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Indian financial institutions are facing significant hurdles in digital expansion, with outdated technology, regulatory complexities, and a talent crunch impeding their ambitions. The country’s largest shadow lender, Bajaj Finance Ltd., recently halted credit offerings for two products found to be non-compliant with digital lending regulations.

Concurrently, state-run UCO Bank experienced a temporary suspension of its online instant payments system due to discrepancies in credited accounts, while Bank of Baroda initiated an investigation into irregularities related to customer onboarding through its mobile app.

The technology challenges extend beyond compliance issues, encompassing clunky legacy systems, data integration difficulties, and a shortage of skilled professionals.

In a landscape where competition for deposits and customer loyalty intensifies, financial institutions grapple with the imperative to modernise their technology infrastructure. Many operate on outdated systems, prompting a collective acknowledgement of the need for comprehensive solutions.

To attract a broader clientele, banks and NBFCs are aggressively expanding into underserved areas, bolstering physical branches, and leveraging digital apps to acquire customers.

The opportunity

About 40 to 60 per cent of retail asset loans are now digitally sourced by banks, underscoring the industry’s pivot toward digital channels.

The critical importance of “tech resilience” is highlighted in the current landscape, with financial institutions actively working to build in-house teams and partnering with fintechs to enhance the robustness of their technology systems.

Despite these efforts, the industry faces the challenge of modernising its systems comprehensively, with banks allocating substantial portions of their revenues, between 5 and 8 per cent, to technology infrastructure development.

Smaller shadow lenders and financial institutions demonstrate greater agility compared to their larger counterparts, efficiently adapting to market demands and integrating and managing operations more efficiently.

  • Published On Nov 20, 2023 at 08:00 AM IST

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