Is there a bigger catchphrase circulating in financial circles today than ‘digital’? This is due to its ability to radically transform even age-old industries, which is why the world today is investing in comprehensive websites and app-first solutions.
While numerous strides have been made in digitising equity markets, debt markets leave much to be desired. Despite its traditional tendencies, the debt market has always been incredibly data-driven. However, I believe there are far greater changes on the horizon of our industry.
The Ground to Cover
With a corporate debt ratio of 56%, India is far behind the resilient debt markets of developed economies. How do we bridge this gap then?
The answer lies in digitization. Take these facts, for instance. Between 2017-19, the debt market had only seen ₹4 trillion in investment from foreign portfolio investors compared to ₹48 trillion in the equity market. The gradual digital movement of the stock market ensured over 10 million active Demat accounts in India in FY22.
We must expect similar transformations in debt markets, with smaller investors finding a way to connect to promising businesses. That being said, the recent evolution of financial systems has helped transform the debt markets in India too. A great indicator of this is the fact that as per CRISIL, corporate bond issuances outstanding could increase from 16% of GDP in FY2020 to 22-24% of GDP by FY2025.
Amidst all this, there continues to lie a significant challenge of standardising operations across the country. Lenders, the strongest pillar of debt markets, need efficient, longer-term digital solutions.
Increasing Access to Capital Through Digitisation
I believe the road ahead will be defined by lenders collaborating with service partners to facilitate digital transformations. But we need to dig deep to understand how to get the investor and lender on board this digital transformation journey.
Lenders, especially banks and NBFCs, are typically large-scale institutions, governed strictly by the regulator. Switching to digital when the system has predominantly been traditional is not an easy feat. Add to that the fact that manpower in these institutions crosses thousands. Bank offices and branches are spread across 3.28 million sq. km. of India.
So it is natural for the lender side in debt markets to feel overwhelmed and daunted by the task. But that is a problem that can be tackled by establishing a digital banking infrastructure in India.
Establishing A Blueprint For Success
Till now, traditional lending institutions have been tech-averse towards the debt market because of the huge cost involved in digitising and training their staff. But fintech platforms, like Yubi, are bringing borrowers closer to them and reducing the extra paperwork, enabling data-driven decision-making, reducing risk and cutting down operating costs dramatically, thereby democratising access.
Not just this, but when such a platform takes charge of enabling digital transformation for the lender side, it can be applied in one go for all geographies. The scale then is not an issue, but an opportunity. With half the time, a whole institution can be transformed.
Let’s take the example of co-lending. For any co-lending initiative, banks used to take anywhere between 3-4 months to integrate with one NBFC before the loan disbursement could start. But Yubi Co.Lend changed the game with its digital-first, one-time API integration, allowing banks to integrate with multiple partners, fully online, in just one month. This saw countless integrations leading to the disbursal of INR 10,000 Crore on our platform.
What Lies Ahead
2023 will be the year of credit. The world will be looking at India’s potential to build and grow and this growth will be driven by capital.
Capital, then, is the raw material for any business and it is on us to ensure that the machinery of it is well-oiled, fast, and secure. Digitization of debt markets will facilitate more dynamic and responsive lending organisations, democratising access to capital for all. The future is bright, one where lenders will back the businesses they believe in. It is an optimistic future, and at Yubi, we’re willing to bet on it. I hope India will too