TNN | Oct 24, 2015, 05.29AM IST
Rajan pointed out banks are capturing lot of customer data and now the challenge is, how do banks use the vast data to better serve customers?
HYDERABAD: Reserve Bank of India governor Raghuram Rajan has questioned the pricing of IT deals that banks have entered into. Pointing out that the IT revolution has not brought down expenses for banks, Rajan said this could be because the structure of fees is such that cost reduction is not reflected in the bottom line. He also said that banks need to restructure and branches cannot be run as they were during the days of the ledger system.
According to Rajan, the present 'market structure' consisting of IT companies, who provide technology and, at times, run crucial IT operations for banks, has not been very helpful in bringing down costs of operations.
"We can see the effect of the IT revolution everywhere in the banking system, except on the expenses side... why aren't the expenses coming down?
We need to look at whether technology is really bringing down costs. But there are two factors that may prevent from bringing down costs - one of them is market structure. It could be the structure of key players that are involved in technology and the structure of fees that you have to pay is such that the cost reduction does not get translated into a bottom line reduction.
The second factor is the human factor - wherein the way business is organized has to change. We cannot run a branch as if we are still living in the days of the ledger system," Rajan said while delivering the keynote address at an Institute of Development and Research in Banking Technology (IDRBT) event here.
Rajan pointed out banks are capturing lot of customer data and now the challenge is, how do banks use the vast data to better serve customers and mitigate risks while forwarding loans? He hinted that banks need to be cautious about aggressively forwarding home loans.
"Tremendous amount of information about the customer is being made available through the system... but are we figuring out how to serve customers better using this data... We had a large setback in a number of large project loans. So increasingly, the flavour of the moment is housing loans. Of course, in housing loans, you need to be careful that you are not picking up high-risk home loan applicants and venturing into an area that is already well served through traditional means," he said sounding a note of caution.
Speaking about the usage of IT in the banking sector, He said, "IT and IT usage has not penetrated into the banks as fully and as properly as we would like. Banks are still not fully integrated in terms of IT usage". so that on a daily basis, it can spin out what the details of the loans are... if you do not know the picture on a daily basis, there are activities that can pile up over time, which can be extremely risky for the bank."
Meanwhile, lauding the Jan Dhan Yojna in the area of increasing financial inclusion, he also batted for Aadhaar usage. "The Aadhaar system is under a bit of a cloud right now... but hopefully the Supreme Court will see value in permitting wider usage of Aadhaar," he added.
On the RBIs proposed IT subsidiary, Rajan said that it will focus on cyber security and monitor IT-related functions in banks. "RBI, because of the importance of this area (IT) and the need to improve our supervision and regulation of IT-related factors as well as cyber security, is in the process of setting up an information technology subsidiary. We will actually hire people directly from the sector, who have expertise and can build the expertise within the RBI," Rajan said.
