India has made great strides in economic growth and interconnectedness with global markets. As the fastest growing economy in the world and the new number one destination for foreign direct investment, policy-preferred areas of the domestic economy are being boosted. However, this new global interconnection comes with greater exposure to macro volatility. To manage risks inherent in India’s new economic paradigm, India’s banks of the future must innovate and upgrade their technology solutions to seize the opportunities ahead.
In recent years, there have been important areas of progress in the Indian banking sector. Improved disclosure and ongoing reforms by the Reserve Bank of India (RBI) are bolstering investor confidence in the country’s private banks. Leading Indian banks have made significant strides in transforming the level and transparency of their financial disclosures. Our Bloomberg Intelligenceanalysthas found that Indian banks have become more diligent in recognizing, providing for and reporting on bad loans in line with recent changes in regulation.
Better use of technology within banks is now starting to deliver increased efficiencies. One positive outcome of the current market volatility and increased regulatory scrutiny has been a new impetus to harness technology to deliver these better insights, control, risk mitigation and reporting. Indian banks are starting to walk this talk in meaningful ways.
A recent Bloomberg FX16 Mumbai poll, conducted in May 2016, also found market participants identify two major foreign exchange challenges facing Indian banks and corporations – ‘managing currency exposures’ and ‘hedging against market volatility’. Both challenges are inherent in India’s and Indian banks’ greater intersect with global markets.
India’s banks are beginning to recognize the importance of mitigating the unpredictable impact of these macro global economic and political events by having the insights and workflow solutions that enable real-time responses across their business. The changes being wrought reach across
better quality data on fixed income, equities, foreign exchange and derivatives for banks’ institutional and individual clients, robust delivery mechanisms for such data to improvements in the banks’ systems for managing pricing, electronic trading and orders as well as marking to market OTC instruments.
Banks of the future are also increasingly adopting advanced technology platforms and solutions to enhance their treasury operations, as managing currency exposures and hedging against market volatility become key challenges. Technology is now also a fundamental enabler of banks’ ability to manage a rapidly evolving regulatory environment domestically and internationally.
Banks such as HDFC have seen the benefits of harnessing advanced technology solutions for more efficient workflows. The treasury arm of HDFC Bank manages in-house and corporate client accounts and advisory services for corporate clients, involving hedging currency risks and raising loans in foreign currencies. Improved trading volumes and better trading execution are critical success factors to servicing these accounts.
Bloomberg worked with HDFC Bank to migrate from a desktop solution for FX derivative trading to our platform which reduced the time spent on previously time-consuming tasks. This has enabled the team at HDFC to focus on their core jobs, with faster report generation, better analyses and the ability for traders to then price option structures on a real-time basis. The measures taken by HDFC have resolved productivity issues and are a spur for business growth.
YES Bank is another key client of Bloomberg’s and a leading example of a bank in India adopting innovative technology to enhance its presence and business growth. It is India’s fifth largest private sector bank and known for being progressive in adopting international best practices, in its pursuit to build the finest quality bank of the world in India by 2020. As a technology company that powers financial markets, we provide the advanced analytics and integrated technology platform that will help Indian banks enhance their global competitiveness.
Gains being made now reflect the fact that in recent years Indian banks are starting to invest in technology to enhance their business operations, and in the technology infrastructure they require to help them better manage risk and reduce operating costs. Technology innovation is set to become a key competitive advantage for Indian banks going forward.
The recent announcement by the Reserve Bank of India of the establishment of a Working Group to examine the gamut of regulatory issues related to Financial Technology and Digital Banking in India confirms the significant impact technology is having on this sector. It is encouraging that the Working Group acknowledges the growing importance of financial technology innovations while also working to establish a commensurate regulatory framework for the adoption of these technologies.
These developments demonstrate the great potential for technology in itself to be a core enabler of a more robust regulatory framework within banks. As they are held to greater accountability and disclosure, technology has a huge part to play in helping banks to be compliant, and in improving India’s financial market infrastructure.
As we work with leading banks around the world, Bloomberg has seen first-hand the benefits of having solutions that bring together front to middle and back office functions with customizable workflows. A key component of successful compliance structures is data. We’ve learned over the course of innovating our own solutions that they need to deliver the flexibility and efficiency but also be secure.
Equally, the march to better compliance and disclosure measures mean banks will be required to do even more in these areas going forward. Although current signs are positive that banks are embracing this challenge, regulatory changes abound, especially in the RBI’s focus on addressing declines in asset quality, something that needs to be tackled at a sector level. Even greater disclosures will be key to this. Axis Bank and ICICI’s recent disclosures are certainly a step in the right direction to demonstrate how early stress recognition on near-term increases in non-performing loans can help banks address risk areas.
Having been part of India’s historic transformation over the last 20 years, we have witnessed how the Indian banking system is maturing and becoming more diverse. Banks must increasingly cater to both a vast retail market and an institutional sector responding to highly unpredictable global market conditions. Those that are best and fastest at technology innovation and adoption in India’s banking system have the potential to set precedents in risk mitigation, growth potential and improved efficiency. I am confident that Indian banks have the potential to be at the forefront of technology innovation, and to embrace global best practices so they can be leading global banks of the future one day.