The Pattern #42: Room for only one cloud in sunny FinTech skies

Mayank Jain   /    Head - Marketing and Content    /    2023-01-06


Hello everyone, 

I hope you had a great start to the new year. Welcome to the 42nd edition of The Pattern, a weekly newsletter where I wrap up rumblings from the worlds of finance, economy, and technology and try to make sense of what’s happened and what’s to come.

 Let’s get started. 

Banks go looking for some luck (and cash)

First, the banking sector has a reason to rejoice. After a decade of pain on the asset quality front, things are finally getting better. The latest data from the RBI suggests that the net NPA ratio across scheduled commercial banks is at a 10-year-low while the gross NPA number is at a seven-year-low. This must be exhilarating. 

We’ve had about 35 quarters of various bankers claiming (and praying?) that “the worst is behind us,” and it looks like this might finally be coming true. A lot of hard work has gone into getting here - from the asset quality reviews to RBI’s stress testing to an increase in provisioning and write-offs to keep the balance sheets clean.

However, this might not be enough. The coming year is challenging, irrespective of a bank’s size or relative health. First, an economic downturn lurking around the corner could impact industrial demand for credit. Second, there’s already a heavy spike in credit uptake from the retail side that’s pressurizing the bank’s kitty of funds.  

As a result, interest rates are rising. Many small savings interest rates are now up to 8% per annum, and banks are also responding with increasing rates on fixed deposits. The rates could further increase if the current cash squeeze doesn’t ease, but it’s certainly telling that the idea is to move the cash away from the markets for at least risk-averse customers and towards the banking system. 

Credit-Deposit ratio (or CD ratio) – a ratio that tracks how fast credit is rising in relation to deposits  – increased 480 basis points to almost 75% at the start of December, according to CARE Ratings. This means that credit growth has outpaced deposit growth, and banks better ensure that their deposit accretion measures work, or there could be trouble. 

“While the CD ratio right now is not alarming, it will be if the deposit gathering activities don’t pick up pace now,” Jindal Haria, Director-Financial institutions at India Ratings and Research, was quoted as saying by The Hindu BusinessLine

We’ll keep watching this space. 

Public sector banks on cloud nine

In what comes as a win of the future of digital sourcing and origination of credit, a public sector banking alliance is setting up a common cloud platform to partner with FinTechs and source loans from that single-window. The portal will be driven through an API infrastructure and integrated with Account Aggregator and other technology to underwrite credit seamlessly. 

This is incredibly progressive for a banking system that’s often blamed for being ridden with technology debt and digitally backward. 

"The idea is that the fintech firms will onboard large corporate and their suppliers or dealers for supply chain finance (SCF) business. The initiative will be led by PSB Alliance Ltd, and we are in the final stages of selecting a technology service provider to develop and manage this cloud-based platform,” a senior executive in the know said when speaking to the Economic Times

This is expected to lower the cost of origination for state-run lenders while also helping them access bigger borrower pools on the back of FinTech’s deeper reaches in the world of digital distribution. 

This is just another development in a series of partnerships, collaborations and pilots we’ve seen over the last two years as lenders and technology companies come ever closer and reconcile their ambitions towards the common goal of deepening access to financial products. 

 Between the digits 

 $1 billion - A massive tax bill is coming Walmart’s way as the company looks to move its subsidiary PhonePe to an Indian address. The company is raising funds, shifting headquarters, and perhaps planning an IPO. But first, it must pay up.  

9,500 NBFCs - RBI is set to knock on the doors of more than 9,500 NBFCs in the country to check on their levels of compliance, including verifying whether their registered address is the same as their actual headquarters. It seems more cancellation of licenses is on the cards. 

New Launch: Introducing the FinBox BankConnect Score - turbocharger for digital underwriting  

This is all I have for this week. Leaving some reading recommendations below.  

Reading list 

  1. India's $50 billion fintech industry faces a tough 2023: Bain

  2. NBFC lender Ambit Finvest acquires MSME business of fintech firm SME Corner

  3. 23 thoughts on FinTech for 2023 by FinBox CEO Rajat Deshpande

  4. Axis Bank and fintech company, OPEN join hands to launch a digital current account for businesses

  5. How Fintech app Gullak plans to offer users 16% returns on gold 

I will see you next week.