Indian banks have been having it bad. And things do not look like getting any better. No, we are not talking about non-performing assets (NPAs) or thinning spreads. It is the looming disintermediation of retail banking that the banks have to worry about. Already, the trend is seen on the deposit side of banks where mutual funds are being increasingly accepted. On the lending side too, mutual funds are poaching on the bankers’ best customers, the big corporates.What can the banks do? Nothing except focus on the other end of the lending market the retail personal finance market. Some public sector banks are making an attempt to penetrate this segment.
There is a bigger risk here, though. Personal finance products (consumer, car, housing and personal loans) can be easily cloned. Innovations serve only till others do not duplicate it. They then tend to behave like any other commodities. The only difference that remains would be the price, which would tend towards the lowest quote as competition increases.
Moreover, technology has shattered the entry barriers. For instance, there are at least half a dozen sites offering car loans from multiple financiers.
The comparison and selection process has become ever so easy, something not possible earlier when one had to make several phone calls and visit each offerer for a quote. The Internet has altogether eliminated this with institutions are putting up their sites. Information about their products is just a click away. The day isn’t far off when an Internet portal sanctions loans from any institution on-line.
In fact, Internet entrepreneurs in India are the most sought after by venture funds from India and abroad. It is only a question of time before virtual banks become a reality. Players like Microsoft (finance software ‘Money’) could well emerge on the Indian scene. Satyam Online has already made a start by putting up a site on the web where it offers car loan quotes from several institutions.
The only saving grace for the banks is that Net surfing has not caught on widely in the country. But the time that they have is too less for comfort. Banks would then be relegated to play the role of intermediaries and struggle to gain a foothold in the business.