ICICI Bank is adopting Aritificial Intelligence (AI) and Machine Learning (ML) in a big way. Over the last year, these technologies have reduced internal costs for the bank and helped significantly drive its deposit and lending growth, the banks management said during an earnings call with analysts. The bank reported a net profit of Rs 4,402 crore in the fourth quarter of FY21, around 260.5% higher compared to the same period in the previous year, according to its financial results.
The costs and benefits of AI and ML
Several of the leading banks are turning to technology, to target customers with the right product and through data-based underwriting, they can bring their loan delivery time to just a few minutes. ICICI Bank sees AI and ML as an opportunity to acquire good customers at a faster speed, while also helping it keep tabs on how their clients’ spending and credit behaviour on a near real-time basis.
Banks can have a solid credit delivery process and underwriting abilities for unsecured products that are delivered in a pre-approved and straight-through format, said Anup Bagchi, Executive Director, ICICI Bank. “The AI and ML essentially are used to a) figure out patterns and b) most importantly, get feedback of early warning signals back into the credit underwriting process. We can intervene in the micro-services market in terms of yields and fees. These technologies lead to a lower operating cost, lower acquisition cost, lower cost of collection and lower credit cost,” he said.
However, not all products can be scaled using AI and ML tools that automate the underwriting process. “AI and ML is not as amenable to the business loans and SME segment since the number of cases are small. However, it provides early warning signals on sectors, which are then fed back into the score card model,” he said.
For other secured lending segments, banks are using AI and ML to develop score-cards which are automatically updated with near real-time information. “As the ticket sizes come down and as the portfolio follows the law of large numbers, score cards give a better output than human intervention in credit decisioning. You need to keep updating the score card with the inputs and learning from the portfolio,” Bagchi explained.
On UPI and data
The banks’ management said that the transformation in payments is an opportunity to derive rich data from transactions. “Payments standalone may or may not make you money. But the moment we get more of a digital footprint we are able to put it into underwriting. It is the behavioural data and velocity of data which is more important than static data,” he said.
The bank is building a vast data lake to upgrade its customer behaviour analytics. It will experiment with new uses that can improve product penetration and customer stickiness, it said.
According to its investor presentation, the bank reported a dip in Person-2-Merchant transactions on the Unified Payments Interface (UPI) at Rs 34,100 crore in Q4 FY21 compared to Rs 36,250 crore in Q3 FY21. On an annual basis, UPI P2M transactions has grown by 2.5x from Rs 13,715 crore in Q4FY20. The banks’ marketshare in UPI P2M volumes stood at 14% in March 2021, it said.
“We think that UPI will put pressure on debit cards because the proposition of UPI is almost as strong as the debit card proposition,” Bagchi said. Between credit cards and others, we do not think the cannibalisation by UPI will be that much, he added.
As fintechs and startups develop new forms of distribution, payment solutions, and new products like Buy Now Pay Later, the payments industry is set to undergo a major transformation in the coming years there could one or more new retail payments umbrella entities which will compete with the National Payments Corporation of India (NPCI). ICICI Bank has reportedly partnered with Axis Bank, Visa, Pine Labs and BillDesk to apply for a New Umbrella Entity license.
“We have to keep betting on all payment systems and make it open-architecture and partner with other companies,” Bagchi said.
Digital Banking Highlights
- 60% of trade transactions through Trade Online platform are digital
- 87% of transactions on business transactions via InstaBiz are digital
- 56% of fixed deposits sourced digitally
- 75% of credit cards sourced digitally
- 90% of personal loans sourced through Insta Banking on iMobile, the banks’ flagship payments and banking app
- 90% of all savings account transactions are digital
- Net Profit: Rs 4,400 crore in Q4 FY21, vs Rs 1,420 crore in Q4 FY20
- Net Interest Income: Rs 10,430 crore in Q4 FY21 vs Rs 8,930 crore in Q4 FY20
- Cumulative provisions: Rs 12,010 crore in Q4 FY21
- Advances: Rs 7.34 lakh crore in FY21 vs Rs 6.45 lakh crore in FY20
- Deposits: Rs 9.32 lakh crore in FY21 vs Rs 7.7 lakh crore in FY20
- Gross NPA: 4.96% in FY21 vs 5.53% in FY20
- Net NPA: 1.14% in FY21 vs 1.41% in FY20