"Fintech Can Be a Threat Only If Google or WhatsApp Enter The Space" "Bank of India plans to lend money to start-ups at the seed level. The financial flow will increase only after they start to grow," says G. Padmanabhan, Chairman, Bank of India

Even though the start-up space is considered as a risky sector, the Bank of India has recently launched several schemes to fund bright young minds with bright new ideas as Modi Government pushes for growth of start-up culture in India. Elaborating on this, G. Padmanabhan, Chairman of the Bank of India, spoke to Entrepreneur magazine about SMEs, start-up funding and fintech space at the convocation ceremony of L.N. Welingkar Institute of Management Development and Research's (WeSchool).

For SME and startup financing, what initiatives have been taken by Bank of India?

SMEs have always been a priority sector which was defined long ago and the flow of finance to this sector was closely monitored by the government and the RBI. Hence, this sector was always nurtured and taken forward. I won't be able to reveal the exact number but SME lending on YOY basis is moving upwards. However, the start-up culture is new to the banking scenario and it is so much into focus because the current government has given it a thrust.

What is you observation about fintech start-ups getting into banking space and vice-a-versa?

I am yet to see too much of banks getting into fintech space but fintech start-ups getting into banking space is kind of disruptive. One thing that is getting recognized today is the payments and peer-to-peer lending which is happening all over the world. But, rules and regulations are yet to be framed in this space. In payments, the fintech start-up are introducing themselves in areas like money transfer, remittances, small credits and they are challenging the entire eco-system.

How the future will unfold depends upon whether one is able to match up the other and whether they are able to compete with each other and exists in the same space. It might also happen that they collaborate with each other and come out with better solutions.

What is your financial commitment for start-ups?

We have decided to make certain funds available for start-ups. Lending will be at the seed level to bright youngsters with bright ideas. The financial flow will increase only when the start-up starts growing. Start-up is a risky sector. In the West, it is the VCs who participate in such funding or it it is the credit department of the bank that provides the fund. We need to find such a solution.

Do you look at fintech start-ups as a threat to the banking industry?

In India, the fintech space is very nascent. And, I really don't think fintech start-ups can be a threat to the banks because the kind of money access the banks have and activities they are allowed to do as compared to fintech start-ups. There could be issues if Google or WhatsApp or such companies come into the fintech space, they could be a threat to the banks. Beyond payment and small value lending, I don't think these fintech companies are looking at many things.

Today many of the fintech start-ups are co-ordinating with the banks to make sure that they get entry into UPI or some other central systems etc. It is very early to say whether fintech is a threat to banks or not.

(This article was first published in the June issue of Entrepreneur Magazine. To subscribe, click here)