Banking and financing are going to meet the same fate as telecom

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24 Feb 2020: With the introduction of LPG , Indian economy opened up. Free markets started bombarding Indian GDP growth rates. Take an example of telecom sector, the entry of multiple players resulted in reduction of tariffs leading to increased telecom penetration. Today, India is having over one billion subscribers, second only to China. It has also been at the forefront of mobile evolution , with the customer being the biggest winner.

There is a threat or we can say potential risk of diminishing competition in telecom sector, with two or three players left.  Call tariffs have gone up 20-50% and more hikes are expected with emerging monopolistic tendencies which means that the customer will be the biggest loser.

The telecom story can act as a forerunner for sectors like  banking and financial services because in near future there are high chances that they will face the same fate. The total assets of public sector banks have declined from 78% to 61% and deposits have dropped from 76% to 66%. PSB’s are now more focused on integration issues after their number being consolidated to 12.

Banks weren’t able to fulfil business requirements, that’s when the NBFC’s came into existence. On one hand, wholesale NBFCs provided financing against equity, land etc.and on the other hand retail NBFCs provided last mile financing to the unbanked segment.

NBFCs played a major role in fulfilling the credit needs of a segment that didn’t have access to formal finance , for that they adopted technology and started building alternate credit evaluation techniques.

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