Vol. 18 No. 7 November 2019 `75 Pages 44

Transformation @ Karnataka Bank Digital, Phygital BFSI use of Media Vibrant Goa www.bankingfrontiers.com

AI’s role in HR just short of decision-making Editor’s Blog N. Mohan Mobile : 9322895820 Email : [email protected]

November 2019 - Vol. 18 No. 7

Group Publisher : Babu Nair Group Editor : Manoj Agrawal Editor : N. Mohan A robot for a CHRO

Editorial visiting tech lead at a robotics and communications lab outside Kyoto in Japan, Mehul Dani, Ravi Lalwani, V. Raghuraman who also teaches at Osaka University, which is a 2-hour commute for him, has Research Editors Acreated a robotic duplicate of himself, which can actually handle his teaching Prof Venugopal Iyengar, V. Babu, duties, once activated from a computer at the university lab. While the robot is not Ratnakar Deole, W.A. Wijewardena, doing this ‘in absentia’ job still, such a Sanchit Gogia, K.C. Shashidhar, proposition is not far off. Dr L.S. Subramanian, Ajay Kumar Another case is that of K2, a humanoid developed by Tech Mahindra Advisor-Alliances and deployed at its Noida campus. K2 Ateeq Siddique is said to be taking up HR functions Marketing with a human touch. It is described Kailash Purohit, Jikkumon Philipose, as a machine with a perfect blend of Reshma Mandal knowledge and kindness, handling routine HR transactions and offering Events & Operations constant assistance to the HR team in Gautam Magare, Shirish Joshi, creating an enhanced employee experience. K2 uses artificial intelligence and can Stalin Saldhana, Pramod Jadhav, initiate a conversation without any need for wake-up commands. It can respond to Amit Gupta, Shweta Kadam, Ashish Verma, Wilhelm Singh, queries with text display along with speech. It can also address general and specific Natasha Vaz, Sneha Agrawal HR-related employee queries as well as handle personal requests for actions like providing payslips, tax forms etc. Design HR is one domain in which AI has gained huge presence. In the days to come, this Somnath Roy Choudhury is to peak and the involvement perfected. AI has already helped streamline several Published By HR processes and eliminated the need for human interference. Unlike humans, who Glocal Strategies & Services can influence decisions and show biases in their judgements, AI is dispassionate, fast D-312, Twin Arcade, Military Road, Marol, and efficient. Andheri (E), Mumbai 400059, India. There are several arguments for the use of AI in HR. Among these are that it can (i) Tel: +91-22-29250166 / 29255569 process applications faster and facilitate quicker appointments, (ii) identify vacancies Fax: +91-22-29207563 in the organization, then sift through job portals, identify the best-fit candidates, call them for interviews, even conduct interviews and finalize appointments, (iii) help create better retention and productivity by hiring candidates most suitable for a position, Printed & Published by Babu Nair on (iv) eliminate bias while hiring, (v) streamline onboarding with the use of chatbots, (vi) behalf of Glocal Strategies & Services and create better job descriptions, (vii) improve employee engagement and build better Printed at Indigo Presss (India) Pvt Ltd., relationships and (viii) save time by automating routine tasks. Plot No. 1C/716, Off Dadoji Konddeo Cross The question that arises is whether AI can fully take over HR departments like in a Road, Between Sussex and Retiwala Indl. fully automated shopfloor. The answer is not yet, mainly because AI is still incapable Estate, Byculla (E), Mumbai 400027. of showing human empathy, emotions and personal judgment. Our cover story in this issue discusses how HR is increasingly becoming AI-dependent, and thereby efficient Editor: N. Mohan (Responsible for selection and transparent. HR professionals who have expressed their opinions maintain HR, in of news under PRB Act) spite of AI, cannot be devoid of humans at least for the time being. Yet, it could be a possibility, like the robot in Osaka University, that AI can rule over the HR department.

Banking Frontiers November 2019 3 N E W S Regulator RBI consolidates supervisory, regulatory departments Pakistan has a new The Reserve Bank of India has consolidated different departments payments strategy involved in the supervision and Pakistan has a new National Payments regulation of banks, non-banks Systems Strategy. The governor of the State and cooperative banks under the Bank of Pakistan Dr Reza Baqir, launched department of supervision and the National Payment Systems Strategy in department of regulation from the presence of president of the World Bank, 1 November. Financial sector David Robert Malpass and key stakeholders supervision was being done by including regulators, government entities, 3 separate departments - the banks and telcos. Baqir spoke about the department of banking supervision, benefits that the NPSS would bring to the department of non-banking supervision and department of cooperative bank people and economy of Pakistan and said supervision. Similarly, the regulatory powers of the RBI over banks, NBFCs and this strategy lays out a road map and action cooperative banks were carried out through 3 separate departments - the department plan for Pakistan to have a modern and of banking regulation, the department of non-banking regulation and the department robust digital payments network. He said of cooperative banking regulation. RBI said the consolidation will make supervisory that the key goal of this strategy would be and regulatory functions of the bank more activity based rather than being segmented to make access to financial services easier purely based on the organizational structure of regulated entities. for people and help in improving financial inclusion in the country, particularly for Bank of England not to name new governor now women, along with greater documentation The Bank of England is not likely to announce the successor of Mark Carney as the of the economy. Baqir also announced the governor of the bank until after the general elections in Britain. Chancellor Sajid Javid issuing of the rules for digital onboarding has given up plans to announce his choice in view of the impending elections. He is said of merchant, which will help increasing to have felt that announcing the name at this politically sensitive time may damage the the touch points for digital payments independence of the bank. Carney is set to leave the bank at January 2020 and there in Pakistan. is still time for the newly appointed governor to get prepared to take over. A panel of senior officials and the former monetary policy committee member had prepared a Christine Lagarde is shortlist of candidates to the Treasury after holding interviews with applicants over the summer. The shortlist is said to include Andrew Bailey, chief executive of the Financial new president of ECB Conduct Authority, Minouche Shafik, head of the London School of Economics, Shriti Vadera, chair of Santander UK, and Ben Broadbent and Jon Cunliffe, both deputy governors at the bank. ‘CBDC not a necessity for Korea’ The Bank of Korea is of the view that a central bank digital currency is not a necessity for at least developed countries. Hong Kyung-sik, director of financial settlement at the central bank, told a conference on payments in Seoul that in Korea, as in most advanced economies, there is very little need for a CBDC. The country already has advanced payment and settlement infrastructure. In addition, the degree of openness is also internationally high, he said at the conference. He added that money can be moved The European Central Bank has a new quickly, cheaply and safely in the country utilizing app-based solutions and by bank president. Christine Lagarde took over remittance, and purchases can be settled efficiently with credit cards. Open banking as head of the European regulator on 1 is also being developed in Korea, with APIs allowing for seamless connections to and November, replacing Italy’s Mario Draghi. between financial institutions, he pointed out. Lagarde was the former French finance minister and International Monetary Fund Scandals like 1MDB may not happen in Malaysia again chief. She is the first woman president of Malaysia will not face financial scandals like the one involving Malaysian sovereign ECB after three male leaders headed the wealth fund 1MDB, the central bank governor nor Shamsiah Mohd Yunus has said. organization since it came into existence 1MDB, set up to promote Malaysia’s development, has been at the center of one of the in 1998. She was also a former corporate world’s largest corruption and money laundering scandals, as billions of dollars went lawyer and had stints in politics and missing from the fund. It tarnished Malaysia’s image as a safe place to do business in and international organizations. Notably, she dented foreign investors’ confidence in putting money in the country. The governor said lacks any formal economics qualifications the new government has taken a number of steps to prevent such financial scandals from of former presidents of ECB. ECB has 6 happening again. One of the structural reforms that the government has introduced is to executive board members and 19 eurozone put in place a framework, a system, a culture that will eradicate corruption. central bank governors on the council.

Banking Frontiers November 2019 5 Project Pipeline SBI to conduct micro-market study UBI wants consultant State Bank of India is looking for a consultant to take up a micro- for IT integration market study and define market share improvement plan for the 5 Union Bank of India is looking to engage metros of Delhi NCR, Bengaluru, a service provider / IT consultant to create Hyderabad, Chennai and Kolkata. a strategic technology integration road As the bank is introducing map followed by implementation support innovative new banking models, it to drive the IT integration program for wants to increase its market share. amalgamation of Union Bank of India It wants the consultant to study with Andhra Bank and Corporation Bank. the micro market potential and The bank intends to achieve systematic suggest recommendations for improving market share in Retail and SME segment synergies between customer experience, in these 5 metros. The objective is to conduct a market study of these cities followed operational, business and technology by recommending market share improvement plans for retail and SME segments. The model through this integration. The service consultant would study the potential available in these markets and analyze the best provider is expected to develop, execute practices and suggest focus areas for improvement in market share. and oversee the IT integration activities across all business functions, internal and NPCI to have EMS customer facing applications, channels and NPCI, while on revamping its technology infrastructure has found the need for a mobile applications holistically. comprehensive enterprise level management solution (EMS). It wants such a solution that can (i) enhance the IT services to be delivered to various stakeholders by management of IT infrastructure and applications; (ii) consolidate IT event management activities BoB planning Red into a single operations bridge that reduces duplication of effort by various teams; (iii) allows quick identification of the root causes of IT incidents; and decreases the time it Team exercise takes to rectify core IT issues; and (iv) significantly reduce the amount of time spent on monitoring and managing the IT set-up. The idea is to have a consolidated view of entire IT-setup, from the business transaction and service health view to core IT infrastructure components being employed; thereby assuring IT service delivery at the service levels expected. The organization is looking for an enterprise management system software, which will discover, store and monitor the infrastructure (tapping points, network elements, storage, appliances, servers, database and applications) and their inter-relationship for comprehensive impact analysis. Andhra Bank to have MAM solution Andhra Bank is planning to have a cloud-based Mobile Application Management Bank of Baroda is planning to conduct a (MAM) solution on an opex model. It wants the proposed solution to be available Red Team Exercise in the bank to ascertain as a cloud service. At present Bank has provided e-mail access to some of the users whether its systems are penetration and using Active Sync. It wants the MAM application to enable security and selected users hacker proof. It is looking for a service should be able to access corporate apps securely on their mobile devices using this provider to conduct the exercise, which solution. The solution should support data centric security ensuring containerization the bank is undertaking in order to know of corporate app and segregation of data from other non-corporate apps. The data various attack tactics and to defend against accessed through or in Corporate applications should not be sharable to other users such attacks. Through this exercise, it needs or non-corporate apps using Bluetooth, NFC etc. to go through cyber security war games where the bank’s internal team and Security SBI to offer doorstep banking Operation Center will act as the Blue Team State Bank of India is proposing to engage Doorstep Banking Agents (DSA) from and the service provider selected the role among national business correspondents empaneled with the bank. The bank intends of Red Team. The Red Team’s role is to to provide financial as well as non-financial services at the doorsteps of the customers. highlight loopholes in security control and The service would include DSAs visiting the customers’ residence to provide services to improve detection, response, recovery sought by them. The selected service provider/s will have to deploy DSAs to provide and mitigation capabilities for the Blue various banking related services, including financial transactions, pick-up of cash, Team. The Red Team exercise should delivery of cash, non-financial transactions, pick-up of instruments like cheque/draft, cover broad activities including recognizing pick up of documents like life certificate etc. The service provider will also be required information security issues within the bank to take responsibility for cash management, security, insurance, cash van etc. The and identification of misconfigured and bank will provide the service initially at 50 centers. unpatched devices.

6 Banking Frontiers November 2019 Managing Fraud Reclaim your power in the battle against fraud

As much as 70% of reported economic crimes are committed by internal actors, making internal fraud the biggest risk:

ocial engineering is one of the realize they have an internal fraud biggest crime threats for banks problem because they cannot detect it. Sand other financial institutions. Yet it is estimated that about 5% of an Social engineering attacks rely on human organization’s revenue is lost to fraud. error, so they are hard to predict. Such The prospect of financial loss can be attacks may progress in one or more steps significant, but this is far outweighed by and regularly defeat all the lower-level the risk to reputation and brand. Rules- IT security measures. Many attacks go based solutions may be incapable of undetected for long periods. detecting internal fraud or can be easily circumvented. A more sophisticated Types of social engineering fraud approach to fraud detection is needed to Invoice fraud is a common way for deliver an integrated solution that can fraudsters to take money and it can easily consolidate and analyze data in different go unnoticed as being fraudulent. formats from multiple sources, as internal Business email compromise fraud fraud can take many forms. involves a hoax email, which fraudulently represents a senior colleague or a General Ledger Fraud u Access to customer information must customer, who issues instructions such Sadly, it is often long-term employees also be tightly controlled. Permission as approving a wire payment or releasing who most often abuse positions of trust should only be granted where it is client data. and privileged access to bank systems necessary to perform a clearly defined Phishing scams account for over and information. The typical internal job. Technology can monitor all systems 90% of data breaches and are growing at fraudster has been employed for over 10 logins to establish patterns and spot more than 65% each year. Many phishing years and is familiar with the systems and anomalies, such as after-hours logins. attacks target bank employees, attempting their shortcomings. For example, certain u Cross-channel monitoring to protect to obtain sensitive information. insiders may have exclusive access to multiple portfolios. This is especially SMiShing (SMS phishing) tricks a accounts payable or suspense accounts important when customers hold user into downloading a ‘Trojan horse’ that are used to record loans in process or products in different channels. onto a mobile device. The installed piece currency in transit. This can make it easy u Regular training to make staff more of malware might steal phone numbers, for experienced employees to move funds vigilant. Staff must be aware of their banking data or spread the virus to all between accounts or issue payments to vulnerabilities, especially when they contacts on the phone. external companies, which may be bogus. are socially engineered to divulge Over time, money can be funneled from information or enact payments on Identity theft & account takeover general ledger accounts to mule accounts behalf of fraudsters. Identity theft can take many forms, but and can easily go unnoticed for a long time. account takeover (ATO) is the most Tackling general ledger fraud requires Don’t react. Outsmart. prevalent. Fraudsters take over existing the right mix of processes and systems. When you can predict financial crimes accounts to transfer funds to new Technology can improve oversight through in every channel, you regain power over destination or ‘mule’ accounts at other automated monitoring of journal entries fraudsters. With highly scalable machine institutions. ATO takes many forms but while checking for irregularities. learning and AI capabilities, FIS Memento the biggest surge has been in online spots fraudulent transactions across fraud. Funds can be routed to mule A Framework for Fraud Detection an entire firm in real time and predicts accounts in real time and apps have been u A strong system of internal controls new threats. Plus, you gain all the cross- a catalyst to ATO attacks. Many banks and auditing is critical. Distributed channel tools your staff needs to efficiently have experienced a ten-fold increase in accountability reduces the potential and holistically manage any threat. incident rates within the last year. for identity theft and ATO. Close Learn more about the innovative financial monitoring is crucial to identify crime management solutions at Internal Fraud - Enemies Within irregularities early and also to act as https://empower1.fisglobal.com/Intl-Financial- Many financial institutions do not a deterrent. Crime-Management.html

Banking Frontiers November 2019 7 Country Report - Blockchain Singapore way ahead in blockchain usage Singapore has seen unprecedented growth of blockchain use, thanks to its government and regulators:

ingapore is ranked as the world’s best place to do business. The country has Sseen unprecedented growth in the number of enterprises using blockchain technology and cryptocurrencies. What has contributed to this is the fact that the country has a free-market economy, it has very investor-friendly laws, there is availability of skilled staff and the connectivity is excellent. What is most significant about Singapore’s ascend to the top of the blockchain graph is its regulatory Attendees at the Blockchain Life 2019 forum in Singapore environment. The financial services the trade platforms of other countries. The and KYC Blockchain,which helps various regulator, the Monetary Authority of government through MAS has also made financial institutes and banks to verify Singapore, of MAS, is highly proactive, it clear that it will have an open mind in their customer’s identities and details in an well-informed and totally transparent matters of regulating cryptocurrencies. Way efficient and transparent way. in its operations. Apart, it is ready for back in 2014, it had declared Bitcoin as a experimentation with new technologies - good that can be purchased (even if it itself TOP 7 especially blockchain and cryptocurrencies. can purchase goods) and therefore subject Singapore has some 7 top blockchain The government too is highly receptive to a specific tax. MAS has also clarified that projects and startups: to these technologies. Singapore also while the digital tokens themselves would not OpenCerts, the largest blockchain- encourages innovation by holding be regulated, the intermediaries would fall related application which provides a discussions on key issues by industry under MAS regulations citing terrorism and platform to publish educational credentials, experts and organizes events that promote money laundering. The strategy is to apply allowing students and employers to verify adoption of newer technologies. regulation around cryptocurrency, rather certificates. A recent PwC study showed that as than the cryptocurrency itself. Project Ubin focusing on exploring the much as 82% of executives in Singapore use of DLT for clearing and settlement of firms have said their firms have taken up MAJOR EFFORTS payments and securities. blockchain initiatives in one way or other, Singapore is poised to become the Asian VeChain project focusing on building and 13% of these firms have brought the Blockchain Hub. It has 20 global financial a trust-free and distributed business initiatives live to the market. The startups institutions setting up innovation labs to test ecosystem that enables transparent in Singapore are not just confined to new ideas. One effort that has had a global information flow, efficient collaboration cryptocurrencies, they are moving ahead in impact is the launch of the world’s first and high-speed value transfer. the value chain as well. cross-border Blockchain For Trade, linking Zilliqa, whose core feature is sharding ASEAN and China’s Digital Silk Road by – the division of the network into several PROACTIVE POLICIES Singapore-based Global eTrade Services smaller component networks capable of The dominance of blockchain technology (GeTS), which is a leading eGovernment processing transactions in parallel. in the scheme of things in Singapore can products and services provider. Among other Bluzelle a decentralized data ecosystem also be attributed to the proactive policies blockchain-based projects in the financial for individuals and businesses to have full of the government. For example, MAS services industry are the trading platform data control and the ability to monetize has concluded an agreement with global replacing the existing TradeNet and their data. blockchain company R3 and a consortium TradeXchange platforms used for trading Electrify allows people to trade of financial services institutions in 2016 at and logistics, the second phase of Project electricity on a peer-to-peer (P2P) the instance of the government to take up Ubin, launched by MAS in conjunction with marketplace. a proof-of-concept project to conduct inter- various financial institutions and technology Qtum providing a standardized, stable bank payments using blockchain technology. partners for interbank payments, which is and safe development environment for Now it is exploring the use of blockchain now being used to evaluate the implications smart contracts. to link the National Trade Platforms to of using tokens as a virtual Singapore dollar [email protected]

8 Banking Frontiers November 2019 Country Report - Open Banking Open Banking yet to take off fully in China While China has achieved high levels of digitization of its banking sector, open banking is still in its infancy: pen banking’ as a concept is relatively embed their product, risk and technology new in China, but it does not mean capabilities into specific industries, while in Othe country has not embraced it. In turn banks are able to approach their target early 2012, Bank of China had initiated what customers more directly. Banks can then is called an open platform for banking and provide context-based financial services in fact implemented such a concept, making where customers need them most under several applications like mobile payment, various scenarios, while partner businesses investment and wealth management and without financial expertise and capabilities cross border financial services available can better serve their customers. As a result, through some 1600 interfaces. It went ahead banks can reach the traditionally unbanked and created APIs to establish connections or underbanked long tail market and between financial services and users. While effectively promote inclusive finance. being responsive to the concept, the country Ma revealed that WeBank has taken was also aware of the risks involved on measures to counter security threats that rate is the result of Chinese consumers’ account of the openness. come up in the wake of the openness of the willingness to share data with institutions. In spite of the early start, open banking system and has initiated end-to-end cyber- Research in this area has shown that is considered in its infancy still in China and risk assessment mechanisms and apply unlike banking customers in many western it is yet to have counter measures for risks innovative technologies such as ‘Open economies, Chinese consumers are and hurdles like differing standards, lack of Consortium Chain’ to simplify connectivity more positive and happier to share their mechanism for access, weak data security with partners, establish comprehensive transactional data with fintechs. protection and malicious calls in the business continuity plans, introduce interface. It is in the process of observing blockchain-based distributed identity and REGULATIONS YET TO COME how open banking in countries like the UK privacy protection solution. While Chinese regulators are yet to roll out and Australia is evolving, especially through regulations for open banking, the country’s international collaborations for regulatory KEEN RESPONSE private sector is pursuing the use of open supervision and for establishing unified ‘Open banking’ has attracted tremendous APIs on its own. Added to this is the active technologies, data standards and norms, as attention from banks in China in 2018 and involvement of Chinese fintech companies. well as the data security protection. many of them have launched open banking Companies like Ant Financial and Tencent platforms based on API technologies. leverage open APIs to allow third parties to BANK THAT LEADS Until recently, much of the growth has offer services to their customers and make China’s first digital bank, WeBank, occurred without any mandates, API data more portable within their ecosystems. promoted by Tencent, is today a true standards or regulatory protection of For example, the country’s leading initiator of open banking in the country. At customer data. But this is changing, with insurance company Ping An Insurance has the Money 20.20 in Singapore, the bank’s Chinese regulators stepping in to control introduced ‘Smart Insurance Cloud’, which CIO Henry Ma showcased the future ‘Open many of the practices that border on threat is a platform through which Ping An offers Banking’ that the bank is adapting and to security. The government has been open-source APIs to its partners. These revealed the ‘3O’ paradigm of open banking proactive in this even as it does not want developments are bound to motivate the services. While the traditional definition of to slow down innovation. It has created regulators to frame rules governing open open banking is that it is a platform where frameworks that ensure growth and at the banking in the country. data, algorithms, transaction records and same time protect consumers. It is now in It will be interesting to see how open procedures are shared within the ecosystem the process of enacting regulation that is banking in China will evolve. Today the to provide services to partners including akin to Europe’s General Data Protection country’s financial services sector is at a customers, employees, third party Regulation (GDPR) and regulation of the crossroad. Regulators need to take critical developers, fintech companies and vendors, open banking sector is on the anvil. decisions about how to put in place the Ma maintained that it is more than API Another fillip for open banking in the frameworks that support open banking, technology and is characterized by the ‘3O’ country is the demand from the country’s ensuring that there is no demotivation Paradigm, namely ‘Open Platform’, ‘Open ever expanding, digitally connected middle for innovation and there is security of the Innovation’ and ‘Open Collaboration’. He class. Most of the Chinese people do not personal data and that the systems are ever told the audience that the open banking carry cash or cards and they prefer to use safe from infringements. model his bank visualizes enables banks to mobile banking. This high digital adoption [email protected]

Banking Frontiers November 2019 9 Research Report - Global Banking Banking industry faces major challenges The McKinsey Global Banking Annual Review 2019, which came out recently, cautions that banking industry is at crossroads and those wanting to survive need to take extreme remedial measures:

anking industry today is seeing a slowing down in top-line revenues A majority of banks globally may not be economically viable Bwith loan growth of just 4% in Global banks return on equity (ROE) – cost of equity (COE) spread 2009–18, number of banks (n=595)¹ 2018, which is the lowest in the past 5 years Bank ROE < COE Bank ROE > COE and 150 basis points below nominal GDP 105 56% of banks 44% of banks growth, finds McKinsey Global Banking 97 Annual Review 2019 titled ‘The last pit stop? Time for bold late-cycle moves’.

The review cautions that yield curves 65 59 are flattening and though valuations 56 50 fluctuate, investor confidence in banks is 46 45 41 weakening. 31 It points out that global return on tangible equity (ROTE) in the case of banks has flatlined at 10.5%, despite a small rise in <-4% –4% to –3%–3% to –2% –2% to –1% –1% to 0% 0% to 1% 1% to 2% 2% to 3% 3% to 4% >4% rates in 2018. “Emerging market banks have ¹All deposit–taking institutions with available data for 2009–18 (n = 595). ROE based on average net income and average equity including goodwill for 2009–18. seen ROTEs decline steeply, from 20% in Source: McKinsey Strategy Practice and Corporate Performance Analytics 2013 to 14.1% in 2018, due largely to digital disruption that continues unabated. Banks the study advocates banks should adopt These 4 are: in developed markets have strengthened them and build new ones. It further adds: Market leaders: 20% of banks globally productivity and managed risk costs, lifting “On productivity, marginal cost-reduction capture almost 100% of the economic ROTE from 6.8% to 8.9%. But on balance, programs have started to lose steam. The value added by the entire industry. These the global industry approaches the end need of the hour is to industrialize tasks at-scale banks typically serve a large share of the cycle in less than ideal health with that don’t convey a competitive advantage of a geography, region, or customer segment nearly 60% of banks printing returns below and transfer them to multi-tenant utilities. and operate in favorable market conditions. the cost of equity. A prolonged economic Industrializing regulatory and compliance Their clearest imperative is to reinvest capital slowdown with low or even negative activities alone could lift ROTE by 60 to 100 and resources intelligently in innovation and interest rates could wreak further havoc,” bps. Finally, on generating elusive revenue further scale for the next cycle. says the study. growth, now is the time to pick a few areas Resilients: Nearly 25% of banks - client segments or products - and rapidly have maintained leadership in challenging TIME FOR BOLD MOVES reallocate top customer-experience talent markets, including many in Europe. Joydeep Sengupta, co-author of the review to attack the most valuable areas of growth Resilients should focus on expanding and Singapore-based McKinsey senior and take share as competitors withdraw and beyond their direct set of customers and partner says: “History tells us that 40% customer churn increases late in the cycle. products through ecosystem plays and of the top banks today will drop to the differentiating further through innovation. bottom half of peers in the next cycle. So 4 ARCHETYPES Followers: About 20% of banks have the time for bold and critical moves is now. The study mentions 2 vectors for every not achieved scale, and are weaker than Moves made today, be it to build scale or bank - the strength of its franchise and peers, despite favorable market dynamics. restructure business models, will have a the constraints of its markets or business They are at risk from a downturn and defining role in combating the probability model. It then adds: “Using these two must act promptly to build scale in their of that slide.” vectors, we’ve identified 4 archetypes that current businesses, shift business models Highlighting that advanced analytics banks around the world can use to identify to differentiate, and radically cut costs. and artificial intelligence are already their starting positions and develop their Challenged banks: About 35% of producing new and highly effective risk tools, late-cycle priorities.” banks globally are both sub-scale and

10 Banking Frontiers November 2019 Impact of scale on cost synergies

Average cost-to-assets ratio by country, by market share quintile – 2016 – 18, Lowest quintile Top 3 banks basis points Australia Denmark Sweden Germany Russia United States China India

430 suffer from operating in unfavorable 404

356 346 339 230 markets. Their business models are flawed, 186 and the sense of urgency is acute. To 273 275 205 71 survive a downturn, merging with similar 307 269 218 banks or selling to a stronger buyer with a 166 200 204 169 85 complementary footprint may be the only 134 options if reinvention is not feasible. 107 77 84 49

ONLINE BANKING GROWTH Digitally advancedHighly fragmentedEmerging Asia The study says: “Globally, online banking Source: S&P Global Market Intelligence, McKinsey Panorama usage rates increased on average by 13 percentage points from 2013 to 2018, and adding, however, people’s perception of China’s banking sector, which is dominated there is room for further growth across all trust towards fintechs and tech companies by many corporate banks holding large geographies, particularly as consumers’ continues to improve. balance sheets, the average C/A ratio for willingness to transact over digital channels the top 3 banks by market share is 84 exceeds actual digital usage by more than COST EFFICIENCY bps, which is half that of the average for 30 percentage points in many markets. The study devotes section to discuss the the lowest quintile (169 bps). In India, by Consumers have become accustomed scale of impact by geography and states contrast, while some scale effect is visible, to real-time and personalized services in-country scale is a significant factor even the largest banks have a C/A ratio and expect the same of digital banking in generating higher ROTEs, but the higher than 200 bps. Indian banks typically solutions. While this behavior is most impact of scale varies in magnitude across have a higher cost base, in part because acutely felt in retail banking and asset geographies. To understand this variance, many maintain large physical networks to management, we are starting to see the the study analyzed the relationship between serve rural customers. same trends emerge in corporate banking C/A ratio and in-country market share for as well as in capital markets and investment banks worldwide and finds that larger M&A AN OPTION banking. A classic example is a trend banks are generally more cost-efficient. The report states that given the competitive within transaction banking where clients Some of the examples are: advantages that come with scale, many banks increasingly demand a single window Digital advanced markets: These are finding that mergers and acquisitions - and real-time multi-currency multi-asset include markets like Australia, Sweden along with strategic partnerships - are an view of a firm’s payments positions with and Denmark, where banking is rapidly efficient way to achieve their scale ambitions reduced settlement times with each passing moving online and where the scale impact or a means to completely reinvent their year. They also expect banking services to is pronounced. In Sweden, the top 3 business models. “Indeed, the ground for be increasingly linked into their internal banks by market share have a C/A ratio of mergers, acquisitions, and partnerships finance and treasury functions. Within approximately 77 basis points, while the is fertile, as the current environment retail banking, where customer loyalty has C/A ratio of the bottom quintile exceeds provides a favorable combination of capital, traditionally been strong, rates of customer 340 bps. This gap points to the increasingly regulation, and senior-level interest. First, attrition are rising, as digital technology transformative impact of technology there is a large dispersion in valuations and changing regulations make it relatively on banking. and capital levels across the banking painless for customers to change banks. For Highly fragmented markets: These system, creating an ideal environment for instance, churn rates for current accounts include markets like Russia, Germany, and inorganic moves. Second, with systemic in the US have risen from 4.2% in 2013 to the US, where despite highly fragmented risk in banking largely mitigated through 5.5% in 2017 and in France they have risen markets, there are strikingly different capital and liquidity build-ups since the from 2% in 2013 to 4.5% in 2017.” impacts of scale. In Russia, despite the global financial crisis, and fragmented central bank’s efforts, its banking system banking sectors in many markets struggling COMPETITION FROM FINTECHS is still highly fragmented, with more than to produce returns, regulators are more The study says the rapid disruption of Asia’s 500 banks. At 200 bps, the average C/A likely to be supportive of consolidation. banking sector is marked by a swift rise ratio for the top three banks is less than a Third, the need for largescale investments in competition from fintechs and digital half that of the lowest quintile (430 bps). in technological transformation, combined platform companies contributing to a By contrast, in the US, another highly with weak organic growth, is pushing M&A sharp deterioration of more than 600 bps fragmented market, the gap between the up on the board agenda. Banks, however, in ROTE over the past 5 years. Developed bottom quartile and top three is only 71 bps. should be careful as they assess these market banks, wary of the Asian scenario Emerging Asian markets: In China options, as very few deals have historically playing out in their home markets, dream and India, cost efficiency is associated created value,” it says. of an end to this fintech cycle, it says, with scale, but to a very different extent. In mohan@bankingfrontiers,com

Banking Frontiers November 2019 11 SIBOS 2019 Karnatka Bank: A profitable transformation Mahabaleshwara M.S., MD & CEO, Karnataka Bank, speaks about the bank’s transformation at the sidelines of SIBOS 2019:

Babu Nair: Karnataka Bank has achieved Bank, which is very vibrant and responsible phenomenal growth in last one year, that and of course driven by technology. too in a scenario where the entire industry is a reeling under NPA. You manage Is your strategic goal digital or phygital? to grow at 4.5%. So, what is the secret Phygital is exactly what is required. behind this? Our liability transactions are 80% digital Mahabaleshwara M.S.: We are and the remaining 20% are physical. Now, committed to the core banking activities. apart from the branch, I have many digital If you look at the business that we had platforms including internet banking, canvassed during the last year, growth in mobile banking, POS. On the assets side business turnover was around 12% and also, whatever maybe data availability advances grew around 18%. We have been and technology, we cannot have 100% of focusing more credit, and as a result our sanctions being digital. So it has to be a CD ratio, which was hovering at around refined blend of physical and digital. 63% for quite some time in the past, now has reached the level of around 80%. In Anything digital comes with the risk of the advances, we have been focusing more security and compliance, and that has been on the retail and MSME, where the growth the concern with many frauds taking place. is up to the expected level and delinquency There what happens is how well the is also less. As we have good number of Mahabaleshwara M.S. states various systems are protected. As for branches in the rural, semi-urban and Karnataka Bank is focusing transaction related frauds, those things are urban areas, we thought that that is the more on retail and MSME reasonably taken care of. We have different right type of business for us. Having where growth is up to the types of firewalls, and also, our data center recorded profit of `4.77 bn for FY 2018- expected level is not outsourced – it is managed inhouse. 19, which is the highest net profit we have This is one area where continuous vigilance recorded. The most important thing is the is required. quality of assets. Never in the past has our we have already started getting the benefits [email protected] GNPA crossed 5%. Now, it stands at 4.41% of this transformation. Our aim is to put and as of March 2019, our Net NPA was ourselves in a more relevant and significant Success strategies @ 2.9%. We are continuing the same trend position among our peers. It has been a Karnataka Bank during the furrent financial year also. For holistic effort, with technology at the center. Q1 of the current FY, we have recorded a I have used our own staff as the change net profit growth of around 46% and I’m agents. We have 8200+ staff they are the optimistic that we will be able to deliver change agents of the transformation. What whatever business outlook that we had we have attempted to transformation in IT, Mahabaleshwara M S given for the current year. HR, credit and all other aspects of banking. MD & CEO, Another significant point of this is this is Karnataka Bank Is the success because of concentration this has been an inclusive transformation. on retail, MSME and less troubled sectors? I myself have attended 115+ town hall Summary: The secrets We are not overexposed to any of meetings across India so as to reach out of the bank’s successful the problem sectors. We don’t have any to my transformation change agents. With growth and NPA exposure to Jet Airways or Kingfisher. We this, I have reached out to more 70% of my management are not have small exposure to the NBFCs. We staff, the change is quite visible in all aspects being over-exposed to are on our transformation journey with of banking. Once this transformation the corporate sector and rather focusing on the retail and MSMEs our transformation consultant BCG. This initiatives are totally institutionalized, you in the rural and semi-urban areas. journey is already 18 months old now, and will see the emerging of the new Karnataka

12 Banking Frontiers November 2019 CISO Guide API Security: Enabling innovation without enabling attacks, data breaches Edited excerpts from the presentation made by Manjunath Bhat, senior director and analyst, Gartner, at the Gartner Security & Risk Management Summit 2019 in Mumbai:

arlier, it used to be said that there is an app for 3. Secure: Create a policy for API protection and anything. Now, there is an API for anything. access control. EAPIs are viewed by many CEOs as the next A lot of the code in an organization is open source for revenue. Many companies have reached the source or is assembled rather than written. Include limit of their revenue from current sources. APIs are authentication as well as authorization. fundamentally new products. Companies like PayPal, To treat APIs as product, they have to be Paytm, etc, are built around APIs. managed as products, for which an API product API vulnerabilities include theft of secrets, manager is required. Security champions should debugging, access violation, API scraping, denial be embedded in development teams. A production of service, exploits, etc. Attacks can appear from manager is typically tied to functional development. Manjunath Bhat anywhere around the globe. No matter how mature The key change is making sure that the API product your development process, it is not feasible to protect against all manager includes security as product function. There is no instant attack vectors. For example, a developer can do nothing against business value in security and it cannot be monetized, but it can be a denial of service attacks. API scraping is tracing the calls made from big problem. an end point to an API and then reverse engineer the attack. Make sure that your API does not transmit personal identifiable If you are looking at 3rd party aggregators, they should not information (PII) such as Aadhar number, date of birth, etc. request banking credentials. Rather this should be handled by [email protected] a token. Typically, you will be exposing legacy applications. Benefits include reduced complexity. The technique is to create an API mediation layer that decouples the inner APIs from the outer APIs. This technique of loose coupling will allow you to change the inner APIs without changing the outer APIs. Traditionally one would look at web application firewalls, or WAFs, but that is insufficient. Since data is also moving to the cloud, you are not serving the API from a single instance. So, the firewall is irrelevant. DDoS is becoming very important, which is best handled with solutions from Akamai, Cloudflare, etc. Any investment in protection should not be with one type of attack. Rather, invest in capabilities as opposed to providers and products. There is a convergence taking place between WAF and RASP providers. A WAF is external, where as a RASP provides intrinsic protection based on what is normal and what is abnormal. With code level protection, you are putting the protection within the application. Bots are automated connections to APIs. In API world, it is important to protect the front end as well as the back end. If a mobile app can be reverse engineered, it can be used to create a fake app, which can call the API. API management: discover, monitor and secure: 1. Discover: Inventory the APIs that have been delivered or are in the development process. APIs from 3rd parties should also be included. 2. Monitor: Observe your API usage. Learn what normal is for API behaviour.

Banking Frontiers November 2019 13 Cover Story

AI’s role in HR just short of decision-making

AI is gaining an all-pervading role. HR functions are increasingly carried out using AI and the whole concept is getting perfected:

ntil recently, the primary use of human biases and inconsistencies in first level queries at the time of interview or/ technology in HR management was sensitive decision-making. Decisions and post joining. “Our recruiters have access Uto improve efficiency and derive cost powered by AI have the potential to be faster to the latest tools that analyze resumes and savings by automating repetitive tasks. This at scale and more data-informed, as well as compare them with existing employee data has changed and smarter technologies are more consistent and unbiased. to identify suitable candidates who match helping HR teams to solve critical business AI in HR has limitless opportunities. the job description and are suitable for the challenges, drive exponential performance It has proven roles in at least 5 areas: organization in the long run. Automation improvements and even impact larger in recruitment, in HCM, in employee in payroll and claims processing is already business outcomes and profitability. Here, engagement, in employee benefits and in in full effect at DBS and ensures smooth artificial intelligence is creating a transition learning and development. processing. However, the impact of AI in for HR from administrative to strategic to Kishore Poduri, ED & head, Human this space could be taken a step further mission critical. It is a given fact that the Resources, DBS Bank India, says today AI in detecting frauds in claims, maximizing next competitive frontier for businesses is everywhere, and HR is pretty much in the utilization of benefits, and providing is employee experience and the future of thick of things. “You name it, from chatbots, individuals with customized packages as HR will be centered on this aspect and RPAs, analytics to automation, and HR per their needs,” says he. personalizing engagement. services is successfully utilizing the full He cites the instance of cloud-based Technology has helped to provide spectrum of available technology,” says he. learning management systems, which real-time HR data available for business use AI to make personalized courses, decisions, yet manual methods still are being RECRUITING EASIER or certification recommendations, help used to get the insights from this data. This At DBS there are chatbots carrying out employees collaborate, create communities naturally creates a bottleneck. Here is where various interactions with internal as well of interest, and engage in mobile education AI is poised to step in and extract insights as external stakeholders and dedicated. anytime, anywhere. from data and deliver recommendations AI algorithms are communicating with He, however, is cautious: “As optimistic in real time. It can also eliminate common candidates/employees and addressing their as I am, of the use of AI to enhance certain

14 Banking Frontiers November 2019 experiences, I am also a firm believer in the attached to HR. “The softer aspect of HR fact that AI could never replace the human would still require a personal intervention touch, which is of the essence when it comes of Human Beings to understand various to being an HR professional.” behavioral patterns of the employees. All roles which have a close connection with SANS HUMAN TOUCH the psychology of human beings have to be He explains: AI could never do a ‘tough talk’ refrained from the AI framework. Example with an underperforming employee unhappy are organizational culture, employee with his or her assessment or manage engagement,” says he. the simplest case of grievances redressal between two individuals. It could never do OBJECTIVE INSIGHTS an emotional analogy of an individual and Like in several other domains, HR leaders determine whether they are in alignment can deploy AI-based solutions to find with the culture of the company. objective insights from raw data, feels Priti “Experiences and journeys,’ he says, “are Singh, vice president, Human Resources, of the essence to us at DBS. Our people must South Asia, Mastercard. For instance, she develop a direct connection with the ethos says it can help HR professionals identify of the organization. This is again something Kishore Poduri underlines the the most relevant candidates out of a heap we could not expect AI to replace a human fact that speed is crucial in HR of aspirants’ resumes. “This is not same being at. I do not think we are there yet as using specific pre-defined metrics to where the human mind could be completely on account of several parallel shortlist the resumes. It means making replaced by AI.” activities and automation - decisions that reflect human intelligence. basically use of AI - is the solution While resume screening is just an example, DIGITAL LABOUR such insights can be implemented in every Dr Vishalli Dongrie, partner and head, 2-FOLD BENEFITS HR function such as administration, People and Change, KPMG in India, Vinay Deshpande, chief people officer, talent management, performance reviews, believes there are considerable tasks that Mahindra & Mahindra Financial Services, learning & development and so on.” are repetitive, low-value in most functions speaks about AI gaining popularity in HR She also concurs that AI can only assist a including human resources and AI presents for its two-fold benefits of prescriptive human HR professional in making the final an opportunity to automate these and help and predictive patterns. He says lot of HR decision. “We will always need a human being free up time for more strategic work. “For a activities involve coordination, scheduling, who brings experience and cognitive abilities meaningful impact, the area of focus for HR responding to repetitive employee queries, to make strategic decisions, she asserts. today is Digital Labour,” says she. following up for closure etc and AI simulates Ajith Kumar K.K., executive vice “The augmentation and automation of human intelligence to perform such president & CHRO, Federal Bank, human labour is increasingly finding its volume-based operational tasks with ease. maintains that AI is the inevitable next way across HR processes (ex. recruitment, “This gives an edge to HR with respect to step for high-growth companies, and no employee onboarding, performance speed, accuracy and volume of operational one disputes its ability to drive efficiencies, management etc) as well with business tasks to be performed. The effort invested scale and effectiveness. He says the topic of unit employees. Most companies leveraging in operational tasks can now be redirected ‘AI in Human Resources’ evokes excitement these technologies today are utilizing to strategic decision-making with AI based and the excitement is because of the impact co-bots, ie. bots that work alongside results,” says he. it can bring to the innovation landscape in humans, and HR is getting involved in Similarly, he says, AI is also leveraged HR. The coverage of impact is huge, ranging training employees to work with such for its predictive insights. “It studies the past from reinventing employee experience to co-bots. The other area of focus for HR trends and predicts the future occurrences data driven decision making. today is how to manage the digital native of events. This helps in anticipating “For us in Federal Bank, strength of the talent that is coming in today and how to contingencies and acting proactively in business case, certainty of the business need, build the right mindset to leverage their the VUCA world. It can be a great tool the solidity of value preposition and surety of skills across the organization,” says she. in predicting the attrition triggers for an the benefits lay the foundation of embracing According to her, activities that require organization. It can study the productivity technology, be it AI, RPA or ML. HR should human empathy, personal connect and cycles of an employee to identify a pattern be prudent in modelling the business need emotions, like grievance handling, coaching, in the highs and lows,” says he. and break down the business challenge counseling which need the ‘connect’ and He, however, maintains that while AI to strategic objectives to pick the right ‘trust’ quotient to be established will remain will evolve a lot of roles in HR, it cannot technology. I must say we have an interesting difficult for AI to impact. replace the creativity and empathy quotient case study of AI in recruitment, christened as

Banking Frontiers November 2019 15 Cover Story

Fed Recruit. With the success of Fed Recruit, the time. There is nothing worse in terms of we feel AI is promising in HR,” he says. experience for a new joiner, if they have to go He points out that the recruitment through a labyrinth of tedious paperwork. strategy at the bank follows the brand’s core In the interest of our technology center, theme of ‘digital at the fore; human at the core’ hackathons are very effective in meeting by creating a robust recruitment framework our hiring targets. These events draw huge that aligns culture, talent, organizational crowds, and the company can capitalize structure and processes through technology. on the quality and quantity of hires at the “Our focus is beyond just providing the same time. Speed again is crucial, and human touch to the candidates, but more on automation is the solution,” he says. creating a candidate experience similar to a Deshpande of Mahindra & Mahindra delightful customer experience through new Finance emphasizes that when using AI technologies. Fed Recruit is designed to help to the company’s advantage, there is need talent acquisition teams reimagine people to feed the appropriate algorithm to derive and talent processes so as to attract the best the desired output. “Organizations today talent, build stronger teams, and enhance are identifying processes which are a low the candidate experience. With the help of value addition but high on transaction this AI powered data-driven platform and Vishalli Dongrie emphasizes and creating algorithms to automate these HR analytics, every step of hiring can now be that activities that require human processes. This will boost the speed of measured and tracked. The data predictive empathy, personal connect and execution with accuracy, and also reflect hiring technology lays the foundation of a underlying faults in the process, if any. strategic plan that helps to make reliable emotions will remain difficult for AI These algorithms, or ‘bots’ in other words, decisions while hiring talent,” says he. And to impact however, need to be trained by humans. AI can certainly do some data processing For instance, the intelligence part is and decision making faster. shortlisted. This helps shorten screening limited to AI’s ability to match the JD and time per candidate by approx. 60-70% and the qualifications; rest of the interview BOTS ON THE JOB in other recruitment areas as well,” he says. and selection process is human. So, it is a Vishwesh Padmanabhan, partner and He mentions that some organizations are ‘Robotic Process Automation’,” says he. head, Digital Consulting, KPMG India, also exploring/implementing ‘humanoids’ underlines the fact that any transactional to help achieve these objectives. HR CLOUD VS PREMISES activity across the entire employee lifecycle humanoids structurally represent a human What is the preference for HR professionals that HR as a function undertakes - be it and with AI they are able to formulate the - cloud-based solutions or premise based related to recruitment, onboarding, talent basic connect and help address the simple solutions? management or separation - is being queries (eg, employees record details, Vishwesh Padmanabhan says cloud gradually automated and driven through onboarding details, training details, issue is proving to be a platform for innovation. bots. “Whilst it’s only the tip of the entire raising and tracking etc) of the workforce “Many new and innovative cloud-based scope of work that could be automated with speed and agility. solutions are being offered today and quite a within HR, in the current business scenario, few solutions are from new startups. A large AI-driven transactional services seems to be SPEED, ACCURACY part of the innovation will be seen through gaining the maximum traction,” he opines, Poduri of DBS Bank India says the bank in the innovative technology platforms on the pointing out that this includes chatbots last year itself beyond doubling its headcount, cloud and therefore, cloud-based solutions as a tool to drive preliminary HR query had increased its geographical spread and will see far more momentum,” says he. resolutions mechanism for employees. diversity count (in gender, culture, and multi- Deshpande avers both offer appealing “Given the success of bots in handling generation). In such circumstances, he says AI Solutions. And there are startups basic transactional activities, more mature there are several instances where speed is which have mastered the capability of firms have now also started to experiment important for the HR team. offering more appealing AI solutions for with the idea of leveraging bots/AI to drive “Payroll processing is something specific problems, and a higher degree of end-to-end HR processes. Cases in point are where speed and accuracy are important. customization of the solutions. the recruitment AI tools that keep scanning Nothing can set an employee off more than He adds: “A key difference between a firm’s talent acquisition system for new a delayed paycheck or less salary credited the 2 offerings is of financial. Cloud-based job postings basis the job requirements, to the account. The whole candidate to solutions are treated as operational expense crawl through the recruitment sites to new joiner experience is speed-dependent, (OpEx) because they are rented monthly. identify the most suitable candidatures owing to the bulk of data processing and In contrast, premise-based solutions are and then to shortlist and interview the ones the number of people in need of attention at treated as capital expense (CapEx), because

16 Banking Frontiers November 2019 they are purchased just once. Therefore, The learners can set the pace of their own cloud-based solutions are preferred; since learning and ensure an effective outcome, you pay for the service.” according to her. Poduri paints a scenario where everyone is putting in a lot of innovation PRECAUTIONS NEEDED when it comes to AI and there is cut-throat What are the pitfalls that HR should be competition. And everyone is offering aware of when using AI? customization. “From how I understand,” responds “There are the startups (Domino Data Poduri, “technology is not only creating lab, Quid, Data Robot to name a few); then jobs, but employment is becoming a more there are the big players (Google, Amazon, fulfilling experience.” Microsoft, the usual). The choice comes He then talks about a flip side: down to business relations unless someone “What are the functions that are most in the market is offering something really conveniently deployed to the machine? The out of the box. Cloud is the status quo at most mundane, everyday operations which the moment and DBS Bank has heavily forms the base of our vocation. For HR invested in it. All HR processes and data professionals at the onset of their careers, have been moved to the cloud,” he reveals. Vinay Deshpande avers AI is making recruitment calls, processing Priti Singh is of the view that on-premise gaining popularity in HR for its paperwork, or scanning through a pile vs cloud is again a choice based on several two-fold benefits of prescriptive of resumes to find the perfect fit for a job factors, which could be specific to the description, these are the fundamental business or the industry. and predictive patterns functions which form the foundation of their career. Now with AI taking over, we LEARNING, TRAINING “Let’s take the example of a leading are completely phasing out these basic When it comes to the aspects of training, streaming service platform which helps functions and we run the risk of having a AI has a definitive role. Poduri believes stream ‘on-demand’ content to the generation of unaware professions. Then Learning & Development is the space where ‘preference’ of the user. In learning too, again, with a plethora of possibilities, AI can have the most profound impact. “We HR/L&D teams are now experimenting there is always the chance of redundancy are looking at very exciting times, where with ‘real time’, ‘on-demand’ learning, creeping in. AI-generated email responses learning experiences are getting enriched which offers customized learning to the are the most relevant example. Very often by augmented reality and virtual mentors. workforce matched to career preferences, these machines-generated e-mails are out In the future, learning would become even thereby helping improve the overall of context, unnecessary, or misinformative. more fun, compact, purposeful, relevant, all capability of the organization on a day to There has to be a line, beyond which we at the same time and all made possible by AI. day basis,” she explains further.” must trust in human discretion.” “At DBS Bank, we are already Deshpande points out that AI produces Deshpande says we should be cautious delivering personalized learning journeys more reliable and insightful reports in of overdependence, because “here the to our employees, and I feel we have just comparison to the conventional MIS principle of ‘Garbage in, Garbage out’ is managed to scratch the surface here. As reports. “This brings more precision to the also applicable. If you have not trained AI algorithms become more complex, we Training Need Analysis and the desired the system correctly, it will not give the are looking at more exhaustive content outcome of training effectiveness. AI is desired product. We should remember that curation, refinement in the targeted skill able to personalize the training programs AI is still at a nascent stage and it requires set of individuals, more incisive analytics, based on the learning styles of the user. It human monitoring.” and more agile practices,” says he. can predict and show content as per the Vishalli Dongrie believes mundane Vishalli Dongrie feels AI is primarily used learner’s consumption capacity. AI also things like chat bots pose no big threat as in the area of on-job learning. For example, helps in curating content from various they are mostly based on existing ‘available’ specialist workers, especially those working sources and brings it on an aggregate information. “However, in the case of in hazardous environments (like crane platform thereby enriching the learner’s enhanced AI, for eg, when we move to operators) can be trained using a virtual experience,” he says. predictive analysis-based user interactions setup to reduce health and safety risks. The Preeti Singh too says AI is playing or information extraction, the power of AI other area, according to her, is to increase a crucial role in enabling personalized is best leveraged when there is sufficiency of productivity and efficiency of workers on learning experiences for every individual. information that the system, algorithm can the shop floor, sales force, plant operations This experience can be delivered through process,” she says. etc, where conventional classroom-based video modules, blogs, virtual chatrooms She adds that in most organizations training models are not efficient at scale. and many other digital-first methods. structured HR-related data capturing are

Banking Frontiers November 2019 17 Cover Story

just being introduced over the last few years. an HR function will be the one that best Thus, lack of accurate, enough and authentic aligns with the HR strategy that supports data could lead to wrong decisions by AI and business goals. Hasty decisions in the bells HR professionals needs to be mindful of this and whistles of technology might not help. when creating AI-based systems. Needs are unique to organizations and due “On top of this human psychological diligence should be exercised before picking biases are another big pitfall we need AI or any other bleeding edge technology. to be cautious of while designing AI/ In recruitment we, exercised strict vigil ML systems. For example, a recruitment before adopting AI. Once the mindset was system by a large online major de-selected created after modelling the need, it became female candidates based on the data that easy for us to reach the solution,” says he. most existing tech workers in the firm were Vinay Deshpande foresees all routine males. Thus, it’s all about how HR frames tasks would be taken care of by AI and bot the problem, how choices are made and workers and HR will be more focused on available data/contexts or the lack of it will decision-making and course correction. simply influence what the machine needs “HR will, additionally, have to cater to to discover. This is a major pitfall,” says she. training the bots and ensuring their Vishwesh Padmanabhan speaks alignment to the HR processes. This would EMPATHY, A LETHAL WEAPON about how increasing use of AI require the HR to upskill themselves Vishalli Dongrie also cautions that empathy in HR will create newer positions to train the bots and ensure the usage is a hidden nuclear weapon that can touch of relevant algorithms. AI cannot take millions in one go and have a far deeper and roles in the HR department decisions for you; it can only help you make impact than any AI system. This skill, those decisions. AI will induce a paradigm she says, is already in shortage, and HR help transform HR from an administrative shift from an administrative role to a leaders now need to ensure that empathy role to a mission critical role. Poduri is consultative role for HR for sure,” says he. and emotional intelligence are not being emphatic stating with AI taking over affected by AI systems and applications. the routine administrative stuff, it looks RECOMMENDATIONS FROMAI She quotes research by Harvard University, almost inevitable that HR functions make Poduri believes there are several avenues which emphasized that these aspects are key the shift to a mission-critical role. Job within HR functions where AI has predictors of success across managerial roles. descriptions, he expects, will increasingly been implemented to monitor the “Last but not the least, HR needs to ask focus on specialization within functions. recommendations and decisions emerging the tough question and not go with the herd “We already have individuals in our from AI. “Diversity in functions means that mentality - ‘whether machines should be organization who are focused on business the moderation process needs to protect allowed to make decisions about the future advisory, journey thinking, employee the essence of that function. Frequent of human beings,” she adds. experience and engagement, employer simulation runs and provisions for a human According to Priti Singh, HR roles involve branding. Now, these are functions which override are some moderation techniques interaction with human beings and AI cannot are defining the organization of the future, that I can think of. To eliminate errors in always be the perfect solution. Since AI is and as we realize the future these functions procedure, ultimate decision-making needs entirely objective in its decision making, the become mission-critical.” to be vested on humans, supported by an data involved in the decision-making needs Vishwesh Padmanabhan says HR has exhaustive feedback mechanism,’ says he. human interference to improve decision- always been on the journey of transitioning Deshpande feels the recommendations making capabilities. Therefore, AI needs to away from an administrative role to a more and decisions have to be constantly work in sync with human intelligence. strategic role, and with the advent of AI, this reviewed. There has to be a pilot project, Ajith Kumar recalls the bank’s corporate journey will only be expedited. “The ‘new there has to be a trial of the pilot project, credo ‘human at the core, digital at the fore’ normal’, says he, “encompasses constant and there has to be an analysis on the basis to emphasize how the combination only disruption, game-changing trends and of how the work is going on, he says. Beyond works effectively. “We are deeply aware of perpetual transformation in the workforce this, there has to be a human intervention AI’s potential as well as pitfalls. So, when we and ways of working (eg, gig economy, to validate the recommendations made set out to tap into the incredible power of millennial workforce, remote working before it is scaled up. AI and create an HR platform with AI at its etc.) and in such an age, the role of HR has “Humans also have to explore any heart, we were driven by this credo, he adds. become more pivotal and critical than ever” alternate best method of performing Ajith Kumar believes focus should be the same task which the AI might not be MISSION-CRITICAL ROLE on an entity’s HR strategy. “We believe programmed to consider. There will also HR professionals generally believe AI will that the best technology platform for be a cost benefit analysis attached to the

18 Banking Frontiers November 2019 final solution that has been considered is the stark possibility of over dependence and then building a culture to embrace AI, on machine, and a cut away from human especially in India. But that will become connections. We need to be very thoughtful easier when more bot workers come into and have a balanced approach on what and use,” he elaborates. how we implement AI,” he says. Ajith Kumar believes the benefits are REVIEW MECHANISM numerous. It can speed up activities, it can Vishalli Dongrie argues that there needs help make faster decisions, many small to be a review mechanism in the form of aspects of the daily working life can be a steering committee with representation handled with ease and in a more organized from HR as well as other functions, to and coordinated matter. successfully drive outcomes and review such He points out that the Fed Recruit recommendations from AI projects. Such mobile application is integrated with NLP- an arrangement will allow the leadership to based chatbot that not only turns the top- work together during all phases – ideation, down employer-applicant monologue into realization and change adoption, she adds. a horizontal dialogue, but enhances the DBS Bank has already covered some entire candidate experience. ground in redefining job descriptions in “By employing NLP based chatbot the light of using AI for HR functions and Priti Singh insists we will always solution to complement our recruitment the next step would be to push for more need a human being who brings team, we eliminated the repetitive tasks of comprehensive specialization. Poduri is experience and cognitive abilities answering phone calls. The well-optimized confident this would give rise to refined to make strategic decisions chatbot communicates only the essentials skillsets and the inclusion of a plethora and does not overwhelm the candidate. The of new avenues into the mainstream. Preeti Singh believes that AI is chatbot represents the organization when Cultural architect, emotional analyst, impacting the job roles and expectations of it is communicating with the candidate, so, policy strategist, change manager and the organization from the employees. Since from a branding point of view, it is a perfect Org Dev manager are some of the roles, most of the functions are now evolving and way of employer brand building,” says he. where the functions are already under incorporating new technologies, employees Deshpande reiterates that while AI implementation in the bank, he reveals. need to have the ability to work with these will ease the process of HR execution, it Deshpande expects the job descriptions changes, she says. “Going forward, they will will not be able to replace the Empathy, will evolve from the current context. be less required for iterative functions which Creativity and Strategic Thinking in an There will be need for more techno HR a machine can learn and perform faster. The organization. According to him the pros of professionals, who will appreciate technology, real jobs for HR professionals will be to add this proposition are: adopt the same in the HR scenario and human intelligence on top of the insights Speed: AI produces diagnostics on real train the algorithms (bots) to enhance the generated by AI-based platforms and make time data faster than manual conventional HR processes. Someone proficient in data the right decisions, says she. MIS reports. It will automate all the science, who can evaluate the quality of non-value activities like coordination, recommendations made by the AI tool, will AN INTELLIGENT ASSISTANT scheduling, data mining, data collation etc. be the preference, according to him. One model often proposed for using AI Cost: AI will help streamline lot of in an organization is that it serves as an processes, thereby keeping the HR team BETTER TOOLS, MEANS intelligent assistant to individuals. What Lean and reducing the manpower cost. For Vishwesh Padmanabhan however, the are the pros and cons of this model? Quality: Since the analytics is headline requirement still remains the same Poduri believes this is an interesting programmed, there is no scope for and it all comes back to managing people. proposition. Says he: “With virtual home deviation, thus controlling any errors. “What emerging technology trends will do is assistance taking the market by storm, we Quantity: AI can easily handle large give HR better tools and means to manage are already some way out there. However, volumes of data from various sources and and ‘delight’ its people. So, in essence, the the proposition of a personal intelligence derive results from it, which would be role and success for HR leadership will still system does come with its pros and cons. restricted in case of human driven analytics. be defined through same metric. However, The idea proposes to raise the performance And the cons are: middle and junior management roles may standards of the whole organization, as Re-skilling and up-skilling the become less transactional and more strategic instant, customized assistance would allow workforce: While AI will not cut down and data driven – with need to enable the individuals to focus on aspects of their jobs, it will require employees to up-skill better employee experience, engagement, career which are aspirational and more or re-skill themselves in order to adapt to enablement and education,” he elaborates. fulfilling to them. At the same time, there the AI-based models. Someone who fails to

Banking Frontiers November 2019 19 Cover Story

match pace with the evolving nature of HR that AI and robots will automate many jobs will have to part ways eventually. has been growing. She points out to studies Soft skills: AI will not be able to carried out in the US, which have predicted replicate the same degree of empathy that 40%-50% of jobs in the country could towards its employees as an HR person. be automated in the next 20 years, and For example, if an individual has to nudge many people are worried that they could be you for a reminder, he/she will do it in a forced into retirement. “However, the way human way, keeping your mental and humans work has always been changing. physical health in mind. The bot will do it Ever since the First Industrial Revolution in a very mechanical way. It won’t consider to this day, when we talk about industry such parallel factors. 4.0, people have not lost jobs because Vishalli Dongrie believes AI can serve as of technology. They have instead got a intelligent assistant to individuals in the areas higher level of functions and had to upskill like sales, marketing, HR & recruitment and accordingly,” she avers. customer service. She says some of the most Poduri says emphatically: “That is not in mundane office tasks like writing emails, the very least true. I believe that technology scheduling meetings, taking notes, making is creating more fulfilling jobs for the people, travel arrangements etc can be handled by Ajith Kumar believes the where they can dive deeper into their such assistants thus helping the employees coverage of impact of AI in HR is subjects of interest. However, they must be save on time. This will work quite well with huge, ranging from reinventing open to change, be stoked at the opportunity the more tech savvy younger generation. employee experience to data to learn, unlearn and do it again.” “The cons,” according to her, “could be And Vishalli Dongrie points out that ‘addiction’ - becoming slaves to technology driven decision making we have seen this question coming up and also losing out on the humane elements with disruptive technologies in the past of the task - a complete transformation of specialization, it is only a matter of time as well, and this is not the first time that how we think, live and feel. AI as intelligent before the contributions made by individuals a new technology has impacted jobs. “This assistant is mostly reactive in nature and not require the creation of new positions. happened when electricity came in and proactive. Loss of creativity of the human Ajith Kumar says Federal Bank replaced steam power, computerization mind could be a major drawback for this has positioned AI in recruitment as an came in to replace manual processes and model. The worst part is AI learns from us enabler, not just safeguarding rapidity, but many others. What we have learnt from and hence if we embrace the wrong behaviors, reinventing the human intervention. “For similar technology changes in the past is then this is what AI will start believing as us, the HR intervention is now required in that the initial period requires adjustment, normal and respond in that manner.” fewer ways for the operational areas of talent but after that time period, technology acquisition and is far more imperative in creates new jobs and roles for employees, NEWER POSITIONS the analytical and intellectual aspects. The which are often hard to envision at the start Vishwesh Padmanabhan emphasizes that data predictive hiring technology lays the of the journey. However, when it comes to AI increasing use of AI in HR will create newer foundation of a strategic plan that helps to integration today, the keyword is very much positions and roles in the HR department. make reliable decisions while hiring talent. ‘augmentation’ - the idea that AI machines “With AI playing a bigger role in driving HR The engagement focused talent acquisition will help us do our jobs more efficiently, processes, HR will have more people data to can scale up to very large talent pools while rather than replace us. A key idea is that analyze than ever before - which will require still preserving the quality of candidate they will take over the mundane aspects of HR to become more analytical and build experience,” he explains. our role, leaving us free to do what humans capability around creative design thinking Deshpande also agrees that with the do best - tasks which require creativity and to reshape the way employees are serviced evolving role of AI in HR, there will be human-to-human interaction.” in future. In addition, we could also see tech techno HR professionals. “You will need a Deshpande, however, admits that some roles or competencies like data mining being special skill-set to train the AI, and to use jobs will definitely be affected, especially added to the HR functions. There could be the related applications in a manner that is the routine jobs, transactional jobs and jobs roles like chief ethical officer, a role that productive. There will also be a need to do a which are low value-based. “For example, ensures technology is used in an ethical and Cost-Benefit Analysis (CBA), and therefore, nowadays, hardly anyone uses a physical humane way, and human resources tech specialists who can do that job efficiently, dictionary to find the meaning of a word; trainer roles, etc,” he says. will be welcomed,” he says. instead they Google it. However, creativity Poduri says with the increasing use Finally, what is their take on the most- is the one aspect with regards to AI that is of AI, people can develop their niche and often stated fear that AI will take away jobs? possible, but is still restricted,” he highlights. specialized skills and with more focus on Priti Singh states it is a fact that the fear [email protected]

20 Banking Frontiers November 2019 Transformation Leveraging digital, enhancing phygital

Edited excerpts of interview with Jaya Janardhan, COO, Ujjivan Small Finance Bank:

Babu Nair: We have been talking about feel very comfortable and your trust in experience in the world of banking. the bank develops. But if you are getting As a micro finance company that has some kind of vague answer, then you lose transformed into small finance bank, you faith. When it comes to the micro banking would have seen a lot of changes taking customers, or for that matter any customer place in business, technology and digital. of the bank, when the customer comes to Can you narrate your experience on how you and seeks some information from you, this journey has been? say for a loan, the issue is how you actually Jaya Janardhan: We got a license for mould him into your banking fold, ie how small finance bank in 2017. In 2 years, do you answer and give him what he wants. the organization has slowly transformed This is the first level of stickiness. Stickiness from being a microfinance company to leads to trust. Then it does not matter what a bank. What’s interesting to see is how the world says, he will believe what you say. micro banking which is largely a physical That maybe the reason that when payments activity like attending meetings, collecting banks went to try and use the retail channel, money, signing off physical papers etc, it did not really work. Because for the has now become a paperless process. Our customer, it’s that physical existence – the field officers who source business and branch, the people, how they talk to you, do collection, do everything on a hand- how the person convinces you and gives you held device today, which is completely Jaya Janardhan reveals what is wanted that really matters. There integrated with the backend. So, the Utkarsh Small Finance Bank is transparency. For digital customers, moment he sources a customer and feeds in has made huge investments to the fact that they are using the app is the the information, it is directed to the bureau take the bank to the next level underlying basis of trust that is there in for credit information. The customer will the background. So, it all depends on the know whether the loan has been approved of digitization customer segment that you’re working or not in a matter of hours. There is also a with and the way you manage to give your lot of transformation which the field office the customer has in the bank that ensures customers the impact they wish. has undergone – from processing physical that business grows. So how is the element [email protected] documents to doing so using a digital of trust of the customer gets transformed device. The field staff are ground level along with this digital transformation? Do people and not highly tech savvy. So, that’s you really see this trust as an experience a transformation that has been possible in accelerator for you? Unified digital approach the last two and a half years. And this is a So, when we do a transaction, we expect huge deal. OTP and SMS to come within a second and The changes that we have done as then we feel that the transaction has gone a bank like in bringing in core banking through safely. The moment you don’t get system, a CRM system capable of an SMS, there is panic. So, trust is a huge 360-degree customer management, the terminology and it depends on what you various backend systems which have been define as trust. The way I define trust of a Raj Kiran Rai integrated to make sure that the front for customer in our bank is when I approach MD and CEO, the customer like the phone banking feed, a bank and I want something from the Union Bank of India the branch DP, the field personnel, are bank, I am responded to and I am given Summary: Union Bank all integrated at the backend through a that information. I then feel that I have is constantly adding seamless process. The bank has made huge satisfactory response. For example, if you features to its app investments to take it to the next level of have put an FD in a bank and you see a including provisions digitization and automation. small difference in what you expected and for customers to apply what is seen in the passbook, and if you for a loan and controlling their credit When technology comes in, security too go to the branch and enquire, the branch card limit and usage. gets into. But ultimately it is the trust that guy explains it to you. That is when you

22 Banking Frontiers November 2019 Small Finance Bank ESAF launches ‘EIDA’ for its CASA customers K Paul Thomas, MD and CEO, ESAF Small Finance Bank, shares details about CASA growth and expansion plans:

SAF Small Finance Bank, which ‘EIDA’ is a robot which can answer began operations in March 2017, customer queries and guide customers to Esaw an over threefold jump in its net various departments in a branch. profit to `90 crore in 2018-19. The bank Our customers can also now utilise the has recorded a whopping 234 % increase Bharat Bill Payment System using internet in its net profits for the FY19. High interest banking to facilitate payment of bills income and efficient non-performing asset without prior registration with biller. (NPA) management contributed to the growth of the bank. How have you modified your CASA The bank has 424 banking outlets and marketing techniques? How effective are the 213 ATMs across 14 states with a client new techniques compared to expectations? base of 3.3 million. It has a capital base We have designed our CASA products as of `8.93 billion and it employs more than affordable to all segments of the population. 2000 people. The bank has taken special As a part of our intention to provide ‘Joy of initiatives to promote CASA products. banking for all’, we have waived services charges or have very low service charges. Ravi Lalwani: What is the demand for At the same our balance requirements in CASA products among your customers? K Paul Thomas CASA accounts are very reasonable. This What are the customer trends? has positioned us as a bank which is for K. Paul Thomas: Our CASA balances months? What new is in the pipeline? all persons. At the same time, we offer are on an upward trend across various Over the past 12 months we have competitive interest rates on our SB accounts. states. As a bank catering to various integrated with BHIM/UPI for facilitating We have close to 1600 employees in customer segments and with rapid branch remittances within India for our customers. branches and they are our most potent expansion plans, we do not anticipate any We have also tied up with a payment gateway marketing force as each of them meet at decline in CASA. to facilitate utility and other payments for least 5 people every day. Our business CASA customers. A platinum debit card correspondents also are active marketers Among which customer segments is your has been launched and several variants of for our CASA products. Both these channels CASA growing and among which customer savings accounts are planned. A savings continue to be very effective. segments is it declining? What could be account for farmers was launched called the explanations for this? ‘Krishak Bandhu’. We launched services to What is the impact of slowdown on We are a relatively new bank, NRI segment and have tied up for inward your bank? What are your expansion plans introducing various products and services remittance facilities with exchange houses for 2020? across geographies. We are also expanding to facilitate remittances from NRIs. Despite a slowdown in internal the branch network; thus, we see growth We are now in the merchant acquiring consumptions, declining investments and in every segment. As a bank we have business, partnering with well-known changing macro situations, we were able given special focus to providing financial agencies for installation of Point of Sale to improve upon our own benchmarks of services to the unbanked and underbanked machines in various shops and other performance. segments of the population, also the senior outlets. This will help our current account The higher asset quality and higher citizen segment. A substantial size of our customers to accept payments by credit/ interest returns contributed to the growth of liability business also comes from the age debit/prepaid cards. bottom lines. There are growth aspirations in group of 20 to 40 years, all these segments We have also introduced corporate rural India, which are prompting us to further are growing at a good rate. internet banking facilities for our corporate expand our reach especially in the unbanked and other current account segments. We sections and geographies. Our total branch What new features/facilities have you were the first small finance bank in the network will cross 500 mark by 2020. added for CASA customers in the last 12 country to install robot in a bank branch [email protected]

Banking Frontiers November 2019 23 Channel Preferences Traditional marketing clinches its place in BFSI campaigns CMOs of BFSI companies discuss the role of traditional marketing in the digital era: recent study by Radiocentre and Ebiquity shows that marketers are Aoverestimating the effectiveness and value of online media compared to traditional channels like radio, TV, etc. True, one of the biggest selling points of the digital medium is its accountability. You can invest, measure and understand who exactly you reached out to. Yet, traditional media still provides better personal connect, longevity and recall. BFSI institutions consider print, radio, TV, Out of Home, or OOH, PR and Anand Bhatia Prabhakar Tiwari seminars as the top traditional marketing channels. They use different channels to higher education until they join their course a growing bank. “We have used print media reach different customer segments. of choice.” in while launching branches and promoting Anand Bhatia, CMO, Fino Payments products such as savings accounts and Bank, says the bank uses print, PR and TRADITIONAL TOO fixed deposits. We use a good mix of digital Facebook channels predominantly. “We have Prabhakar Tiwari, CMO, Angel Broking, and traditional media to ensure that our received good customer response from print says while the company is a highly digital banking solution offerings are presented to media in states like UP, Bihar and MP. We first organization, traditional channels wide range of audience,” he adds. are also using PR and Facebook. We have too become part of the campaigns. “TV 3 types of customers - customers who want business news channels give us reach to NEW TRADITIONAL CHANNELS to open their savings accounts or a current multiple customer segments. We also have Even in digital media there are traditional account with us, merchants and influencers. experimented with the print media and and new age channels. Facebook has now The print medium is effective for us in will test OOH and radio channels too in become a traditional channel, while the engaging with the merchants and the digital our future campaigns. Traditional media new age ones are Tiktok and Share Chat. medium is good to target the customers who channels like TV and print too have given Anand Bhatia of Fino Payments wants to open new bank accounts.” us reach and frequency.” Bank says traditional channels like TV HDFC Credila finds participating in OOH, radio and print channels are the and new age channels like YouTube are seminars at colleges, holding loan desks top 3 traditional marketing channels used morphing into one. “From the last one and involving in international education by Utkarsh Small Finance Bank. The bank year, we are using the print channel to fairs beneficial in its marketing efforts. is getting good response from radio and acquire customers as we find that print The company is, however, more focused OOH, which help it in reaching out to the has more longevity compared to digital on digital media than traditional media for regional markets. Sachin Vasan Nair, head - channels. Twitter has longevity for 1 hour marketing and it uses radio, TV and OOH Branding and Marketing at the bank, says: and compared to Twitter, Facebook has channels very sparingly. “We use regional content, which gives us longevity for few more hours. We are The company has done customer strong connect with the customer segments. focusing on PR too as coverage about the segmentation based on the destination Radio helps us in creating buzz about our bank in the newspapers and magazines country of the students and the 3 key products and outdoor acts a reminder media creates good impact. Around 15% of our segments for higher education are the US, and enhances brand visibility.” total marketing budget is allocated to the other countries abroad and India. Ajay He adds that print media helps the traditional media,” says he. Bohora, co-founder, MD and CEO, says bank to create awareness about the brand Tiwari of Angel Broking feels traditional the marketing efforts of the company focus and banking solutions. Print campaigns media has its own advantages. “We have on the core philosophy of adding value to creates brand awareness, which in turn used business news channels effectively the students from the time they plan their helps it in building credibility required for and have also experimented with the print

24 Banking Frontiers November 2019 media. However, most of our performance marketing initiatives are digital in nature. Our annual budget for traditional media is above `20 million,” says he.

TRADITIONAL CAMPAIGNS BFSI institutions use Below the Line (BTL) and Above the Line (ATL) activities to promote traditional marketing campaigns using a combination of print and digital. HDFC Credila conducts hundreds of seminars across prestigious colleges. Ajay Bohora says these efforts are more BTL Sachin Vasan Ajay Bohora than ATL. “The results of BTL activities are easier to gauge as compared to ATL. millennials, for which the bank selected media channels like regional newspapers, Given the niche segment that we operate newspapers that have good readership radio, outdoor and road shows to reach in, it is more cost effective and impactful to among the young generation. the rural customers. Bhatia flyers in use BTL mediums,” he says. Angel Broking had a unique campaign newspapers can be the successful traditional Utkarsh Small Finance Bank had done called ‘Don’t be A Chomu’ to promote a new media channel for Fino Payments Bank to a 10th anniversary campaign using radio mobile app. It showcased the frustrating connect with the rural customers. “We are and OOH and it saw huge increase in visitors experience of investing in India and the adopting an integrated approach as the link on its website and social media page in a increasing sense of financial awareness. At between traditional and digital is blurring. period of 1 month. It also created substantial the same time it highlighted the seamless “The same marketing message gets spread awareness about the bank in local areas. trading experience and expert advisory through different channels. It surrounds Fino Payments Bank used the print service Angel Broking offers through the the customer, so the customer gets better medium when it launched its operations app. “The campaign generated good business recall and response,” says he. in Bengal and Assam. The campaign was for us, and the volume went up by 30%. We Tiwari mentions that in stock broking targeted at merchants and availability of have seen 35% increase in our website traffic business, most of the new customers come banking facilities in every location was the and there is 80% increase in our organic app from tier 2 and 3 centers. “The awareness theme of the campaign. The associated download after the campaign.” and access are the biggest challenges that merchant turns banker as he would provide we face in these centers. Our performance micro ATMs and other banking services. RURAL AREAS marketing campaigns have worked in these Bhatia says the campaign also targeted BFSI institutions generally use traditional centers,” says he. HDFC Credila’s strategy for the millennials FUTURE OF TRADITIONAL MEDIA DFC Credila has crafted a value proposition for students of each segment by educating Bhatia insists that Fino Payments Bank Hthem about various elements of higher education, connecting them with fellow students in will continue to adopt an omni-channel their chosen destination country, connecting the entire ecosystem with students and creating approach in its marketing campaigns. access for students to connect with these stakeholders who add value to students during their This will involve integration of print and life cycle of higher education. digital. “The mediums are the pipeline, The company says it focuses on building trust and respect in the student community by what matters is the story, proposition and making credible information available to them and offering education loan services if they meet objective. The medium will change based on relatively stringent credit criteria of the company. It has noticed that students are searching the objective of the campaign,” he explains. for quality and credible information. They want to learn from fellow students, know about the Ajay Bohora says the role of trends in the sector, about their learnings while going through the process of admission etc. The traditional media in the form of BTL company therefore curates a lot of this information in the form of videos, articles, infographics, engagement activities will continue as a e-books and experiences shared by students studying overseas, etc. part of the marketing mix in the future. The company is getting outstanding response to this content, specially that which shares the Such a proposition gives an opportunity to experiences and guidance by other students who have gone through this process of admission engage directly, to have a personal connect and choosing the destination of study in the past. with customers and partners etc. However, The company uses both online and traditional platforms to engage with students - online the percentage of spends on such mediums webinars/ Facebook Live events or physical seminars or loan desks/melas. But, over a period, it and the dependence on it has been reducing says the use of digital media is growing and digital and social media platforms are the preferred with more spends and focus, he adds. medium to absorb information by the millennials. [email protected]

Banking Frontiers November 2019 25 MSME Hospitality, IT & transport booming sectors for SME lending NBFCs are venturing to finance MSMEs and SMEs even as banks fear to foray into this sector:

he MSME and SME sectors are regarded as engines for economic Tgrowth and for promoting equitable development. These sectors help the economy by promoting a balanced development of industries across all regions of the country. When Indian banks faced the rising NPAs, they became reluctant to lend to MSMEs and SMEs considering the risky nature of their businesses. While banks could cope with the problem of NPAs to some extent, some NBFCs got struck with Mehernosh Tata Piyush Khaitan the liquidity crisis and became wary of doing business with SMEs. The new age NBFCs MSMEs in their growth journey. Our aim company sees a huge scope to grow in this have taken advantage of the situation and is to provide timely credit to the micro and segment. It is growing at 40% every year they saw this as an opportunity to scale up small enterprises in India.” and this is expected to continue for the their business with MSMEs and SMEs. Edelweiss Finance has collaborated next 5 years. Rajesh Sharma, MD, says the NBFCs in India also face the challenge with State Bank of India, Bank of Baroda, company is funded by 20 lenders, including of doing correct credit risk assessment of Punjab National Bank and Central Bank of private and public sector banks and foreign MSMEs and SMEs on account of lack of India under a co-origination model with an banks. It has a strong liability profile, financial information, historical cash flow aim to ensure timely disbursal of credit to offering small ticket size loans. details etc. This has deprived many MSMEs MSMEs. It is the only NBFC to do so. He adds: “We are serving the underserved and SMEs of institutional credit. NeoGrowth is a leading NBFC that customer – those who are not served by the provides easy and quick business loans formal institutions. SME lending business is MANUFACTURING SECTOR to MSMEs in the retailer segment, which only 16% of the `60 trillion credit demand India’s MSME segment is significantly are primarily service based industries. The and there is a huge gap. We are not targeting contributing to the GDP and playing a vital company has seen maximum increase in any specific sector since we are serving the role in employment generation. Estimates disbursals in the manufacturing segment, underserved customers.” indicate that the current credit flow to this especially to engineering and capital sector is approximately `13 trillion. goods manufacturers. SERVICES SECTOR Mehernosh Tata, head - SME Lending, The SME lending business of Capital Food & beverages, restaurants, IT, transport Edelweiss Finance, says Edelweiss Float, a digital finance company that and logistics are the segments that most recognizes the crucial role that MSMEs provides collateral free unsecured business of the NBFCs receive their business from. play and understands the importance of loans online, is not concentrated on any NeoGrowth has seen a steady growth in financing this segment and supporting its specific vertical. Ankit Satsangi, CRO of the disbursals to food and beverages, apparels growth. “Our SME loan disbursals have company, says if there is a slowdown in an and groceries segments. IT, transport and been growing at a CAGR of more than 20% industry, the company excludes firms from logistics and facility management services are in the last 3 years. We have a well-diversified that industry from its sourcing list. “We the top 3 services sectors that Incred Finance and balanced portfolio spread across work on an exclusion basis rather than on targets. For Capital Float it is restaurants, industry sectors. Our deep understanding an inclusion basis. In the manufacturing manpower and business consultancy. of customer aspirations, innovative product side, those engaged in electronic parts, suite, digital adoption, singular focus machinery parts, etc are the ones that are LOWEST & HIGHEST NPA on on-boarding high quality clients and bullish,” he says. Manufacturing sector has higher NPAs due diligence in credit assessment, help Capri Global Capital is not facing any compared to services sector, especially us to provide the required support to the slowdown in SME business. In fact, the because of the recent slowdown in the

32 Banking Frontiers November 2019 Ankit Satsangi Rajesh Sharma Saurabh Jhalaria economy. Saurabh Jhalaria, head, SME Capital Float is a fintech NBFC and it is the data which is digitally available. Ankit Lending, Incred Finance, says in the has banks as lending partners, contributing Satsangi says the company is also running manufacturing sector, the highest NPA is 35%-40% of the business. Piyush Khaitan a program in which it makes use of credit in the textiles segment, mainly because of says the company has partnerships with card swipes to underwrite the customer competition from Bangladesh, China and a number of platforms for customer and give him loans while EMI payments Taiwan and also the impact of GST on the origination, information, analytics, are made through POS machines. industry. The lowest NPA is seen in the collections and risk management. Capri Global Capital uses customer chemical industry. In the service sector, Capri Global Capital uses inhouse underwriting models based on the the highest NPA is in the advertising sector, technology and it has migrated to the new age customers’ business; the company because this segment borrows more for cloud lending platform to get mobility for the representatives visit the customers at working capital. The lowest NPA is in the sales and production team. Piyush Khaitan their homes to get an idea about their IT industry, he says. says he does not feel the need to tie up with lifestyle. Says Rajesh Sharma: “We talk to According to Piyush Khaitan, founder, fintechs to cater its customer segment. the customer’s suppliers, lenders, vendors, NeoGrowth, his company has seen lowest neighbours, shops, etc. We also check their NPAs in petrol pump segment and higher E-COMMERCE PARTNERS profit and loss accounts to get an idea about NPAs in auto dealer segment. Most of the NBFCs do not have ecommerce their creditworthiness and intent to repay.” Capri Global Capital is serving SMEs partnerships for SME lending. They believe with business turnover of `500,000 to `5 that the ecommerce platform is overcrowded DIGITAL TRANSFORMATION million. The company’s NPAs are mainly after the entry of banks and hence they are NBFCs have introduced different products on account of family problems and illnesses staying away from such partnerships. for MSMEs and SMEs as per the target of its borrowers. It is targeting small Piyush Khaitan says at NeoGrowth customer segments and their requirements. customers who needs funds to grow. the sourcing is primarily driven through a In the last 12 months NeoGrowth has distribution network of direct selling agents. launched Vendor Finance and Purchase FINTECH PARTNERSHIPS The company has also partnered with certain Finance, which are essentially short-term NBFCs explore new technologies depending aggregators for customized offerings. working capital loans. Saurabh Jhalaria on whether such technologies can enhance Capital Float has relationship with says there are products for the hospitality their clients’ experience or help them Amazon for B2B and B2C business. sector where working capital, business bring about better operational efficiencies. expansion loans are offered. Edelweiss has been one of the early NEW DATA SOURCES Ankit Satsangi says Capital Float is adopters of technology in the lending space. NBFCs are using different data sources to targeting B2C segment as it is less impacted by The company believes that technology will get customer data like credit card swipes, the slowdown. The company is also planning transform MSME operations in India and GST returns, bank data, customer rating, to automate its underwriting process using provide solutions to address financing needs customer lifestyle, etc. At NeoGrowth, bank statements and GST returns. of this segment. Says Mehernosh Tata: “We datapoints like card swipes over PoS Capri Global Capital has plans to have been at the forefront of testing and machines, card settlements, sales from introduce special products for women adopting several digital initiatives, which online aggregators, etc apart from a host entrepreneurs. Rajesh Sharma says women span customer acquisition, credit decision of other demographical, behavioural, entrepreneurs struggle more than male architecture, on-boarding and customer life transactional, compliance, and financial entrepreneur for funding and they are cycle management, helping us stay ahead variables are used. always considered to be dependent on their of the curve, while anticipating the future Capital Float is using customer GST as male partners. needs of our MSME clients.” surrogate to customer turnover, because it [email protected]

Banking Frontiers November 2019 33