Banks increasingly looking towards retail customers: Kamath

With technological and financial diversification reshaping Indian banking, K V Kamath, chairman and independent director, Jio Financial Services, talks to Tamal Bandopadhyay about the reduced dependence of companies on banks, and the need for lenders to reinvent themselves, focus on retail customers, and invest in the right technology.

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There is a confluence of different financial entities — banks, non-banking financial companies (NBFCs), mutual funds, and more — creating channels for money flow. Could you explain what's happening?

■ Yes, what you observe is clearly happening. Technology has made financial systems more seamless, allowing savings to move into various forms of investment, savings, and consumption channels, and so on. The layperson in India is now asking if banks are the only structure for such activities. People are deploying their savings in investment products that provide the highest returns on a risk-adjusted, tax-adjusted basis. This shift has gained momentum only in the past four or five years, with structural enablers like pension systems, insurance, and the mutual fund industry playing key roles. The capital market now operates parallel to the banking system, offering consumers more choice.

In the context of Indian banking, there are three things: Liabilities, assets, and fee income. For most of the banks, fee income has been declining. The free float has vanished. How are banks responding to this? Can they do anything about it?

■ There have been changes even before UPI (Unified Payments Interface). It might have accelerated this. For example, the free float banks enjoyed, like the overnight money in current accounts, has vanished. People can now invest that money in funds that earn returns. Banks need to rethink their operating models. There is a need to change the core model. This shift also means that the profile of the customer is changing. Corporate India's dependence on banks for working capital is shrinking, and long-term loans are being financed through other channels like capital markets. So, banks need to focus on retail customers and rethink their model to cater to them effectively.

How should banks change their core models to adapt to these changes?