Shift From ‘Class’ to ‘Mass’ Banking May Hit Bank Bottom Lines

Once more rural customers come into the picture, the Know Your Customer norms would also have to be spruced up.

Customers wait patiently in queues outside an HDFC Bank branch in Kolkata. (Photo: AP)

The demonetisation narrative has seen a subtle shift from "curbing black money" to the need for a "cashless economy", but experts feel a cashless economy could hit the bottom lines of banks as the number of transactions would increase exponentially, making them cost-inefficient.

Cashless Economy Could Hit the Bottom Lines of Banks

"The existing Core Banking Solutions (CBS) are designed for 'class banking' and not for 'mass banking'. But post-demonetisation, more rural people are going to come into the banking net. They will also start transacting through other modes like PoS, ATMs, mobile phones and others," B Suresh Kamath, Managing Director, Patterns Software Design Institute Pvt Ltd, told IANS.

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“The CBS has to be geared up for small-value and large-volume transactions. The rule that a higher volume reduces cost per account does not apply here (because the cost is constant),” added Kamath who, prior to floating Patterns Software, had promoted CBS company Laser Soft Infosystems. Laser Soft’s CBS is used by Andhra Bank and Corporation Bank.

Complications of Rural Influx

People stand in queues to get their old notes exchanged or deposited. (Photo: AP)

Once more rural customers come into the picture – the Know Your Customer norms would have also to be spruced up. At present, the KYC norms have been simplified and not all fields are filled up, explains Kamath who, in 2009 sold Laser Soft to Polaris Software Lab Ltd, now Intellect Design Arena Ltd after the latter's restructuring.

Also, the anywhere-banking facility may not be used by rural customers, Kamath said.

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He said the Central government is propagating micro-ATMs, PoS and other digital mode transactions and hence, banks may find the maintenance costs of accounts uneconomical in rural areas.

According to him, the way out is to bifurcate the existing software architecture into two – one for class (urban) and the other for mass (rural) banking – at the front end.

Need to Bifurcate the Existing Software Architecture

Kamath said the current CBS need higher investments in computer hardware. On the other hand, for the kind of transactions that would be done in rural areas, the systems can be lighter and need no heavy investments.

"We have one common CBS now and we are yet to look into the bifurcation of the system based on cost-efficiency," a senior official of a private bank told IANS.

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A senior official of State Bank of India (SBI), who did not want to be named, said the bank's CBS was capable of handling many more times than the peak load.

According to the official, the SBI’s core banking database is both for class and mass banking, with a different interface for business correspondents at the front end.

"Ultimately, all the transactions pass through the core banking centralised database, including business correspondents channel. We do not see any concerns in handling increased volume of small-value cash transactions," he said.

But with much higher transactions, this may well change.

(Published in an arrangement with IANS)

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