Navigating regulatory changes and embracing sustainable growth: Strategic vision for the future

Murali Ramakrishnan

Digitisation has become a prominent trend in the industry, with a focus on strengthening digital channels and virtualising key functions. This includes contactless banking, cloudbased systems, and doorstep banking, shares Murali Ramakrishnan, Managing Director & Chief Executive Officer, South Indian Bank, in an exclusive interaction with Srajan Agarwal of Elets News Network (ENN).

Could you elaborate on the key strategies and initiatives you have undertaken to drive the transformation of the bank under your leadership?

In October 2020, I assumed the  role of MD & CEO and developed the Vision 2024 document, which focused on achieving profitable growth through quality credit. The strategy employed was the 6 C strategy, which encompassed capital adequacy, CASA, cost to income ratio, competency building, customer focus, and compliance.

Following extensive discussions with the bank’s board and other meetings, a deliberation was held to share the implementation plan for the strategy. Accordingly, a detailed strategy document was prepared, outlining numerous milestone metrics to be achieved by March 2024. To facilitate these goals, various initiatives were undertaken, including the restructuring of liability and asset structures, as well as control functions. Additionally, new divisions such as the Credit Mid Office Group, Operations Group (separate from branch activities), Data Science Team, and Learning and Development Team were established. To mitigate conflicts of interest, the sales teams of different business units were organised into a vertical structure, headed by a business leader responsible for profit and loss. Other teams, such as credit underwriting, collections and recovery, and operations, were also reorganised to improve efficiency and minimise the risk of fraud.

As a result of this strategy, the bank successfully built a new loan book of approximately Rs. 41,566 crore, which accounted for around 58 per cent of the total book. The gross non-performing asset (GNPA) ratio stood at 0.09 per cent, with a Special Mention Account (SMA2) ratio of 0.12 per cent.

On the liability side, a new layer of Cluster Heads was introduced, each overseeing 8-9 branches, while regions had 5-6 Cluster Heads reporting to them. This hierarchical structure enhanced focus on achieving deliverables. Regarding human resources, a new approach was implemented whereby goal sheets were defined for each employee, and transparent performance evaluations were made accessible to all staff members. Nine core values were also introduced for South Indian Bank employees, emphasising sensitivity to stakeholders, resilience, ownership, integrity, passionate customer service, digital embrace, boundaryless behavior, high quality, and speed.

The promotion process underwent a revamp, incorporating both functional and qualitative deliverables based on the exhibition of core values. A suggestion scheme was introduced, allowing the entire employee base of over 9000 individuals to participate and contribute ideas, resulting in more than 4000 suggestions for process improvements. This initiative generated significant enthusiasm among employees, who have an average age of 32, and actively engaged them in the bank’s transformation journey.

To foster a positive work environment, I initiated monthly address sessions to communicate my views on the tasks at hand, the reasons behind them, and how each employee could contribute. Various employee engagement activities were also launched to make the workplace more interesting and exciting.

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The bank’s efforts to boost productivity and improve profitability metrics centered around expediting bad loan recovery, enhancing digital lending capabilities, and increasing deposit levels. The establishment of a technology infrastructure tailored to the bank’s business model has been instrumental in driving its operations.

As the banking sector undergoes rapid changes, what notable trends and developments do you observe in the industry and the broader BFSI category, and how do you anticipate these trends will shape the future of banking?

The banking sector has been undergoing significant changes in recent years, with emerging trends shaping new approaches to conducting business.

Digitisation has become a prominent trend in the industry, with a focus on strengthening digital channels and virtualising key functions. This includes contactless banking, cloud-based systems, and doorstep banking. Disruptions caused by physical limitations have led to innovations such as Digital Banking Units (DBUs) and video KYC. Additionally, there has been increased collaboration between banks and fintech companies, with banks partnering with or acquiring fintech firms to enhance their capabilities.

Business models in the banking industry are being transformed to align with the demands of the digital age. Legacy models are being reevaluated and updated, particularly in the areas of collections, risk assessment, and partnerships. Risk models are being recalibrated, and liquidity management is being prioritised through rigorous stress testing and diversification of liabilities.

The Reserve Bank of India (RBI) has launched a major initiative called the Central Bank Digital Currency (CBDC). The digital rupee has been introduced on a pilot basis, with plans to gradually expand its scope to include more banks, users, and locations. Once the CBDC gains traction, the government is likely to introduce further initiatives to encourage its adoption among the general public. The issuance of CBDC aims to reduce operational costs associated with physical cash management, foster financial inclusion, and enhance efficiency and innovation in the payments system.

The growing digital ecosystem and the increasing presence of fintechs have raised concerns about data safety and security. The government is expected to propose initiatives to ensure the protection of data in the financial sector. These initiatives will strive to strike a balance between adopting new technologies, improving customer convenience, and maintaining data security. Collaboration between the banking industry and other sectors will play a crucial role in consent-based data sharing.

Digital banking has become increasingly prevalent in recent years. How has your organisation embraced technology to simplify the customer experience, and could you provide some specific examples of the digital solutions implemented to enhance customer satisfaction?

The bank has placed a strong emphasis on leveraging digital technologies to enhance the banking experience for customers as part of its digital transformation efforts. It offers a comprehensive range of digital products and services, available through various channels such as mobile, internet, and cards (both debit and credit). Notably, our mobile banking platform, SIB Mirror+, has exceeded 2 million users and has been recognised with awards. The bank’s card transactions have reached a significant volume, amounting to billions per month. Our fully digital customer onboarding platform has successfully served hundreds of thousands of customers. As a testament to our commitment to innovation, we introduced an industry-first metal credit card, catering to the needs of today’s customers by ensuring a seamless digital onboarding process. Additionally, our customer-centric strategy has led to the development of digital lending products through partnerships with FinTech companies, featuring digital documentation capabilities such as fully digital credit card issuance, digital GST business loans, and a supply chain finance platform.

Regarding information technology, the bank has formulated its digital and technology strategy based on four pillars: Indulge (self-service), Nudge (phygital), Purge (eliminating redundant processes), and Forge (building partnerships). The technology team has already embarked on the journey of API banking for next-generation payments. Furthermore, proprietary AI-based predictive modeling tools have been developed to understand customer requirements, provide customised services, and assess lending risks and underwriting processes.

The bank’s customer-centric approach is evidenced by its 95 per cent share of digital transactions, which has earned it recognition as the Best Bank in Digital Transaction Achievement by the Ministry of Electronics & Information Technology (MeitY). This achievement reflects our dedication to delivering a seamless and convenient digital banking experience to our valued customers.

The bank has recently won the ‘Outstanding Digital CX – SME Loans’ award at the sixth Digital CX Awards in Singapore. This accolade acknowledges SIB’s innovative GST-based instant business loan journey, revolutionising the banking experience. SIB was also recognised at the 13th Finnoviti Awards for their Micro LOS Platform catering to agri customers, showcasing their commitment to advanced technology and excellent service.

Regulatory developments often play a significant role in the banking sector. Could you discuss some notable regulatory changes or initiatives that have impacted your organisation and how you have adapted to ensure compliance while maintaining a competitive edge?

In recent years, the banking industry has been increasingly considering Environmental, Social, and Governance (ESG) factors as part of their lending models. This involves evaluating the impact of investments and operations on the environment, society, and corporate governance practices. The Reserve Bank of India (RBI) has taken a significant step towards implementing ESG norms, aiming to support India’s commitment to achieve net-zero carbon emissions by 2070. The RBI has issued guidelines for regulated entities to promote green lending, encourage green deposits, and mitigate climate change-related risks.

ESG Compliance: The banking industry is now incorporating environmental, social, and governance factors into their lending models. This shift involves assessing the effects of investments and operations on the environment, society, and corporate governance practices. The RBI’s introduction of ESG norms is a significant step towards helping India achieve its goal of net-zero carbon emissions by 2070. The guidelines issued by the RBI encourage regulated entities to increase green lending, accept green deposits, and address climate change risks.

Expected Credit Loss (ECL): Banks now utilise the Expected Credit Loss (ECL) method to account for credit risk by estimating potential future losses on financial assets. They assess these losses and incorporate them into their financial reports. The RBI has released draft guidelines for implementing the expected credit loss approach, requiring banks to estimate the forward-looking probability of default for loans. As banks begin adopting this method for loss provisioning, they anticipate the need for a capital cushion going forward.

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Repo Rate Hike of 250 bps: In an effort to address inflation, the RBI raised the Repo rates by 250 basis points to 6.50 per cent during FY2023. This repo rate hike has a dual impact on banks. On one hand, it enables banks to improve their Net Interest Margins (NIMs) as lending rates increase at a faster pace than deposit rates. On the other hand, banks experience a decline in other income due to mark-to-market losses associated with the rise in Government Security (G-sec) yields.

What are your long-term strategic goals, and how do you plan to navigate potential challenges and capitalise on opportunities to achieve sustainable growth and maintain customer trust in the years to come?

Introduction of new products and services: We aim to enhance our range of products and services by improving existing offerings and introducing new ones, such as CE CV finance, PL on credit cards, and loans against shares. This strategy aims to increase customer engagement by providing a broader selection of products.

Strengthening the business models: Our focus is on strengthening relationships with customers through the provision of multiple banking products. We are scaling up our sourcing capabilities through DMA/DSA and empowering our teams to work closely together to maximise customer value. Additionally, we are implementing end-to-end digitisation of the customer journey to provide a seamless banking experience.

Strengthening the team: We prioritise competency building for our entire team through learning management systems and continuous training programs. Our senior management team undergoes specialised training to enhance their skills and ensure alignment with the best practices of the banking industry.

Building robust infrastructure: We are establishing robust systems and controls to prioritise quality over growth. This includes setting up platforms for retail and SME asset products and implementing various systems to enable our data analytics team to play a crucial role in business and collections. We leverage our extensive legacy customer base by utilising data analytics extensively to offer a wide range of asset products.

Overall, our approach focuses on expanding our product offerings, enhancing customer relationships, empowering our team, and establishing a strong infrastructure to drive growth and provide exceptional banking services.

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