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If public sector banks (PSBs) stand to lose with the entry of new private lenders in the market, information technology (IT) companies, automated teller machine (ATM) vendors and real estate agencies should gain. Some preliminary discussion, it appears, have already started with those likely to get bank licences.
IT
As the new banks are expected to adopt a tech-heavy model, requiring minimum human capital, software majors such as Infosys, Tata Consultancy Services and Oracle can expect to get big contracts. The initial cost of setting up IT infrastructure is around Rs 50 crore a year for a bank. If there are six new ones, there is a business opportunity of at least Rs 300 crore for IT companies in the first year itself, with incremental business in the future as the banks expand.
Jaijit Bhattacharya, director, South Asia, for government advisory at Hewlett-Packard, said newer banks would definitely spend more than that, as they would want to be "leaner and meaner". BFSI (banking, financial services and insurance) is the largest market segment for the IT sector and the bulk of the spending is in setting up the technology back-end, such as the core-banking solution, he said.
While PSBs are upgrading to the latest technology to be at par with private entities, experts believe the new banks would still have an advantage over both state-run as well as existing private banks, as there would be fewer legacy issues, making it easier to get into new systems.
Jaideep Mehta, vice-president and country general manager at IDC India, said since many applicants for the new bank licences were existing non-banking finance companies (NBFC). So, they'd need a significant transformation and addition to their technology systems to operate as an end-to-end bank.
"New banks will push for greater consumer engagement and use technology to drive efficiency from day one. There will be an impact on incumbents, mostly on PSBs, which will risk losing customers if they don't refresh technology and keep up with the consumer experience of new banks," he said.
PSBs are already behind existing private lenders on technological parameters, such as providing seamless banking services on tablets, mobiles and ATMs. The new banks would be able to attract PSB customers on this basis. Providing services through electronic channels might also help cut costs of doing so by about half.
"I won't be surprised if new entrants give contracts for an end-to-end IT strategy which could be Rs 100-plus crore for just consulting and IT services. There will be significant contracts for hardware vendors as well," added Mehta.
Real estate
A bank needs 2,000-3,000 sq ft per branch. New banks might open 10-15 branches at the start. So, if six banks get a licence, the country might get 90 new branches by the end of next year. That apart, the real estate segment is expecting an indirect boost from the new banking licences.
Opening of the bank branches itself might not directly benefit the office realty space much as volumes will be low, according to Sanjay Dutt, executive managing director, Cushman & Wakefield, an international consultancy. However, the licences will result in job creation and traction in the economy. That will have a positive impact on real estate. The indirect benefit will be larger in the medium term, Dutt added.
For now, companies are cautious about spending for economic and political reasons. In tier-1 cities, where most of the branches will come up, real estate is very expensive. Also, elections are coming up, adding to the cautious approach.
Anshul Jain, chief executive, DTZ India, another global realty consultant, said there might be significant action if every bank goes for fresh leasing or buying. Assuming 10 companies are issued licences and all need fresh space of an estimated half a million sq ft each for back offices and corporate offices, there will be a demand for around five mn sq ft. "Of a total office space absorption of 30 mn sq ft per annum in India now, five mn will be a significant number," he notes.
Adding: "Chances are that a lot of these companies will have their own captive space and, therefore, their fresh requirement may be limited."
ATMs
ATMs will help new banks facilitate banking outreach in remote areas. The cost to the bank of a customer walking into a branch is about 10 times of a ATM transaction.
These banks might consider various models for setting up ATMs. In the Opex model, a third party installs and manages the ATM. It is shared by several banks and the third party gets paid for each transaction. Banks not planning to invest much in infrastructure might go for this. A bank following a capex-heavy model could set up its own ATMs.
"This is a significant business opportunity for ATM vendors. New banks might use a mix of both capex and opex, depending on their investment plans," said B K Batra, deputy managing director, IDBI Bank.
At present, there are 1,18,585 ATMs in the country. PSBs account for about 60 per cent of the total number of ATMs. Some of the new banks mighty decide to leverage on the existing large ATM network of PSBs.
India is expected to become one of the biggest markets in terms of ATM installations by 2016, with 205,000 ATMs. Nearly half the ATMs are expected to be outsourced by 2015, as it would help banks achieve cost efficiency.
This is the last of a three-part series on how new bank licences would impact public sector lenders
