Tag: k subramanian

Banks need to invest extensively in technology to expand credit accessibility, by either developing advanced technology based models or by entering into joint ventures with FinTechs, said K Subramanian, chief economic advisor.

Subramanian believes that the key reason why India has significantly lagged behind all this time is due to less credit penetration and failed credit access to large sections of the society.

“If you look at the private credit to GDP ratio at 58% of GDP, we are way behind many of the economies. Whether it’s east Asian economies or advanced economies, we see the average is close to 160%, and we’re actually one third of this. In some states and regions, like northeast, it’s not even 20% of the proportion of GDP, which is actually levels closer to sub Saharan Africa, in terms of credit penetration,” he said, highlighting the issue.

India is pursuing a manufacturing and infrastructure-led growth. However, with technology-led growth, India can be very distinctive, he said at the Global FinTech Fest 2021. “Here we are very different from the rest of the economies, including advanced ones, because we are creating a digital infrastructure as a public good,” Subramanian said.

“Our banks need to invest extensively in technology. Even our private sector banks have primarily implemented advanced analytical data intensive models on just retail lending. However, corporate lending, SME lending and even large corporate lending, where willful default remains a big problem, I have no hesitation in saying that our banks are still doing 1960s-70s kind of banking in terms of the technology used,” he said.

However, Subramanian highlighted that there is major under provisioning of public goods in the economy, and even if some private sector firm has the vision and has penetrated in deep pockets to create these goods, it typically results in a monopoly.

On the importance of personal data on financial transactions, such as with an Account Aggregator system, banks and other financial institutions can understand a person’s ability and willingness to pay back a loan, which help push GDP growth by tapping the unbanked cohort in the country.