Why are banks slow in cutting their base rates?
We are at 9.85 per cent, so we are already at one of the lowest levels. The base rate system works is a way that 95 per cent of the funding comes from deposits. So, a little delay based on the structure of the system is inevitable.
Transmission is faster in some other countries because a large amount of funding there comes from the money and debt markets. That is not the case in India. When the cost of deposits comes down, we will see a reduction in base rate. For calculating the base rate, if you are using the average cost and not the marginal cost, the transmission will be even slower.
By when can we expect HDFC Bank to reduce its base rate?
We calculate base rate on the marginal cost, so our transmission is quicker. You can see a reduction in this quarter, for sure.
Niche banking guidelines are expected soon. Will you be interested in a tie-up with any payments bank?
I am already a payments bank at the moment. Having said that, I also know that the scenario can change. So, if I see going ahead that the payments bank is doing something completely different, I can enter into a partnership. No payments banks will make money for five to seven years - they will be happy to have a good partner like me, and I will be happy not to pay a very high premium.
What is your digital banking strategy?
For my existing customers, I want to become their main banker. This is something that sounds like a simple statement but it isn’t. People generally have two or more banks. A global study shows that the main banker gets 70 per cent of the business. So this is a fundamental game-changer.
Second, I want to own semi-urban and rural areas, where the penetration of organised banking and finance is only eight per cent at present. That is because there are cost issues, etc.
Third, I want small businesses to deal with me electronically. It helps me save cost, give error-free service and a wider geography. Besides, when we did a survey, we realised that everyone was talking about a faster turnaround time; that is the focus globally. So, apart from improving the experience of the current customer, we also see this as an acquisition tool.
We also thought that initial pick-up in semi-urban and rural areas will be low. But it is, in fact, 50 per cent higher than in urban areas. That’s for the simple reason that if you want to buy something in rural areas, you have more options online, and it is cheaper than your neighbourhood store.
When I went to Sangla in Himachal Pradesh, I realised they took time to give loans in rural areas. Now, we are saying we will offer loans in 24 hours even for them. Shopkeeper loans will be made available in only three hours, personal loans in 10 seconds, auto loans in 30 minutes - that is a complete change. Sixty to sixty-five per cent of India lives in semi-urban areas. At least 60-70 per cent of them are technology savvy, so that’s a huge market.
What kind of investment have you made on the digital front?
There is hardly any investment, because there is hardly any cost. I mainly have to buy or build the application and train people. The fact is that there are a few things that have to be pre-conditioned. There had to be a data warehouse, middle ware to give customer view, and a large base of credit/debit card users. You have to build all that and then embark on your digital strategy.
When can the focus on the digital medium begin to reflect in the cost-to-income ratio?
We want to improve that. We are likely to see an impact in six months to one year. We will see a major effect of between three and four per cent in the next three to four years.
Does that mean you want to go slow on opening bank branches?
Eighty per cent of India still deals in cash. We want to reduce the number of cash transactions. We will not slow down the pace of branch opening but we will reduce the size as and when the need arises.