NEW DELHI: You didn’t need to visit a branch to open a bank account in 2020. Come 2021, the digital drive will continue even as tough lessons from the previous year will force the financial world to innovate. Here’s how things may shape in the coming year:
Home loans to stay soft: Housing loans hit an all-time low in 2020. While many lenders feel rates have bottomed out, we’re in uncharted territory as far as policy rates go. Real interest rates (adjusting for inflation) are negative. Globally, $17-trillion debt is yielding negative returns and more countries, possibly the UK, may join the ranks. With banks riding on surplus liquidity and no significant pick-up in credit, home loan rates could remain soft.
Overseas education & travel: Continuing portfolio flows are keeping the rupee strong vis-a-vis the dollar. Retail dollar demand has not picked up as both overseas education and foreign travel were hit hard by Covid. But a new administration in the US and ‘revenge travel’ are expected to revive demand for dollars in both sectors.
Rise of fintechs: Over the years, most banking services got commoditised. Given RBI’s concerns of systemic stability, the intense regulation could turn banks into utilities. But since there is no stopping the march of technology, the space for innovation is being grabbed by neobanks and fintechs.
The lack of a banking licence is not seen as a handicap as many smaller banks are willing to lend their ‘bank identification number’. The account aggregators and UPI are expected to do to banking what portability did to telecom services.
Debt’s a four-letter word: As crashing interest rates turned the traditional safe haven of fixed deposits unattractive, the write-down of Yes Bank and Lakshmi Vilas Bank bonds in 2020 also showed that debt could be riskier than equity. As a result, banks will find it tough to sell bonds to retail investors.
New bankers in town: Machines took over most jobs in manufacturing, but it was assumed humans would be needed for credit decisions. 2020 proved that wrong as lenders like HDFC Bank automated most personal loans. RBI’s ban on fresh launches has delayed its auto loan portal, but there’s no stopping the e-juggernaut.
Health – covering the missing middle: The government has come out with health insurance schemes for the poor, and insurers are selling high-value policies to the rich. Health cover for the middle class is becoming unaffordable as insurers hike rates to meet wider norms. The government & regulator are expected to take new measures to make health cover affordable to the missing middle.
Foreign ‘helping’ hand: RBI’s earlier solution for troubled banks was a shotgun wedding. Acquiring banks would have the advantage of additional branches. Now with branches no longer attractive and many private banks facing stress, the RBI may open doors to foreigners to take over weak banks like it did for CSB and Lakshmi Vilas Bank.