Digital financial services' growth to benefit large pvt banks

New Delhi, Feb 9 The Covid-19 pandemic along with favourable macro factors will further accelerate the growth of digital financial services in India said Moody's Investors Service in a report.

Accordingly, this growth will benefit large private sector institutions as well as industry leader State Bank of India, given their ability to deliver new digital services and products.

"Restrictions on physical contact due to Covid-19 and favourable macro conditions - such as a large and growing middle-class population as well as a well-established digital identification system - will accelerate digitalisation at Indian banks, helped by government efforts to boost financial inclusion and lower the economy's reliance on cash," said Alka Anbarasu, a Moody's Vice President and Senior Credit Officer.

Along with SBI, large private sector banks such as HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank stand to gain the most, because of their strong capabilities to deliver digital services and products that meet changing customer needs.

In contrast, most public sector banks have limited financial capacity to invest in technology as they grapple with weak asset quality and profitability, while small private sector banks lack resources to invest heavily in digitalisation.

"And while fintech firms do pose a threat to banks, they will increasingly opt to collaborate with major incumbents to jointly develop products, instead of competing with them for market share," the report said.

"A high degree of banking penetration and banks' strong franchises constrain fintech companies' ability to disrupt the financial services sector in India. In addition, authorities in India are trying to keep the expansion of fintech companies in check to preserve stability in the financial system."