As India’s bank digitizes rapidly, is it spending enough on IT systems?

National banks have been one of the major adopters of computer technology; a trend accelerated in recent months by the Covid-19 pandemic.

But with the widespread adoption of mobile and Internet banking services by customers, which has led to the rise of fintechs and neobanks but also frequent outages, are lenders’ investments in IT systems adequate?

With initiatives ranging from digital payments, video KYC (know your customer), WhatsApp banking and paperless and online loan approval to telecommuting call center operations, banks have unveiled measures aimed at greater comfort for customers and fewer visits to branches.

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“One of the main ways banks have supported Indian businesses in 2020 has been to help them make a sudden shift to remote work and digital channels at the start of the Covid-19 crisis,” a recent report from the Greenwich Coalition titled “Covid Crisis Could Help Further Consolidation”.

He also noted that by forcing companies to adopt digital solutions, the crisis has given banks leeway to use technology to drive efficiencies and reduce costs.

However, outages like HDFC Bank and State Bank of India in mobile and internet banking have raised concerns about whether banks are investing enough in IT infrastructure.

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It also prompted Reserve Bank of India Governor Shaktikanta Das to urge banks and financial institutions to increase investments in their IT systems.

According to experts, while banks and non-bank financial corporations (NBFCs) take these investments seriously, their annual spending is low compared to their global peers. In addition, mid-office and back-office investments are often lacking.

“In terms of digital banking, all banks have invested heavily in omnichannel and user experience. They haven’t invested enough in the mid-office and back-office, which can be the archenemy. Now that digital is becoming a main channel, investments over a period of time, transformation in the middle and back office is crucial, ”said Jaya Vaidhyanathan, CEO of BCT Digital.

An S&P Global Market Intelligence report released in April cited a Gartner forecast that Indian banks’ IT spending would grow 9.02% in 2021 and 4.1% in 2022, from $ 10.36 billion in 2020. .

“Indian banks need to increase their spending on technology as more and more customers turn to digital channels, straining their IT systems, which have often proved inadequate,” said S&P Global Market Intelligence.

Citing executives from PricewaterhouseCoopers India, the report says Indian lenders, overall, spend 1.5-2% of their annual income on technology, compared to 7-10% for global banks.

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