or te eplodes it smaller tiket lendin prolieratin it is important inlsion aenda oeer te most preios el or s n as bn nnsn sann bankn tat banks deplo tenoloenabled and analtisdrien innoation is not risk apital or entreprenerial spirit bt te a aa n sn b n ns ns ns n n s a entralized approa to olletions aailabilit o data oernment and elator ae to reate an n n s b s ns b n b ss a n sa aa ba nan an enablin enironment to ensre tat data is made aailable to te ba b as as as an anas n banks’ aabs n assssn ine startps is old take orm in to as sn as sn sa a ak sa b n a an n a ann snas • pedite te eletroni onsent aritetre so tat an s banks an s stomer an proide eletroni onsent or a potential lender a na sa n n n s a to aess er transation reords eletroniall it te nas n na as a an s ab a sa enetration o retail or redit aries er customer’s transation bank and tilities aaa nas s ssb a siniiantl aross states some states rea er adaned • norae banks and breas to proide data as pbli ood — banks’ — ns b a ns a ab s ssb nsa penetration ile oters trail beind ite seerel learl to te ine indstr in a sand bo model b ba bankn ns as n a na a nan s n ns n an despite te oerall nmbers o redit penetration bein lo or te aa a as ansan ans s an nsn ss bs ss ontr tere is a natral limit to at banks an ps on teir nn ann sanas an a anks disare nan as ass ba aa anks a aan an aa nn ns a on teir role it elp o spportin eosstem — ontrat bs aa n ss a an ns an a an ns n nan bankn n enorement and bankrpt resoltion redit ratin inormation s n b ‘most personalized’ s nnns a nsa n n ss s sa aa aaab rea inrastrtre in te brea and aontin adit serie proiders oli makers s s s ba b nss s a ontr is orld lass — tanks to poerl enablin leislation need to ind as to take te alit and atentiit o te adit n n nan banks s an aa a as n anks and poli makers are et to ll reonize its ale and and aontin serie to te net leel to proide bankers it sas ss a banks an n n asss n sn sn n a as deplo te insits into strate and poli ormlation reas more reliable inormation on i to take deisions b as as sa a aa n nn as a sns n s an n snn proide data tat is inalable to banks or lendin in te absene s anss an sa a snaan an n s a b s a n o reliable inanials oli makers need to strenten banks and aa a an a a s banks and man oter na n sn s a anns s an banks a as n breas it additional data ields to bolster te alit o insits indstries start aptrin and leerain stomer data to aess aan a ann snas an ns sas ns a a sn aa skbas te an arner reardin te redit alit o potential borroers risk and bsiness potential it is ritial tat las reardin pria anas n an sa asss an n bankn ab b bass e additional areas are o stomer inormation and litera o stomer reardin teir anaa nss an n s ns a bank banks n s rits is strentened in parallel to preent misse

6 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 7

• reeue oo m ce sct oer et ers – reur ustmets strtees ll fires in s s r usess moes • ororte semet c s o ces reeues to to sr to – re moemet o etail cares reasry er re corortes to et mrets er ets etail cororte semets • et e reeue oo rot s cose to ts e rocessin fees ecovery suste rte ecte to ste t curret rte avins • s reeue oo to et ue to er ri tto rs ces ccouts rofit on sale eects o rs rosert o ces of assets – oter incoe • to oer roms use s sre e orporate rrent reeues creses rom to to – re susttuto o orm cret t reorms e t mets t eposits dvances ee incoe ter incoe istribtion • outo ss ts tors mutu us provide an inflection in bank’s fee and advisory come – s cou sre oer o strutors to sore u ter rott ankin revene pools stood at s lacs r at end of bot totirds of tis revenes cae fro conventional bsiness of etendin advances acceptin deposits ile reainin as acconted for by fee distribtion advisory and oter incoes t is interestin to note tat ter incoe coprisin of nonrecrrin incoe sc as treasry ains recovery fro rite offs and profit on sale of assets acconted for of entire revene pool – larer tan entire distribtion incoe

otes evene refers to net interest incoe for deposits and advances t ecldes s cooperative banks etail cares incldes debit card intercane fees credit card fees penal cares etc ransaction bankin incldes incoe on trade instrents sc as fore incoe fee fro cas anaeent services rofit on sale of secrities orces data nnal reports analysis

8 THE BOSTON CONSULTING GROUP  FICCI  IBA | 9

10 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 11

10 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 11 –

(CAGR ~ 11%) (CAGR ~11%)

12 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 13 –

(CAGR ~ 11%) (CAGR ~11%)

12 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 13

–

14 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 15

–

14 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 15 Retail includes agri. – –

16 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 17 Retail includes agri. – –

16 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 17

orporate onds commercial papers as of total corporate credit s

asala onds da onds

resh ond issuances (s s r) Digital push (restriction on cash) coupled with GST will force “formalization” and hence credit orporate sector has osered a significant shift in reliance towards nonan det in recent ears Despite muted growth in credit etended ans corporate ond and commercial paper hae deliered growth of and respectiel urther corporates are tapping into alternate sources of funding such as s asala onds da onds and nT putting pressure on corporate lending reenue pools for financial institutions

Sources nalst reports ndustr discussions

18 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 19

orporate onds commercial papers as of total corporate credit s

asala onds da onds

Sources nalst reports ndustr discussions

18 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 19

• Step ump in digital actiation in saings and current accounts in ( of u) ( of u) • ndian ans hae access to world class platforms –ndia u s s r u s s r stac platform has alread dramaticall reduced cost of customer onoarding and transactions • redit ureau infrastructure in ndia are rated higher ualit than D countries the orld an and is now reaching INDIA’S EDGE coerage of rating on orld an inde (D ag – ) IN DIGIA • There are a few e paradigm shifts which ans in ndia DAA – IE need to emrace • Treat data as a strategic asset and prioritize technolog EAE NE inestments that consolidate and monetize data n man instances, banks’ internal data has to be supplemented with AADIGS eternal sources to drie maimum adantage artnerships for accessing data will need to ecome a standard feature of strateg in the coming das

Gross inflow (s s r) Gross inflow (s s r) • mrace data for credit decisions udgment has limitations in a comple world naltical credit models will hae to utual fund maret has seen a rapid increase in inflows and oerall us oer past ears onsumers hae increasingl shifted supplement ans traditional capailities saings from cash and term deposits to Ss and mutual fund programs uit schemes that account for onethird of total mutual fund us has osered a growth rate of since This shift offers an alternatie source to reenue enhancing penetration in mutual fund and other third part distriution products

Source

20 | HIDDEN TREASURE 21

Source

20 | HIDDEN TREASURE 21 D – N

– I I umber o transactions in r G G G o transactions in r amount per transaction s o transactions in r amount per transaction s , , , obile D , , , , , , , nternet , heue ash ul ep o an ar a ul ep o an ar a A

emonetisation emonetisation

amount per transaction s o transactions in r

otal transactions processed in were bn, showin a o rom here is a clear shit rom branch based er time, coupled eects o demonetiation and incenties proided to push diital transactions hae led to accelerated rowth transactions to diital transactions, which are now rowin at almost double the pace rom he talk o diital is now ettin real in transactions throuh diital channels ear o usin diital channels in the minds o customers is inall subsidin as is eident raniations hae started undertakin sstemic chanes to redeine role o branches and accept diital as their primar mode o transaction rom the increased usae o mwallets and as mode o transaction oweer, the eect o initial buildup is now seen to be stabiliin to a which is in turn oerin increased eicienc and a wow eperience or customers new normal

otes includes withdrawals, deposit transactions at and s and obile transactions included are inancial transactions ash transactions reer to counter cash transactions otes redit and debit card inancial transactions issued b bank at terminals alculated based on proisional data issued b o onl nonbanker wallets ata is limited to oods and within branch transactions can be initiated oline or throuh online channels transactions initiated in branches serices transactions onl or mwallets ource roductiit ure data data analsis ource data

22 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 23 D – N

emonetisation emonetisation

amount per transaction s o transactions in r otal transactions processed in were bn, showin a o rom here is a clear shit rom branch based er time, coupled eects o demonetiation and incenties proided to push diital transactions hae led to accelerated rowth transactions to diital transactions, which are now rowin at almost double the pace rom he talk o diital is now ettin real in transactions throuh diital channels ear o usin diital channels in the minds o customers is inall subsidin as is eident raniations hae started undertakin sstemic chanes to redeine role o branches and accept diital as their primar mode o transaction rom the increased usae o mwallets and as mode o transaction oweer, the eect o initial buildup is now seen to be stabiliin to a which is in turn oerin increased eicienc and a wow eperience or customers new normal

22 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 23 – –

akshadweep ndaman and ammu and icobar slands ashmir adha radesh

anks ndhra radesh aharashtra imachal radesh anipur unab Chandigarh runachal radesh ttarakhand ehalaa arana runachal radesh ssam ikkim ioram National Capital Territory of Delhi ihar aaland aasthan ttar radesh ssam aaland handiarh ihar ehalaa hhattisarh disha anipur ripura adra and aar ondicherr uarat adha radesh harkand ioram aeli est enal unab riate anks riate hhattisarh aman and iu aasthan Dadra and Nagar Haveli disha elhi Daman and Diu aharashtra oa ikkim uarat elanana amil adu arana elanana oa ccounts that use ccounts actie on ccounts actie on ndhra radesh imachal radesh ripura cards at as o internet bankin as mobile bankin as o arnataka ammu and ttar radesh actie acs o actie acs actie acs ashmir Puducherry Andaman and ttarakhand here has been a phenomenal rise in transactions throuh arious diital channels especiall or public sector banks obile bankin as a erala Nicobar Islands harkhand amil adu est enal mode o transaction has seen wider acceptabilit translatin into hih rowth numbers his has partiall been a result o seeral Lakshadweep arnataka ndia oernment initiaties on diital bankin erala

otes ctie acct is deined as an acct with at least user initiated transaction in last months inanciall actie acct is deined as an acct with at least user initiated transaction in last months ata o are, edium, t ew and t ld banks ecluded rom the analsis otes o o accounts that hae actie transactions at as on arch , t least customer initiated inancial transaction in last months ata o edium anks ecluded ources roductiit ure analsis ources analsis

24 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 25 – –

akshadweep ndaman and ammu and icobar slands ashmir adha radesh

24 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 25

pen ersonal ata ource

, , , and , , hsical hsical hsical adhaar e, esin, iital ocker

adhaar uthentication

adhaar iital ased (Fintech)

30 Cr accounts opened since Aug 2014 ue to the implementation o the ndia tack there has now been a reduction in eectie cost to sere the bottom o the pramid ndia here has been a paradim shit in the processes to a more smoother and less time consumin one which will assist in hain better tack assists with transparenc in the serices t is the cashless laer which is meant to ease the process o diital inancial transactions ualit o data as it is capable o handlin massie data inlows mbracin diital processes is one o the biest chanes to the process and reduce costs alon with an added beneit o smoothenin the entire process ue to this the lower cost beneits ained can be passed on ith this the ndias diital reolution is waitin in the wins to customers in orm o lower commissions and processin ees too

otes adhaar ament ride stem onthl erae alance erae medium sie priate sector bank ource analsis ource analsis

26 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 27

pen ersonal ata ource

, , , and , , hsical hsical hsical adhaar e, esin, iital ocker

adhaar uthentication

adhaar iital ased (Fintech)

otes adhaar ament ride stem onthl erae alance erae medium sie priate sector bank ource analsis ource analsis

26 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 27

second sanction and immediate disbursement oans sanctioned between pr – un

iital data capture adhaar utomated check o ustomer reuests or a retail number triers e customer credit behaior ld t loan ew t

utomated calculation and utomated rules check ddnl details rom ecosstem collection o ees bank, credit card usin customer and e, income, surroate data eternal data r r r r r r

oan sie

nalsis o bureau data indicates that the turnaround time or commercial loan applications ranes siniicantl across the industr anks take on an aerae the number o das taken b s and priate sector banks to process new loans sanctions and account openin here is also a clear linkae between turnaround time and rates, with loans that were sanctioned at lower s displain low deault behaiors ost inancial institutions with low turnaround times hae embraced end to end diital capabilities isbursement docs diitall ustomer diitall sins diital unds disbursed instantl includin automated data capture and decisionin, diital documents and worklows and minimal manual interentions that has enabled enerated stampin o documents to accounts drastic reduction in turnaround times, improed throuhput and minimied risks

otes – urnaround time, urnaround measured as the number o das between account open and last instance o credit enuir b the same bank ad rate calculated as the percentae o total loan amount sanctioned between pr – un that are currentl in the bucket ource analsis ource ransnion data and analsis, analsis

28 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 29

second sanction and immediate disbursement oans sanctioned between pr – un

iital data capture adhaar utomated check o ustomer reuests or a retail number triers e customer credit behaior ld t loan ew t

utomated calculation and utomated rules check ddnl details rom ecosstem collection o ees bank, credit card usin customer and e, income, surroate data eternal data r r r r r r

oan sie

28 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 29 India’s credit bureau infrastructure is amongst the best aid groth in bureau coerage – changing rues of the game in ending in India

– redit bureau coerage

–

ndia’s credit bureau infrastructure, which is amongst the best in the World, provides a strong bulwark against credit misadve –

bureau coverage as per World Bank Report 2018 means the number of individuals and firms listed in a credit bureau’s database a within the past five years, plus the number of individuals and firms that have had no borrowing history in the past

30 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 31 India’s credit bureau infrastructure is amongst the best aid groth in bureau coerage – changing rues of the game in ending in India

– redit bureau coerage

–

ndia’s credit bureau infrastructure, which is amongst the best in the World, provides a strong bulwark against credit misadve –

30 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 31

• upply side disruptions to challene the robust rowth that retail credit incl. ariculture has witnessed oer the last ew • and prioritie technolog investments that consolidate and years. roportion o ew to redit customers has been monetize data. In many instances, banks’ internal data has to be supplemented with external steadily droppin year on year and existin customers are sources to drive maimum advantage artnerships for accessing data will need to become a ettin oer leeraed standard feature of strateg in the coming das • arly sins o stress are isible in select product portolios een thouh oerall rates continue to be stable. ecent udgment has limitations in a comple world naltical credit • intaes o products like and are displayin early models will have to supplement banks traditional capabilities deterioration. anks should act uickly to preent urther • paper causes delas, increases costs and gives false comfort – contaion and impact on the portolios ransform processes with an intent to make them as straightthrough as possible with onl the • ompetition has been intensiyin in the retail space. most essential human intervention that is needed banks market share is declinin rapidly and s are • picall, decisions that take longer are the ones that makin siniicant inroads. ecedin o banks is should have been declined but are ustified with various arguments over time hamperin extension o credit to new to credit customers – especially in emi rban and ural markets. banks are • anks need to open up to partnerships with other plaers for data losin share rapidly in youth population access, distribution reach or customer proposition enhancement his is not a traditional strength • doptin better risk based pricin discipline and oer of bank inestin in collections inrastructure and data capabilities is critical to address the chanes in the market place

32 | HIDDEN TREASURE 33

–

34 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 35

–

34 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 35

36 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 37

38 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 39

38 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 39 –

40 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 41 –

– –

42 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 43 –

– –

42 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 43

• • – • • Sep’15 Dec’15 Mar’16 Jun’16 Sep’16 Dec’16 Mar’17 Jun’17

• 44 THE BOSTON CONSULTING GROUP  FICCI  IBA | 45

• • – • • Sep’15 Dec’15 Mar’16 Jun’16 Sep’16 Dec’16 Mar’17 Jun’17

• 44 THE BOSTON CONSULTING GROUP  FICCI  IBA | 45

MSM cre epureSae D 7

15 151 16 11 16 1 11 111 1 7 77 76 75 7 65 7 6 6 5 6 57 57 64 63 60 69 70 7 1 6 5 7 1 16 1 e De ar ra eraa una uara arana eenana aaan Jaran arnaaa a au a aranca aar e ena 28 28 Maarara 22 22 26 ar rae nra rae nra 18 17 Maa rae aca rae 12 4 3 1 1 an Jau ar 4 6 4 10 6 6 6 9 7 1 5 5 6 6 65 55 1 6 75 1 7 6 1 5 1 5 5 6 1 116 11 1 Jun15 Jun17 Jun15 Jun17 Jun15 Jun17 Jun15 Jun17

11 6 6 5 1 11 1 1 1 1 1 1 11 1 11 15 1 1 11 S M er e MSM cre peneran pa ncan par acr ae en nrae r r ec pruc repreen e are puc ecr an n cerca enn a een ea ecrean n a cerca een rae an an ncan pprun r nanca nun a e epre raee epan er MSM eer a pran are e an enecar are are e are r S a een n e are an eu een ae n accun e unern acr cnrun e MSM peneran n cae eera ee ae rucura ue e n Mcr een epe en e arace r a reurn an r perpece a een e ea are e ecnc an une enn a nee e aree r Deerae er a e pc ee reure erce ee a een rucura arrer an rer e unappe r pena n MSM

e 1 erca an cae n aru een a ce e an aun ure Mcr 1 r Sa 1 r5 r M 5 r1 r are 1 r aa a June 17 er e 1 Sae SD r Sae Dec ruc r 1617 acuaeae ae n 1516115 r rae SD a curren prce re epure aen a Marc 17 ncue puc an ae cperae an ec a u aa rannn e n ncue aa r ura ecr rp an nnprae ecr enn er nance rp SD r rae r ear 1516 Surce rannn aa an ana ana Surce rannn aa an ana MS a ana

46 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 47

MSM cre epureSae D 7

46 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 47

• an ae a naura aanae n e aa r e ae re aa per un reenue an an er nur – 5 per r reenue • arnen per can pena up e ecr ee percen – an ac r ne n 5 ear • e ae ere a an a ep 5 prr ue cae aa acr e une e cpnen – • r acen pena an nee u e er an ran unc e aa pena • Mer u un a ae aa ae a can ue a ue aa n a c ecen anner • ran reure un ar an ue cae a unea e aue aa

–

48 THE BOSTON CONSULTING GROUP  FICCI  IBA | 49

–

48 THE BOSTON CONSULTING GROUP  FICCI  IBA | 49

• • • • • • • (enabled by ICV) (enabled by ICV) – • • In the 360 degree ICV customer view

50 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 51

• • • • • • • (enabled by ICV) (enabled by ICV) – • • In the 360 degree ICV customer view

50 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 51 –

New product definition Product pricing

Attract Grow Retain

Reduce cost to serve/acquire Risk

Collections

IT Procurement People

52 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 53 –

New product definition Product pricing

Attract Grow Retain

Reduce cost to serve/acquire Risk

Collections

IT Procurement People

52 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 53 –

54 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 55 –

56% Efficiency – Automation Rate of 70%, efficiency gain of 56%, after training on 3000 samples

56 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 57 –

56% Efficiency – Automation Rate of 70%, efficiency gain of 56%, after training on 3000 samples

56 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 57

otl o products icludig persol sigs ccout curret ccout credit – crds olie big olie pmets term los re o s ousig ice isurce mobile big orig cpitl ice corportios poitosle termil elt mgemet olie rge eeue o more t crores oig icil compies sre trdig trde ice suppl ci ice id eeue betee – crores registered uder te compies ct egged i mll eeue crores edig products te busiess o los d dce but do ot icro eeue o less t crores iclude persol lo term lo ome lo old big licese ese cosist o ee icome products edig products iclude term ered troug mutul ud broerge isurce customer’s los rsctio big credit ebled commissios d oter miscelleous retil iclude orig cpitl ice trde ice commissios comprises o d suppl ci ice rsctio big commercil big products d serices or o–credit ebled icludes cs corporte cliets d icil istitutios “public good” mgemet curret ccout proll icludig domestic d crossborder pmets INDIA’S EDGE IN DIGITAL & DATA ccout ore products d custodil serices proessiol ris mitigtio or trde d te pitl mret d disor products iclude proisio o trust gec depositr custod cpitl mret products isurce d otl o digitl cels e d relted serices iestmet mgemets bee cosidered boe icludig teret big mobile big cll ceter ceue cludes dces gie or deposit mcie cs deposit mcie sel serice – ome los persol los eductio los ioss d pssboo priters uto los credit crd los los gist is subset o deposits sres ogriculture eel los ese iclude trsctios mcie i rtiicil telligece d oter retil los doe troug mobile d teret tt s etors ic re cpble big o usuperised rom dt tt is cludes dces gie ese iclude ustructured or ulbeled to etities deied s s b trsctios troug i brc ceue d llos big sstems to be cs trsctios cludes dces semlessl d securel itegrted it gie or orig cpitl d term los gie is o s te orgitio o ecoomic co corporte cliets sstems d it llos or busiess purposes to corportes oter t opertio d deelopmet ose or is to access to the bank’s transaction processing icro mll edium terprises promote policies tt ill improe te ecoomic serices rom eiromet d socil ellbeig o people roud te orld

58 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 59

otl o products icludig persol sigs ccout curret ccout credit – crds olie big olie pmets term los re o s ousig ice isurce mobile big orig cpitl ice corportios rge eeue o more t crores poitosle termil elt mgemet olie oig icil compies id eeue betee – crores sre trdig trde ice suppl ci ice registered uder te compies ct egged i mll eeue crores edig products te busiess o los d dce but do ot icro eeue o less t crores iclude persol lo term lo ome lo old big licese ese cosist o ee icome products edig products iclude term ered troug mutul ud broerge isurce customer’s los rsctio big credit ebled commissios d oter miscelleous retil iclude orig cpitl ice trde ice commissios comprises o d suppl ci ice rsctio big commercil big products d serices or o–credit ebled icludes cs corporte cliets d icil istitutios “public good” mgemet curret ccout proll icludig domestic d crossborder pmets INDIA’S EDGE IN DIGITAL & DATA ccout ore products d custodil serices proessiol ris mitigtio or trde d te pitl mret d disor products iclude proisio o trust gec depositr custod cpitl mret products isurce d otl o digitl cels e d relted serices iestmet mgemets bee cosidered boe icludig teret big mobile big cll ceter ceue cludes dces gie or deposit mcie cs deposit mcie sel serice – ome los persol los eductio los ioss d pssboo priters uto los credit crd los los gist is subset o deposits sres ogriculture eel los ese iclude trsctios mcie i rtiicil telligece d oter retil los doe troug mobile d teret tt s etors ic re cpble big o usuperised rom dt tt is cludes dces gie ese iclude ustructured or ulbeled to etities deied s s b trsctios troug i brc ceue d llos big sstems to be cs trsctios cludes dces semlessl d securel itegrted it gie or orig cpitl d term los gie is o s te orgitio o ecoomic co corporte cliets sstems d it llos or busiess purposes to corportes oter t opertio d deelopmet ose or is to access to the bank’s transaction processing icro mll edium terprises promote policies tt ill improe te ecoomic serices rom eiromet d socil ellbeig o people roud te orld

58 | HIDDEN TREASURE THE BOSTON CONSULTING GROUP  FICCI  IBA | 59 TE EADING T T T

he oston onsting rop T S G E D ot the thors For Frther ontat knoeements pbishes other reports an E T S artices on reate topics that n artice b the oston E n artice b he oston aa iati is a nio I o o ik to iscss t rana ehrotra is ot as n a a be o interest to senior onsting rop gst report b he oston onsting rop pri atn an icto in t ts an contnt o tis Partner and Director t Boston onstin o eecties ecent eapes onsting rop ne ai oic o Boston ot as contact B ai atos o ik to tank ince G A onstin o IBA an II o conctin G S Banks’ Best “Frenemies” esh hah otaanacco ss itin anks n artice b the oston artice b he oston asa an is a atn an Senior Partner and Director atos o aso ik to onsting rop gst report b he oston onsting rop ebrar icto in t ai oic o B ai rateek oonta tank t IBA tin onsting rop arch Boston onstin o Partner and Director oitt o ti continos T saascco B ai ianc toot t cos S G D N ano aacanan is a o t st anasis o t T S I incia in t ai oic mit mar oontaatkcco s as n inc in tis ocs b the oston report b the oston report b he oston o Boston onstin o Partner and Director ot A scia tanks to onsting rop onsting rop in association onsting rop in association B ai hin oa asin itaaa an anck ith epteber ith he eeration o nian an ia is a oct Partner and Director atak o anain t G A habers o oerce an a in t ai oic o kaitcco B ai aktin ocss Aas 2017: The Innovator’s D nstr an nian Boston onstin o oa ai Aoa asat A T Bank’s Association (IBA shish ar oacincco a n Bai Ankit a report b the oston E I gst iant ta is a oct Partner and Director ant in an ans onsting rop report b he oston a in t ai oic o B i arah Triathi oa o ti consi onsting rop in association I G Boston onstin o Senior Partner and Director ints on t s as G ith ooge D I aasiscco B ai aaa a i Asi A G D ain an aakaan o ti T I S D shish Ier tiatisaacco eia knoeement contition toas t sin report b he oston N report b he oston Senior Partner and Director an oction o t ot A onsting rop perspectie b he oston onsting rop in association B ai ashra rane atos o ik to scia tanks to t B onsting rop ne ith an gst Partner and Director Bankin oos ta an to ackno t ots o o iasiscco B ai cit insits atn oini aa an aoni D A D D ina o ansnion IBI ansnion IBI an ti eera ara n artice b he oston E G anasacco o ti ints onsting rop S i oct ic Senior Partner and Managing n artice b the oston N k o sain ata an Director G S onsting rop ne is aa insits on t B i report b he oston ot o aso ik to n artice b the oston D T onsting rop in tank IBA o oiin ata to aaanacco onsting rop ne S S association ith an cat tis ot ocs b he oston epteber onsting rop an 60 | HIDDEN TREASURE a THE BOSTON CONSULTING GROUP  FICCI  IBA | 61 TE EADING T T T

he oston onsting rop T S G E D ot the thors For Frther ontat knoeements pbishes other reports an E T S artices on reate topics that n artice b the oston E n artice b he oston aa iati is a nio I o o ik to iscss t rana ehrotra is ot as n a a be o interest to senior onsting rop gst report b he oston onsting rop pri atn an icto in t ts an contnt o tis Partner and Director t Boston onstin o eecties ecent eapes onsting rop ne ai oic o Boston ot as contact B ai atos o ik to tank ince G A onstin o IBA an II o conctin G S Banks’ Best “Frenemies” esh hah otaanacco ss itin anks n artice b the oston artice b he oston asa an is a atn an Senior Partner and Director atos o aso ik to onsting rop gst report b he oston onsting rop ebrar icto in t ai oic o B ai rateek oonta tank t IBA tin onsting rop arch Boston onstin o Partner and Director oitt o ti continos T saascco B ai ianc toot t cos S G D N ano aacanan is a o t st anasis o t T S I incia in t ai oic mit mar oontaatkcco s as n inc in tis ocs b the oston report b the oston report b he oston o Boston onstin o Partner and Director ot A scia tanks to onsting rop onsting rop in association onsting rop in association B ai hin oa asin itaaa an anck ith epteber ith he eeration o nian an ia is a oct Partner and Director atak o anain t G A habers o oerce an a in t ai oic o kaitcco B ai aktin ocss Aas 2017: The Innovator’s D nstr an nian Boston onstin o oa ai Aoa asat A T Bank’s Association (IBA shish ar oacincco a n Bai Ankit a report b the oston E I gst iant ta is a oct Partner and Director ant in an ans onsting rop report b he oston a in t ai oic o B i arah Triathi oa o ti consi onsting rop in association I G Boston onstin o Senior Partner and Director ints on t s as G ith ooge D I aasiscco B ai aaa a i Asi A G D ain an aakaan o ti T I S D shish Ier tiatisaacco contition toas t sin eia knoeement report b he oston N report b he oston Senior Partner and Director an oction o t ot A onsting rop perspectie b he oston onsting rop in association B ai ashra rane atos o ik to scia tanks to t B onsting rop ne ith an gst Partner and Director ackno t ots o o Bankin oos ta an to iasiscco B ai oini aa an aoni D A D D cit insits atn ansnion IBI an ti ina o ansnion IBI n artice b he oston E G eera ara anasacco o ti ints onsting rop S i oct ic Senior Partner and Managing n artice b the oston N k o sain ata an Director G S onsting rop ne is aa insits on t B i report b he oston ot o aso ik to n artice b the oston D T onsting rop in tank IBA o oiin ata to aaanacco onsting rop ne S S association ith an cat tis ot ocs b he oston epteber onsting rop an 60 | HIDDEN TREASURE a THE BOSTON CONSULTING GROUP  FICCI  IBA | 61 atos at ackno t ata ni mar ai hishek harma coction ots on aios tics o ooation Bank I Bank t aticiatin anks a t scti noa tas as ist o is irener mar arana rashant ara ot o not a n ossi itot na Bank otak aina Bank ti inaa sot nirh Behera rivate Banks IBI Bank are Banks aaraan ohn ois aresh esani Inian Bank a Bank Bank o Baoa aanisam akesh anotra B araan Inian sas Bank a asi Bank Bank o Inia eeak inh enkatakrishna Bhat Bharati ati inta Bank o oc anataka Bank anaa Bank ait mar harma arish as nan na in Bank a sa Bank na ationa Bank rn mar eetharaman ana ae nicat Bank aksi ias Bank tat Bank o Inia as rian raham ivek inha Bank ot Inian Bank nion Bank o Inia oora T aai iaa Bank eim Banks

iti hrivastava e rivate Banks Aaaa Bank remhan ao rahmanam Ais Bank Ana Bank avier oes irti hintre Bank Bank o aaasta hashank nra mar aan III Bank nta Bank o Inia

62 | HIDDEN TREASURE atos at ackno t ata ni mar ai hishek harma coction ots on aios tics o ooation Bank I Bank t aticiatin anks a t scti noa tas as ist o is irener mar arana rashant ara ot o not a n ossi itot na Bank otak aina Bank ti inaa sot nirh Behera rivate Banks IBI Bank are Banks aaraan ohn ois aresh esani Inian Bank a Bank Bank o Baoa aanisam akesh anotra B araan Inian sas Bank a asi Bank Bank o Inia eeak inh enkatakrishna Bhat Bharati ati inta Bank o oc anataka Bank anaa Bank ait mar harma arish as nan na in Bank a sa Bank na ationa Bank rn mar eetharaman ana ae nicat Bank aksi ias Bank tat Bank o Inia as rian raham ivek inha Bank ot Inian Bank nion Bank o Inia oora T aai iaa Bank eim Banks

iti hrivastava e rivate Banks Aaaa Bank remhan ao rahmanam Ais Bank Ana Bank avier oes irti hintre Bank Bank o aaasta hashank nra mar aan III Bank nta Bank o Inia

62 | HIDDEN TREASURE

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Please contact FICCI at: E-mail: [email protected] • Website: www.ficci.com Fax: +91 11 2332 0714 — 2372 1504 Tel: +91 11 2348 7525 (D) Mail: Ms. Supriya Bagrawat Joint Director - Financial Sector FICCI Federation House 1, Tansen Marg New Delhi 110 001 India

Please contact IBA at: E-mail: [email protected] • Website: www.iba.org.in Fax: +91 22 2218 4222 Tel: +91 22 2217 4018 Mail: Mrs. Vijaya Tirodkar Indian Banks’ Association Corporate Communications, Centre 1 6th Floor, World Trade Centre, Cuffe Parade Mumbai 400 005 India

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