'MSMEs to be next growth driver for banks as corporate credit to shrink further'

"When it comes to advances, MSMEs will be the key growth-driver for banks, thanks to the formalisation of the economy. While retail will lose steam and stabilise at the current levels, more pain is expected on the corporate loan front," says a BCG-Ficci report.

According to Saurabh Tripathi, senior partner and director at BCG India who authored the report, large and mid- corporates who on Sunday bring in 39 per cent of lending revenue to banks will bring only 27 per cent by 2022.

This is because large ticket credit is moving to wholesale markets even as in the short-term banks are challenged by the lingering bad debts in corporate segments.

"As high rated borrowers switch to capital markets, banks will be left with lesser rated clients on their books and will require sharper credit processes. Corporate banking will have to be much more working capital and transaction- oriented," he says.

On the other hand, "SME credit will grow from the present 20 to 25 per cent of the lending revenue mix for banks. This will be driven by substitution of informal credit triggered by GST, increasing digital payments and rising sophistication of surrogate data-based credit analytics."

Though retail credit growth, which has been the mainstay of banks for the past many years, has been steady, it's expected to stabilise at the current levels with penetration reaching high levels in certain segments/select geographies and slower new-to-credit customer growth.

While smaller ticket borrowing has proliferated in consumer durables and gold loans, the share of under-35 borrowers among new borrowers grew from 25 per cent to 40 per cent between 2013 and 2017. But this is unlikely to continue the momentum, he warns.

Because the proportion of customers with two or more loans and availing a third one went up from 34 per cent in Q2 of 2015 to an estimated 44 per cent in Q2 of 2017. But banks cannot hang their hats only on retail though it is reaching its limits. "Data shows that certain states have reached the OECD levels of bureau penetration with Kerala at 61 per cent while only states are lagging."

Thanks to data availability, the quality of credit bureau infrastructure in the country is rated higher than that of OECD countries by the World Bank and is now reaching coverage of over 40 per cent.

Calling up on banks to treat data as a strategic asset and prioritise technology investments to consolidate and monetise data, the report says leveraging data can add a whopping Rs 3 trillion to banks' bottomline over the next five years as banks sit on the highest amount of consumer data per unit of revenue earned than any other industry.

"Using data in every component of the banking business can add cumulatively Rs 3 trillion to the bottom line over next five years, which is almost 0.4 per cent of incremental annual return on assets. This hidden treasure can help them build a healthy balance sheet and business model," he says and describes data as a 'Brahmaastra' that can really unleash unprecedented value for banks.

On NBFCs which have been of late heavily eating into banks share of loans, he says their share grew from 15 to 20 per cent of disbursement between 2014 and 2017, while NBFCs' share in new loan account opening grew from 21 to 44 per cent in the same time frame, reflecting their predominance in smaller ticket consumer durables, two-wheelers, small businesses and gold loans.

Saying that MSMEs could be the new credit growth driver, he says though there over 50 million MSMEs in the country and over 40 million current accounts from them, we have only 4.5 million unique borrowers from the formal industry.