According to Mundra, it is very important for banks to have a ‘very hard look’ at the traditional models which banks have been pursuing.

While the process of re-imagination of business models for banks has already started, the banks should not ‘try to imitate’ fintech companies in totality as it is not the right approach, former RBI deputy governor S S Mundra said on Tuesday.

Growingly, it is looking like banks are evolving as the fintech companies, which also do the business of accepting deposits and do lending, Mundra said while speaking at the 14th edition of the Banking Colloquium, organised by CII.

“Banks have to be conscious that fintech companies are compact entities, they are nimble. So, banks trying to imitate a fintech company in its totality, to my mind is not a right approach and it is not a right business model,” he pointed out.

According to him, it would be beneficial for both the banks and the fintech companies to have a meaningful cooperation, and in this way, both can leverage their respective strengths. “So it is that situation where there is a competition, but there is a cooperation.”

Mundra said fintech companies have the strength of being nimble and innovative, while banks have the advantage of having good resource bases, reach and trust of the customers. “So, these things can be complementary and to the advantage of both,” he emphasized.

The former RBI deputy governor said both banks and fintech companies ‘should avoid the temptation’ of introducing too many products and too many processes, whether it is by way of collaboration or in-house, in short intervals.
“My personal observation and experiences are it leaves both their important constituencies confused. And, the important constituencies are their own staffs and their own customers,” he said.

According to Mundra, it is very important for banks to have a ‘very hard look’ at the traditional models which banks have been pursuing.

“I am not suggesting that branches should go away but there is a need to reimagine the business model. One has to see which are the branches that are loss making and which are the branches that are contributing positively, which are the branches which can be downsized and which branches can be completely done away with and where you can rely completely on technology and where you can rely on agency arrangement,” he said, adding for every bank it was important to do a complete holistic assessment of their branch networks and how to derive maximum value from this.

On corporate lending, he said banks should not sell only products to a corporate as most corporates are now expecting ‘solutions’ from the banking system. “So if you only focus on products you will only end up making some topline, but it will not add to your bottomline. So you need to adopt a solution-based approach if you want to do corporate banking,” he added.