Serving the underserved: How Small Finance Banks are impacting the Indian economy

Committed to building financial inclusion in the country, Small Finance Banks (SFBs) are now becoming a one-stop destination for financial services, offering personalised customer experience to a wider consumer base. With technological aid, hybrid cloud solutions, data analysis and AI, SFBs are on track to change the financial landscape of the country.

Lingraju Sawkar, President, Kyndryl India and Ittira Davis, MD and CEO, Ujjivan Small Finance Bank engage in an enlightening conversation about the impact of SFBs on the Indian economy, with YourStory’s Founder and CEO, Shradha Sharma in the latest episode of ‘The New Springboard’ series. Powered by Kyndryl, the series brings together top leaders from high-potential startups, unicorns, and enterprise businesses to brainstorm ideas and discuss pertinent aspects and perspectives that can springboard growth.

Current banking trends in India

The banking industry worldwide is going through a transformation with technological innovation being the global force of change. India's move in the technology world has transformed it from being an outsourcing destination for low end work to now being a real value capture.

‘Digital Bharat’ has seen most banking products disappearing into a single app. This trend not only brings everything to one platform but helps in simplifying the whole process. As smartphones are increasingly becoming a common feature in rural homes, the younger generation is getting more and more comfortable in handling the finances using these banking apps. The statistics for cashless transactions, which currently amount to 15-20 percent, are projected to increase to 40-50 percent in this era of digitisation.

Another trend going strong in the banking industry is the adoption of cloud, which makes the whole environment flexible and adds value that comes along with it. However, security is a big concern in terms of banking requirements, and that is where guidance from companies like Kyndryl will play a major role. “The regulators will always continue to play the role in terms of watching out what's okay and what's not. And hence, the regulations will drive a whole lot of technology decisions,” adds Lingraju.

Building financial services for everyone

On a mission to provide a full range of financial services to the strata of society underserved by the financial institutions, Ujjivan Small Finance Bank is committed to serve them through financial and digital inclusion.

In its journey of building financial services for everyone, Ujjivan has recognised that financial literacy programmes are essential as they can help educate the grassroot level on how technology can be used to make their banking transactions simpler and accessible. With technology, simple concepts like maintaining a home budget and how to multiply your savings over time can be put on YouTube and become a first step towards financial literacy.

“We are trying to use these sorts of technological advances, to be able to communicate basic banking services to our customers, and through that process make them comfortable enough to come to the mainstream,” explains Ujjivan’s Ittira.

One of the key things that has driven the banking segment is the proliferation of technology and how it has made every process very fast and easy. Services like processing and releasing of loans which used to happen at bank branch offices or back end offices are now being smoothly processed on a device using technology.

The seamless operations not only make people in rural areas more confident but also more comfortable with the idea of getting into formal relationships with regular banking institutions. “Technology has helped clients like Ujjivan in ensuring that the world of banking has changed from being a branch-based 9-5 setup to a 24x7 operation available at all times,” adds Lingraju.

Although SFBs are still a very small number, they are punching above their weight by serving a large base of customers. The increase in the number of licences being given out for SFBs is a clear indication that the experiment with differential banking licence of a small finance bank is working.

Move from SFBs to commercial and neo banks

The move of small finance banks into commercial space is a definite possibility but one that comes with a lot of riders. SFBs can apply for a universal bank licence after completing five years, however it will take some time for the small banks to comply with all of RBI's guidelines before stepping into the commercial space.

“The RBI has several conditions that we will have to meet in terms of size, etc, which is required before we can make that journey. I think slowly and eventually, few of us will get a universal bank licence,” says Ittira.

With the rise in technological intervention, partnerships with neo banks are also becoming a possibility. These partnerships bring capabilities to onboard partners for end-to-end servicing of customers digitally and will enable unmatched reach in remotest parts of the country as well as access to a unique untapped customer base.

Shining future of technology and innovation in banking

Technology proliferation in banking and financial services has changed the facet of the Indian banking industry.

India’s technology initiatives have already proved that it’s going to be a big driver in tech globally in the foreseeable future. “You can really see the impact that India is making in various parts. Global capability centres are being set out here and real high value work is going out from here to the globe – not just in banking, but in other sectors as well,” says Lingraju.

On the domestic front, fintech companies in partnership with RBI have opened innovation hubs, where these companies are trying to provide solutions for the mass market. “I think that will help and sustain technology going forward in the financial services industry,” says Ittira.

Fintechs are taking up selected sections of banking operations and turning them into a more seamless, cost effective, and profitable process. This in turn is opening up avenues for future partnerships between small finance banks and fintechs.

While a strict regulatory environment needs to be in place to ensure safety when it comes to innovation in tech, India’s strong and grounded value system will also have a very big implication on driving and ensuring that good tech remains good and works towards the upliftment of the community.

As the youth of the country is empowered with a raring to go spirit, ‘unstoppable India’ is all geared up to make a big difference in the world of technology and innovation.