Fintech Is A Key Solution To Increase Efficiency Of PSBs In India: Economic Survey

The Economic Survey 2019-2020 was tabled in the Parliament by Finance Minister Nirmala Sitharaman on Friday. In the wake of the golden jubilee celebration of bank nationalisation in India, the survey throws light on almost all aspects of the banking system, from its growth story to it being an indispensable engine of the economy.

As in 2019, the country celebrated 50 years of bank nationalisation. The survey says that Indian Public Sector Banks (PSBs) account for over 70 per cent share in banking. It says that Indian banks are very small in comparison to the size of the economy. This glaring gap is visible in the fact that State Bank Of India (SBI) is the only bank from India being ranked in Global 100 list.

The pre-budget document also highlights the weakening of public sector banks in India. In 2019, public sector banks reported gross and net Non-performing Assets (NPAs) worth Rs 7.4 lakh crore and Rs 4.4 lakh crore respectively, amounting to about 80 per cent of the NPAs of India's banking system. However, the survey mentioned that NPA ratio is reduced to 11.59 per cent from 14.58 per cent in 2018.

However, the pre-budget survey also highlights some important facts about the Indian banking system. In 2019, the public sector bank incurred losses of 661 billion compared to profits of 421 billion. The real culprit for these incessant losses is NPA and frauds. The Reserve Bank of India (RBI) supervisory returns reveal that PSBs account for 92.9 per cent of the 5,835 cases of fraud and 85 per cent of the fraud amount over Rs 41,000 crore reported in 2017-2018.

The survey put enough emphasis on embracing Fintech in Indian public sector banks. Talking about current scenario, it says that the PSBs are using this technology mostly for a Management Information System (MIS) and reporting while most information processing on loans happens manually, which causes inefficiency. It also listed some most important challenges faced by the PSBs such as high operating cost, disjointed process flows from manual operation and subjective decision-making. In order to enhance the efficiency of banks by incorporating Fintech, the rafts of measures are suggested by the survey that includes customer contact, KYC verification, data collection, and loan provision.

The survey considers Indian PSBs inefficient in comparison to their peers. In an attempt to accomplish PM Modi’s $5 trillion economy, the big suggestion propounded by the chief economic advisor is to incorporate Fintech and employee stock ownership.