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Ajit Deshmukh is managing director and co-head – investment banking, Equirus.
The Indian Financial services sector was dominated by traders, brokers, and middlemen who used to conduct transactions on paper. Today, the buzz of a trading floor has been replaced by a cool silence of computers that conduct trades. And the need to rush to banks for the smallest of transactions has been replaced by a few taps on our mobile devices. All of this has been possible due to the rapid digitization of the Indian finance industry.
The easiest way to see this impact is to see how IT companies are benefiting from it. Today, 40% of the revenues that Indian IT companies such as TCS and Cognizant make are from the BFSI segment. IT companies such as Infosys are creating Core banking solutions such as Finacle which are being used by one of India’s largest public sector banks, Bank of Baroda. Another public sector bank, State Bank of India underwent rapid digitalization by offering SBI YONO, which was developed by IBM. SBI YONO currently has 54 million Monthly active users. There has been a rapid shift in the way consumers view payments due to apps like YONO.
For instance, in India, the volume, as well as the value of UPI transactions, have doubled post covid. In FY 21 UPI had processed 22.3 billion transactions with a value of Rs 41 trillion. In FY 22 the total number of transactions was 46 billion transactions with a value of Rs 84 trillion. In India MSMEs were the most impacted due to such transactions as 87.3 percent of the 41.4 lakh transactions conducted across the MSME ministry were done digitally.
Consumers have not only hugely benefited from the digitization of payments but by the revolutionization of investing. Around 10.7 million Demat accounts were opened by retail investors between April 2020 and January 2021. This has allowed the Indian stock markets to reach $3 Trillion in 2021, within 4 years which has been unprecedented. Another reason for this milestone is the digital transformation of trading institutions like the NSE. NSE NEAT (National Exchange for Automated Trading) has more than 181,000 terminals across India that allow traders to make high volumes of trade with minimal latency.
Furthermore, the stock market in India has also been impacted by the rise of fintech platforms like Sharekhan which allow retail investors to buy and sell stocks easily. The number of monthly active users in Sharekhan has almost tripled from 275,000 in FY 2014 to 764,000 in FY 2022. Similarly, financial institutions like Equirus have also been transformed by digital transformation by offering apps such as Equirus Wealth, which allows retail investors to invest in Mutual funds in a hassle-free manner. Along with that, trading is also computerized in Equirus Portfolio management services (PMS) which coupled with the steadfast leadership of experienced individuals has allowed the Equirus Long Horizon fund to achieve a return of 19.48 percent.
Digital Transformation has caused Indian banks to invest more in their electronic channels. HDFC bank has invested in its PayZapp mobile app and internet banking platforms, which turned out to be a great investment for them as they found that 57% of customer visits were through mobile. Apart from that, they had 234 million visits on their website in Q4 of FY 2022. However, in India, Legacy firms like Kotak, HDFC, and Axis have invested only 7 to 9 % of total operating expenses in technological spending. While their International peers such as UBS are spending around 10% of revenues on tech spending. So, we are only at the tip of the iceberg of digital transformation in the Indian finance industry. Hence, we believe that Indian financial firms can acquire more tech firms to increase their technological capabilities.
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Views expressed above are the author’s own.
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