Nature of risk undergoing a radical change: Panelists at BS webinar

With this, chief risk officers say their roles will change dramatically too

Banks’ chief risk officers (CROs) were of the view that the nature of risk is undergoing a radical change with banking going digital. The key takeaways were that digital has fundamentally altered the way banks go about acquiring, and servicing their customers. This, in turn, calls for a rewiring of their internal processes and control systems.
 
A silver lining, though, was that CROs do not feel that banks’ asset quality will slip further if the pandemic is checked by the first half of the current fiscal. The panelists at the discussion on the emerging nature of risk at Business Standard’s webinar were Wilson Cyriac, executive vice-president and CRO of IndusInd Bank; Deepak Kumar, CRO at RBL Bank; Ramaswamy Meyyappan, CRO at IndusInd Bank; Ravi Duvvuru, CRO, Jana Small Finance Bank; and Jitesh Khaitan, head-risk management practice at SAS India.
 
“Ninety-two per cent of our retail transactions are digital now, but it has made our jobs tougher,” noted Cyriac. He held that contrary to the widely held view that people in urban areas were quick to adopt digital banking, “what we have seen is that customers in semi-urban and rural areas, were using it (digital means) more.” He added that this also presented an opportunity to explore if other business segments could be similarly serviced.
 
“While artificial intelligence, machine learning, and big data will help, much of this is based on past behaviour of customers and business,” said Kumar. His point was that the pandemic has broken conventional business models across sectors, and banks were re-evaluating on how best to tackle the pitfalls ahead.
 
One nuanced aspect that came through was that it would be misplaced to say that retail may be performing better than the corporate loan book. What was left unsaid was that if the pandemic were to linger, stress in the corporate sector could seep into the retail book.
 
The consensus at the discussion was: While digital modes will reshape the banking topography, business models and the innards of banks, they will bring in their own share of associated risks. What also came through was the big leg up to digital banking because of the pandemic is not to be seen merely in terms of a rise in transactions.
 
For small finance banks, “the challenge is that in the case of micro, small and medium enterprises, their inability to raise capital from formal sources is an issue. More so due to the lack of adequate collateral for loans,” said Duvvuru. “Then you have the disruptions to supply chains due to the pandemic and the migration of labour. Collections were particularly affected,” he added.
 
“The pace at which internal processes are changing in banks is much faster now — be it customer acquisition, loan approvals, or the way documentation is done. Going digital is also taking time as hardware is a challenge as everybody is going digital,” said Meyyappan. “Segregation of duties within banks and a relook of the credit process is well on the cards,” said Jitesh Khaitan, head – risk management practice, SAS India.