Lest Indians PSUs make significant tech investments, their corporate banking relationships are at stake.
Corporates globally are recognising that emerging technologies offer great potential when it comes to improving existing processes, adding value to their business operations and filtering out redundant tasks. While this realisation is very much evident closer home, it is not matched by corresponding adoption rates.
According to a report by banking consultant Greenwich Associates, the two major common concerns that large organizations cite when it comes to shifting their corporate treasury and banking functions to the digital network is security and compliance. This is why their willingness for a robust digitised network is not in sync with investments on ground.
“Digitization now ranks behind only core functions like funding and liquidity management in terms of the biggest goals for corporate treasury departments across Asia in 2019,” said Gaurav Arora, Head of Region, Asia Pacific and Middle East of Greenwich Associates.
Interestingly, Indian corporate treasury departments of large and mid-cap Indian companies that participated in a recent Greenwich Associates study rank “digitization” and “technology upgrades” as their top priorities for the year. Globally, banks are playing an active role in helping organizations transition their corporate treasury and banking functions to digital applications. This shift calls for massive investments in technology to minimize onerous compliance demands in the short term. At the same time, the inclusion of future-ready solutions like mobile and online applications can reduce cost of service in the long-term.
The Indian public sector banks (PSUs), which are already losing their lead banking relationships with Indian corporates to their private peers, are likely to cede more ground and market share, unless they make sizable investments in technology. "In the new era, wholesale banking is a scale business,” Arora added. “Now is the time to put in place the technology infrastructure that will enable scale. Banks that fail to do so will be at risk of being left behind.”
Greenwich Associates’ annual Corporate Banking Study shows that as of 2016, 20 percent of participating large Indian corporates used at least one PSU as their lead corporate bank. By 2018, that share had fallen to just 15 percent. The study pointed out that the bulk of those relationships went to private sector banks.
The same study found that private player HDFC Bank and PSU lender State Bank of India topped the list of local banks used by three-fourth of large Indian companies for corporate banking services. ICICI Bank is the third most preferred bank for the Indian corporates. Among foreign banks, Standard Chartered Bank and Citi were matched equally with a market penetration of 51 percent to 54 percent among large Indian corporates, followed by HSBC at 50 per cent. This study outlined that while PSU banks preserve their status as lead credit provider to Indian corporates, private sector banks are taking over their role as leading providers in non-credit products such as foreign exchange and cash management.
This is where it is indicated that PSUs need to take a closer look at technology adoption and security applications in their overall customer offerings. This is underlined by the Greenwich Associates 2019 Large Corporate and Middle Market Banking Studies, where 60 percent of participating corporate treasury departments identified opportunities to improve internal and banking processes. They especially cited the use of emerging technologies like blockchain, artificial intelligence and machine learning.
However, the same study found that less than 5 percent of these companies have adopted and implemented these emerging technologies. Some key reasons for not opting for it include security concerns and lack of ready infrastructure that can coexist with these technologies.“While security is, of course, a legitimate and important concern, companies should speak to their banks about the platforms they have built and the robust security measures they have in place,” Arora noted. “Given the recent progress in this area, it’s critical that companies not allow themselves to be held back by security issues that may already have been addressed.”The Great Diwali Discount!
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