Source: ET
Context:
Uday Kotak highlights the urgent need for Indian banks to adapt amid rising financialization, shifting household savings behavior, and increasing competition from non-banking financial services and digital investment platforms.
Key Highlights:
- Changing Savings Behaviour:
- Indian households are moving from ‘lazy savings’ in banks to active equity and mutual fund investments.
- Savers are becoming investors, increasingly selective about where their money is parked.
- The cost of intermediation in banks is high compared to mutual funds and other financial services, reducing banks’ competitive advantage.
- Need for Competitive Adaptation:
- Intermediation and regulatory cost differentials are expected to converge as other financial services mature and develop independent distribution.
- Banks will need to innovate to retain customers as competition from digital platforms and non-bank services grows.
- Role of Technology:
- Digital tools reduce dependence on physical branches, particularly benefiting private banks competing with large public sector banks.
- Technology empowers customers to switch investment options easily, making customer retention a key challenge.
- Banks must leverage tech for personalisation, efficiency, and better customer engagement.
- Darwinian Banking:
- Banks must undergo Darwinian adaptation, evolving in response to market and behavioural shifts.
- Social obligations, such as financial inclusion and priority lending, must continue alongside innovation.
Key Terms:
Darwinian Adaptation
- Origin: The term comes from Charles Darwin’s theory of evolution, where organisms survive by adapting to changing environments (“survival of the fittest”).
- In a financial/banking context: It means banks or financial institutions must evolve continuously to survive in a rapidly changing ecosystem.
- Example: Adopting digital platforms, AI-driven customer services, and new investment products to match changing customer behavior.
Lazy Banking
- Meaning: Refers to banks that stick to traditional methods without innovating, relying only on old models like deposit-lending, manual processes, or conventional branch services.
- Effect: These banks risk losing customers, market share, and relevance, especially with fintechs, NBFCs, and digital investment platforms growing.
