How Tata Capital’s Big Bet Digital First Paid Dividends

Tata Capital has led the way in digitizing NBFCs and bagged the title of Best NBFC in the Innovation category in the BT-KPMG Best Banks and NBFCs Survey 2022-23.

The state of digital credit in India

Digital credit in India is experiencing phenomenal growth, fundamentally reshaping how people access financial services. While digital credit remains a smaller portion of the overall credit portfolio (between 2% and 10%), it's growing at a staggering rate. A 2022 study says India saw a 12-fold increase in digital loan disbursement between 2017 and 2020. Experts predict it will surpass traditional lending by 2030.

In this area, NBFCs have been actively working hard to shift from traditional to digital. This is mainly because traditional banks have many norms to follow, which makes their lending criteria more stringent. However, NBFCs offer more flexibility and straightforward options. This helped India boost a lot of digital credit with the fintech industry's growth.

Especially, with their products like microloans, point-of-sale financing, and buy-now-pay-later options, NBFCs are focussing on a wider audience and are actively developing the finance industry.

More importantly, digital credit offers faster processing and wider reach than traditional banks. This is particularly beneficial for small businesses, micro-entrepreneurs, and individuals in rural areas who might have previously been excluded from formal financial services. To serve these people, Tata Capital has always been the frontrunner.

How did Tata Capital evolve to be the frontrunner? What is the history of Tata Capital?

Tata Capital was started as Tata Financial Services in 2007, and its roots go back to 1916 with The Industrial Credit and Investment Corporation of India (ICICI). Their 2008 acquisition of Vysya Bank, a South Indian bank with a strong SME focus, helped Tata Capital expand its reach and product portfolio.

Tata Capital's digital-first approach seems to be a culmination of factors:

• A legacy of embracing innovation.
• Strategic leadership focused on specific market segments.
• Early adoption of new technologies like Open APIs and AI.
• Adapting digital solutions to serve a wider audience, including those in remote areas.

Currently, Tata Capital has over $18 billion in its assets under management. As they continue to invest more in technology and bring out more Artificial Intelligence (AI)-related products to the market, this number is likely to multiply and reduce costs at the same time.

Earlier, Tata Capital was able to answer 75 percent of customers' questions with a chatbot. Today, the company uses AI for more than 90 percent of the questions. This shows that at least 90% of human efforts that went into customer services have been reduced.

Sabharwal also told Businessline that right now, they are using AI for customer service only. But in the future, they intend to use AI in marketing and credit processes like credit scoring and risk management as well. They are working hard to expand their AI play.

On the other hand, they are not settling down on their offline services as well. Tata Capital has seen a significant increase in physical branches, growing from 175 stores in 2021 to over 700 in the last 2.5 years. Their target is to reach 1,000 branches by March 2025, as said by their MD CEO, Rajiv Sabharwal.

This expansion might seem counterintuitive, considering their digital solid push. However, it suggests a strategic approach that balances wider reach, especially in areas with lower internet penetration or for customers who prefer in-person interactions.

The newest development of Tata Capital: TIA AI

TIA is Tata’s newest addition to the fintech front. It is a chatbot designed to improve operational efficiency and consumer experience. Here's a breakdown of its potential impact:

• TIA can automate basic tasks and free human agents from being at constant disposal to solve basic queries. This can potentially reduce customer service costs.
• TIA is offering 24/7 support and faster query resolution.
• From history, we know that if a chatbot is well-designed, it can potentially increase the overall engagement of any user interface.

What should you do next?

Unlisted companies like Tata Capital are in a high-growth phase, and if and when they eventually list, they offer the potential for significant returns in the long run. Its financials show that Tata Capital saw a substantial jump from 2022 to 2023 (33%). Even Profit After Tax (PAT) substantially increased in 2023 (around 64%). This suggests nothing but the brilliant and efficient management of Tata Capital's expenses.

So, right now could be the right time to get in on the action and invest in the Tata Capital share price before it goes public and you miss to enjoy exponential profits from the higher Tata Capital stock price. There are platforms like Stockify that facilitate trading in unlisted shares.

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