The novel COVID-19 has affected economies throughout the world in the most far-reaching manner. Most nations were not prepared to face the slowdown that crept in with the enforcement of social distancing. Alarms have already been sounded by the World Bank and International Monetary Fund on the distressing impact of the pandemic on the world economy.
For a developing economy like India, things are gloomy too. Liquidity crunch is one of the several issues among fall in international trade and depleting foreign exchange reserves. The financial market has experienced an impulsive fall, and so have the commodity prices. Overall, it is quite a sad picture.
The impact and challenges for the Indian Financial sector
The pandemic arrived in India when the economy was not at its prime, and the financial sector had a lot to do with it.
- COVID-19 impacted business operations of the financial sector
Though banking was considered an essential service that was kept accessible during the lockdown period, most banks and FIs realized that they were not agile enough to turnaround their operational challenges during this emergency. This was mostly due to the not-so robust technical architecture of most banks.
The challenge becomes more crucial because the industry had to ensure that it does not put the health of its employees and customers at risk. At the same time, it was also essential to live up to the expectations of customers. Banks, all of a sudden, had to gear themselves to the work-from-home concept while ensuring that quality of critical service or the speed of backend operations were not affected. Only banks that had a robust technical infrastructure could offer seamless service to their customers throughout the lockdown period. Most players from the financial industry are finding it challenging to provide the right infrastructure for connecting such a huge cross-section of employees from their homes.
Technology remains one of the greatest challenges for banks and financial institutions. The move from conventional workplace to working from home and operating in virtual offices has proven to be a big challenge to most industry players. The financial sector in India needs to devise strategies to ensure that digitalization happens so that businesses can get back to normal amidst continued social distancing norms. And, that they are prepared for such challenges in the future.
The other operational challenge was to support individual customers from the lower economic strata. This section prefers hard cash and is not geared to use digital methods of banking. To deal with such issues, banks had to open up their branches, with reduced timings to ensure that their customers had the chance to carry out seamless essential banking operations. The Municipal Cooperative Bank of Mumbai was one of them. When the branches opened, the basic compliances to the social distancing and personal hygiene rules were thoroughly followed.
- Challenges faced by the Insurance companies
Insurance companies that have a diversified portfolio were not much impacted. The health insurance sector and the home insurance sector saw business as usual because people were buying the policies, especially ones that pertain to health covers.
However, some of the insurance companies had to face liquidity issues suddenly. They experienced increased claims from customers. Since the new businesses were not yet profitable while their ROI fell because of the adverse conditions in the market, some of the insurance companies today are facing grave challenges of asset-liability management risks and business continuity issues. The additional burden of pleasing customers, employees, and intermediaries is taking a toll on such companies.
- Work ethic issues
Though not a major issue, work ethics is a matter of concern for the financial industry because work-from-home is often misused by many employees. Under such conditions, organizations with a sound and robust cloud-based HR system have fared better because there is a check on the work timings, attendance, leaves, and so on.
- New business
Generating new clients and customers amid such distressful times is another big challenge. Most financial institutions are focusing on their loyal customer base rather than looking outside. The scope to get new business is highly limited and shall continue to be so for some time. Banks and insurance companies are ensuring they are maintaining a personal touch with their existing clients through innovative technology for incremental sales and revenues. Some banks are capitalizing on digitization to channelize their marketing and sales efforts and strategies.
- Non-Banking Financial Institutions are facing issues with collection
Most players in the NBFC sector are facing a loss of revenues and the continued uncertainty of loan recovery. The lockdown saw the offices being shut and employees working from home. While it was ensured that customer service does not suffer, for companies that depended on direct customer interactions are increasingly facing the problem of meeting fixed costs in the event of no sales and revenues coming in. With physical collections not permitted during lockdown, there has been zero cash-flows for these entities. With the retail sector in doldrums, the NBFCs are facing further issues as most of their customers are retail clients.
- Business continuity challenges
Disaster recovery is part of every company’s strategy. Now, when travel is restricted and accessing sites is impossible, the challenge is to create the right kind of a blend of physical and virtual work environment. For continuity of business, it became imperative for banks to facilitate their employees to work from home. There were significant issues initially, with many employees not having personal laptops or Wi-Fi connectivity at home. Plus, banks with thousands of employees had to face the difficult task of getting everyone virtually connected. It had to be done because customer service could not be ignored.
In the Indian banking scenario, face-to-face dealings and conversations are the usual way to conduct business. Due to COVID-19, banks and financial institutes needed to re-align their functioning and operations for the safety and health of their employees and customers through the adoption of newer technologies.