Extending The Cause Of Financial Inclusion - V Lakshmi Narasimhan, Chief Financial Officer, Magma Fincorp

With the per capita income of the population increasing and a large population in the rural area still not covered by the formal banking system, V Lakshmi Narasimhan, Chief Financial Officer, Magma Fincorp sees great opportunity for the Indian banking sector

The Indian banking industry has witnessed strong growth in the past decade and also created wealth for the stakeholders. What kind of opportunities do you foresee going ahead in the banking sector?

It’s true that the banking sector has performed well in the past decade and helped stakeholders to grow their wealth. The performance of the PSU and private banks has been good and has contributed to the Indian growth story during the past decade. The endeavour of the government too has been to bring in monetary stability and shield the sector from global economic and political turmoil. The banking industry in India is expected to grow from the rising per capita income. A growth in the earning potential of the population will lead to large number of people utilising banking services. A World Bank survey conducted in 2011 revealed that only 35 per cent of all adults in India had a bank account with a formal banking institution while this figure stood at 21 per cent in the poorest category of the population. This gives an indication in terms of the tremendous potential that the sector provides for growth to all the new entrants in the banking space.

Where do you foresee major growth coming from – urban areas or rural areas? Would your focus be on Tier I cities or Tier II & Tier III cities?

We foresee major growth coming from the rural and semi-rural areas where a large chunk of our population still has not received the benefits of a formal banking system in India. It is quite relevant to mention here about the suggestion from the government to open at least one branch in the villages with a population of more than 2000 and also to cover the peripheral villages.

Magma’s focus has always been the rural and semi-rural markets which are still under-banked to a large extent. We will continue to invest in these markets, which provide excellent opportunities for growth in the business, thereby extending the cause of financial inclusion.

Would you focus on making a pan India presence or would your strategy concentrate more on a particular region?

We have already established a very strong pan India network with over 275 branches, which provides us a natural advantage for our foray into banking. We will continue to focus on these markets on a pan India basis and provide equality of opportunity to the economically disenfranchised.

With the kind of competitiveness we see in the banking industry currently, do you think there is ample opportunity for new players?

The banking industry in India still provides a lot of opportunities for the new entrants to the business. With the per capita income of the population increasing and a large population in the rural area still not covered by the formal banking system, there is tremendous potential for the banking industry as a whole. Higher disposable income will increase the retail credit. As the space becomes competitive, consumers will invest in a wide range of products which the banks will offer.

What kind of challenges do you foresee for the new players (those who have applied for the banking licence recently) as against the already established players?

There are several challenges for any new entrant in the banking business and can be classified as follows,

• Building capacity and expertise on risk management, including governance and compliance, as it is much more rigorous in case of banks as compared to NBFCs or other businesses.
• Creating branch infrastructure as one needs to provide a banking environment to cater to the provision of banking facilities and products on the liability asset side
• Setting up technology infrastructure to provide cost effective services to customers across all the regions
• Widening leadership team with requisite experience as certain skill sets are unique to the banking model
• Complying with SLR and CRR requirements from day one as it is going to be difficult to build a deposits franchise in the initial few years, going by the experience of other successful new private banks in the last ten years

Magma as an NBFC, and given its strengths and weaknesses, is well poised in respect to meeting some of the challenges like risk management, governance and compliance, besides building technology infrastructure, and will need to work on other issues like branding infrastructure, building leadership skills on banking related functions and complying with SLR/CRR requirements.

Do you feel the new era private banks would be able to compete with PSU banks, considering PSU banks have better penetration in the rural areas as well?

As mentioned earlier, the sector provides great opportunities for growth, for both the PSU banks as well as the private sector players in the business. Customer satisfaction is going to be the key mantra for success for the new age banks with customers having a number of options to select from.