Welcome to the 140th edition of The Pattern, a weekly where we delve into the latest from the world of technology, economy and finance. Let’s get started.  

A curious case is brewing within the Indian banking sector. While the headlines are laser focused on RBI Governor Sanjay Malhotra’s upcoming meeting with bank chiefs on declining deposits, increasing credit demand, and liquidity crunch, they are missing the real story hiding in plain sight which is, 

Banks are lending more than they're collecting!   

Bank lending has yet again outpaced deposit growth in the beginning of the fourth quarter. Bank credit growth has slowed to 11.5% from 20.3% last year. Traditional analysis would term this a symptom of a cooling economy. However, the banking systems are facing a daily liquidity deficit of ₹1.75 lakh crore. Deposit growth is struggling despite higher interest rates.  

Traditional banking, it seems, is hitting the limits of its own structure and yet , India's appetite for credit remains insatiable. Banks constrained by deposit growth and regulatory requirements are watching their monopoly on credit distribution erode slowly. 

But here's what's fascinating, this isn't a story of increasing credit appetite. It's a story of changing channels. It isn't about the deceleration of bank credit but acceleration of alternative lending channels.  

Every day, millions of Indians interact with digital platforms that know their spending patterns, business cash flows, and consumption habits better than any bank ever could. These platforms aren't banks, but they're increasingly becoming the natural point of credit delivery . 

Think about it, India has 692 million active internet users as of 2023, but only 140 million have access to formal credit . This highlights a massive mismatch in how India's financial system is built. Banks, designed in the industrial age, are struggling to serve an economy that's increasingly digital, informal, and immediate.  

And this is where embedded finance comes into the picture.  

The shift here isn't purely about technology. It's about rethinking how credit reaches those who need it. When a small business owner needs working capital, they're more likely to consider it while managing their digital business account than during a bank visit. When a consumer needs a personal loan, they're more likely to accept it during their shopping experience than through a cold call from their bank. 

This makes it certain that the future of lending won't be built in bank branches but embedded in the digital platforms where Indians already live, work, and transact.  

We know most consumer platforms have massive user bases but no lending capabilities whereas banks and NBFCs have capital but very limited distribution. And there’s only one way out of this deadlock. Partnership lending! 

With partnership lending platforms embed credit products directly into customer journeys and get higher conversion rates, lower customer acquisition costs, and faster loan disbursal. 

We're thrilled to announce that FinBox is set to launch its Partnership Lending Stack - a full-suite solution at the upcoming Bharat FinTech Summit to help platforms launch embedded lending products in weeks, not months. 

The banking system's liquidity crunch isn't just a challenge, it's an opportunity to rebuild India's credit distribution for the digital age.  

Want early access? Drop us a line. 

PS - Sometimes the biggest opportunities come disguised as systemic problems. This might just be one of those times.  

Cheers,  Mayank