EASE Reforms Index for the first quarter of FY23

INTRODUCTION

EASE 5.0 Reforms Agenda - Enhanced digital experience, data-driven,

integrated, and inclusive banking

PSBs need to continue investing in capabilities, deepen the ongoing reforms, and
undertake new reforms to respond to evolving customer needs, changing competition
and technology environment. PSB Reforms Agenda EASE will continue for the fifth edition
(EASE 5.0) with new reform priorities - digital customer experience, integrated and
inclusive banking - with emphasis on supporting small businesses and agriculture. The
key priorities under EASE 5.0 are as below:

EASE 5.0 consists of 5 themes:

Digitally enabled customer offerings will focus on consolidating and augmenting the considerable gains public-
sector banks have made in digital capabilities over the past few years. In particular, banks will be encouraged
to develop comprehensive digital banking solutions for MSMEs and Agri value chains

Big data & analytics will focus on enabling banks to strengthen big data capabilities and inculcate a culture of
data-driven decision making

Modem technology capabilities will focus on strengthening banks’ technology capabilities to improve overall
customer experience and facilitate a shorter time-to-market for any new digital or technology centered
projects

Collaborative banking carries on a theme from previous editions of EASE. In EASE 5.0, banks will be
encouraged to focus on broadening and deepening partnerships and collaborations.

Employee development & governance will focus on creating objective, digital and data-driven processes to
assess, groom and develop employees

Additionally, EASE 5.0 continues to drive progress in ongoing topics such as co-lending
partnerships, mobile banking enhancements, payments in semi-urban and rural areas,
cloud adoption, digital marketing improvement through SEO and SEM, and deepening
financial inclusion

In line with the established cadence of quarterly Index updates, the Index reflecting the
progress made in Q1FY23 has now been developed.

1
EASE REFORMS INDEX – OVERALL PROGRESS

Due to the simultaneous roll-out of the baseline and Q1 reforms overall improvement
amongst PSBs has been limited with a decrease of ~2% in the Index of the first quarter
of FY23 with the average EASE index score changing from 38.6 to 37.7 out of 100 on
account of the relative scoring amongst PSBs where some have shown a better
performance in Q1 over others.

In terms of the individual themes too, PSBs have shown some progress but on a relative
basis, the index score has decreased for PSBs in 2 of the 5 themes.

n e esults

heme wise baseline position an performance

bsolute score out of

Digitally enabled customer offerings are an important focus of EASE 5.0 and PSBs have
shown some improvement on key dimensions during Q1 FY22. Focus on contactless
banking and digital lending by PSBs has helped accelerate the adoption of digital
initiation for new loans. Also, banks continue to improve upon the coverage of Loan
Management Systems, analytics based MSME loans and digital Agri loan initiation.

2
 E2E digital lending continues to grow
Mid-sized banks behind larger peers; Digitization of customer journeys for NTB segment lagging

Growth in RAM segment loans sanctioned digitally

MSME Retail Agri

(in Rs Cr.) (in Rs Cr.) (in Rs Cr.)

​40x ​2x ​7x

2,688 9,500 45,000

5,400
​67 ​6,480

​Q1FY22 ​Q1FY23 ​Q1FY22 ​Q1FY23 ​Q1FY22 ​Q1FY23

• 7/12 PSBs have at least one e2e • 7/12 PSBs have at least one e2e • 5/12 PSBs have at least one e2e
digital MSME journey digital retail journey digital agri journey
• Mid-sized banks lag larger peers in no. • No e2e journeys for NTB customers • No e2e journeys for secured loans
of journeys • Key digitized journeys include • Key digitized journeys include KCC
• Key digitized journeys include mudra, personal loans, loans against FDs, renewals, gold loans and dairy loans
MSME renewals, working capital pension loans, vehicle loans and
enhancements etc. gold loans

Source: EASE Database; BCG Analysis

Banks’ analytics functions are in the early stages of maturity. More than five banks have
developed analytical models to generate personal segment and TPP leads. On average
conversion rate has been 13% for analytics-generated personal segment leads. Four banks
have built predictive models around customer attrition with capabilities for NBO through
the various banking channels.

Banks can incorporate micro-segments at the product loan level (such as vehicle loans,
home loans etc.) and at the industry level and state level (demographic) instead of
exposure or segment level. Most of the banks are conducting stress-testing on 4-5 risk
buckets (i.e. credit, liquidity, interest rate, market, concentration risks etc.) using 6-10
years of data with 3 scenarios forward looking for 12+ months. Under the collection
through analytics, seven banks have CBS and LMS integrated with the digital collection
management system. Banks further can consider integrating EWS, DMS, SMS, legal,
grievance portal, payment gateways, and recovery platforms to integrate collections
action

3
 Backup tatus of igital collections management systems

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Banks continue to improve their technology capabilities by in-house implementation of

multiple initiatives and by integrating vendors into the ecosystem for an encompassing
digital experience for customers. Performance of the mobile application has seen an
improvement by enhanced and timely testing. Personalized offerings via the mobile app
as well as the outbound contact centre for sales and collections continues to see
improvement amongst PSBs. Most of the banks are currently not publishing the open
banking APIs and can be a focus area going ahead in the year.

Financial transactions on MB growing; PSBs need to ensure robust technical

performance standards
Mobile app performance metrics have improved, but
Financial transactions shifting towards mobile channels still behind best-in-class PVB peers

Share (%) of financial transactions (%): PSB Average PVB

Parameters
(Q1FY23) Benchmark
13% 2% 85% Q1FY23

11% 7% 82% Q4FY22 Application

99.87% 99.98%
Uptime (%)

Crash Rate (%) 0.46% <0.02%

​11,349
​13,439

Transaction Failure
​334 due to Technical 0.26% NA
​1,755
Decline (%)
​MB ​IB ​Other channels ​Total financial
(UPI - ext, E-com, transactions
ECS/ NACH, APB,
Mandates, CC, SMS) 6/12 PSBs do not conduct regular performance testing
(# of transactions in crore) of MB applications

Source: EASE Database; BCG Analysis

4
Even though a relative reduction in the score in the collaborative and development
focused banking, banks continue to undergo continues reform focused changes. Adoption
of cloud has been faster than ever before, and banks have deepened their focus on
financial inclusion initiatives. Banks have a strong showing in the rural and semi-urban
regions in mobile and internet banking adoption as well as digital financial transactions.
Account aggregator framework has also seen a push and banks are in talks with multiple
entities and in the process of roll-out of the relevant use cases in the subsequent
quarters.
Co-lending has not seen significant growth in the last few quarters but remains a focus
area especially for mid-sized PSBs.

However, co-lending yet to take off at most PSBs

Mid-sized banks taking the lead in co-lending over larger PSBs

Q1FY23 Q2FY22
• Only 0.74% of RAM loans
Total Co-lending Total Co-lending
were disbursed via
% of Total % of Total co-lending
Level Disbursements Disbursements
Disbursements Disbursements
(Rs. Cr.) (Rs. Cr.)
– Co-lending
disbursements
MSME 610 1.48% 19 0.03% account for 24% at
UCO Bank, 11% at
Central Bank
Retail 1,797 1.22% 1,385 0.98% • Share of co-lending
toward priority
sector <1%
Agri 124 0.08% N/A N/A • Only 3/12 have digital
co-lending platforms
• 12/12 PSBs have co-
Total 2,531 0.74% 1,404 0.69% lending agreements with
at least 1 NBFC
Source: EASE Database; BCG Analysis

PSBs are evolving internally through reforms in their organizational culture. Three key
dimensions illustrate the new governance imperative. The first is the focus on objective
evaluation through outcome-based parameters. An average of 75% of the APAR
parameters of the PSBs are now objectively measured. The second is a focus on learning
and development of employees, where all banks now have a centralized Learning
management system and completion of learning targets are linked to KRAs. The third is
a focus on staff welfare policies aiming to improve diversity outcomes across banks
where multiple banks offer child day care and creche facilities for working parents and
all banks give preference to employee's choice in location of transfer in case of new
mothers

5
Significant uptick in KRAs measurability; However, PSBs still unable to distinguish
between top and weak performers
EASE has had a significant impact on making PSBs' officers KRAs objective However, variation in officer's APAR2
and measurable scores remains low:

FY18 FY22 Q1FY23 Co-efficient of

variation in APAR
All officers: Share (%) of score for scale I to 0.09
64% 75% scale VI officers1:
measurable KRAs
38%
Branch Heads: Share (%) of Forward-looking imperatives for PSBs:
66% 86%
measurable KRAs • Scope to further reduce subjectivity
in APAR measurement
All officers: Share (%) of
• Potential to re-examine officer KRAs
measurable KRAs auto N/A 62% 72%
to ensure differentiation between
populated
top/weak performers
Branch Heads: Share (%) of • Potential to incorporate external data
measurable KRAs auto N/A 65% 75% into APAR process (e.g., market data,
populated peer benchmarks)

1. Provisional data; Only for 4/12 reporting PSBs 2 Annual Performance Assessment Report (APAR)
Source: EASE Database; BCG Analysis

6
EASE Reforms Index and ranking of 12 PSBs in June 2022

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