While even the strongest economies from across the globe are struggling to cope with the COVID-19-induced unprecedented demand shock, the complete shutdown of all vital economic activities has paralysed the growth of the nations.
India is amidst its biggest lockdown till date, and the national economy has come to a dead halt due to the deadly novel-coronavirus crisis that is spreading like wildfire throughout the subcontinent. Coronavirus has accelerated the pre-existing economic crisis of our nation and even hampered the growth of well-performing sectors of the economy. Most of the critical contributors to India’s GDP growth are non-functional right now.
The rapid rate of job losses, unpaid leaves, and other concerns are soaring from all sectors of the economy. Economists estimate that the situation will only worsen over the next few months.
Coronavirus Pandemic: An Opportunity for Indian Economy
In times when the economy functions with normalcy, governments are subject to many regulations, given the danger of inflation that lurks around and the fiscal prudence that is required. However, coronavirus pandemic has worked in favour of the markets, if anything. In the wake of the coronavirus crisis, the shackles on the government have been cut off. No critic or economist would dare blame the Indian government even if the fiscal deficit goes up to around 5% in such a time. Moreover, the Indian economy is dealing with threats of deflation and recession, averting the chance of any inflation whatsoever.
In fact, the government would enjoy some relief in the form of liberty, given the fiscal deficit figures for the current period and gains worth $50 billion from lower oil prices. Thus, it allows a convenient window through which the government can put together an effective stimulus plan worth 100-120$ billion to revive the Indian economy. In short, the favourable demographics and oil prices bring to India golden opportunities for rejuvenating the momentum in the marketplace.
The Way Forward for Financial Institutions
Financial institutions in countries affected by the deadly Coronavirus pandemic are working to safeguard their employees, transform operations, and serve customers in refined ways. These players are taking actions to maintain smooth financial services, protect their workforce, and keep customers well-informed. Their primary focus is on imperatives like ensuring business survival, fulfilling social responsibilities, and adapting to the new normal to minimize disruption in the economy. In fact, financial institutions like banks and NBFCs are set to roll out various contingency plans and initiatives in the wake of the outbreak of the deadly Coronavirus pandemic.
Modern financial institutions like banks and NBFCs have levelled up their operations quickly and are actively implementing new approaches to mitigate operational disruptions. The priority is on areas that help identify issues or obstacles to business continuity and then experimenting with new solutions and ways of working.
Continuity of Internal Operations
To cope up with economic disruptions during the pandemic, most financial institutions are creating response-management units that comprise executive-level, cross-functional teams. These well-structured teams make vital decisions and communicate effectively across the organisation. Commercial businesses are also working towards slashing down the number of employees required to be present in a physical bank branch and effectively automating their processes. Many companies are defining remote and work-from-home arrangements to manage conditions optimally.
Safeguard Traditional Distribution Channels
While banks are taking action so that normal bank operations do not contribute to the spread of the coronavirus among their customers and employees, they are also implementing hygiene protocol to reduce the risk of transmission through cash. Most premises used temperature screening for all customers, staff, and visitors. Financial institutions have slashed office hours, limited the presence of the team in office premises in addition to restricting the number of customers inside a branch at a given time.
Embracing Everything Digital
Pandemic has propelled a shift to digital channels when it comes to banking. Financial institutions are more reliant on existing digital channels to enable contactless customer engagement. They are embracing digitisation of core-banking processes such as electronic know your customer (KYC), digital signature collection, and online document submission. Digitised schemes like ‘play safe- and stay safe’ aid both customers and staff in maintaining adequate social distance. They are putting in every possible effort into enabling seamless digital banking services for their esteemed customers.
Bank authorities are wary of people visiting the bank branches and ATMs, as resulting human contact might prove to be a hindrance in containing the rapid spread of this virus as feared by the medical fraternity. Digitisation of processes allows continuous customer service support, which adds to the goodwill of the players in the long run.
Working towards Healthy Liquidity
Financial companies are also preparing for potential changing customer borrowing needs and withdrawals requirements. Banking executives assess their own employer’s position to ensure sufficient liquidity first. They identify critical risks to cash from both supply and demand ends, such as additional drawdowns in commercial businesses and unwarranted large withdrawals.
Some foresighted banks have developed an effective liquidity plan, and an updated contingency plan achieved complete transparency on liquidity positions and started negotiations with customers early. Depending on the severity of the situation, they suggest remedies with the help of AI technology. These remedial suggestions may include settling early and trade compression, mobilising trading and non-trading assets to be used as collateral and utilising support from government programs.
The Future of Indian Financial Services in the Wake of Corona Pandemic
If ‘Sabka Saath, sab ka Vikas’ is the motto that the current government swears by, taxing only the rich and passing free-goodies to the poor is hardly the correct way of functioning. Any honest domestic entrepreneur following the corporate structure typically pays 25% tax as a company, and yet again, 43% on profit that is distributed to owners. Only entrepreneurs who set up shop in tax-friendly geographies benefit from large scale exodus. Not just business units generate wealth for the economy, but they also create jobs. There is no way the Indian economy can bear the loss of these entrepreneurial units. Indian businesses have already proved their mettle globally. It is time that the government steps up to foster an environment of trust in financial markets.
Given the unprecedented scenarios that surround financial markets, both the government and the Reserve Bank of India need to act quickly before a vicious circle of economic downturn sets ablaze in India. There is a need to rework tax cuts to revive demand graphs. The policies must focus on infusing adequate liquidity and lowering down interest rates. The government needs to restrain bank lenders by allocating resources for direct benefit transfer to the bottom of the pyramid. This will guarantee credit to medium, small and micro enterprises, and bring forth public investment in infrastructure, etc.
However, governments must mellow down regulations on NBFCs and MFIs and allow them to contribute to investment and employment generation as well. Instead of blindly trusting the power of foreign capital and the framework of foreign investors, it’s time that the government believes in the virtues of domestic savings and their investment potential.
Softwares like Finezza can help financial players brush up their lending games in times to come. Not only does this framework offer a highly digitised way to access loan products for customers, but it also streamlines loan decision-making and processing at the end of the lender. AI and ML backed technologies are well adept at prolific creditworthiness assessment and suggest the best credit products for applicants based on their individual profiles.