Indian Banking Industry at the Cusp of Setting New Benchmarks

Indian Banking industry has witnessed massive changes from manual to digital payments system. The future of the industry will be collaborative, exciting and will raise the bar in setting new standards. In a recent interaction with the Editor of Siliconindia, Ganesh Vasudevan, Research Director, Financial Insights, IDC India, shared his insights on the consolidation in Indian banking industry.

In recent years, the RBI has been tightening the rules for non-banking finance companies. Share your thoughts on this. How will it affect NBFCs ability to reach out to customer segments that other banks cannot?

The tightening of rules for NBFC is a well-thought-out regulatory move by the RBI. Besides reducing the regulatory arbitrage between financial institutions, the scale-based regulation will help in consolidating and simplifying the NBFC compliance structure while further strengthening the overall credit system. Also, the proposed glide path or gradual implementation of the regulations will facilitate a seamless transition to the new order. These regulations are more focused on prudential governance norms and are unlikely to impact the ability of NBFCs to reach out to the unbanked population or driving the financial inclusion objectives.

The latest bulletin is that, “75 districts to get digital banking units by July,” throw some light on the same and brief us on the importance of digital banking units in rural places.

Digital Banking Unit (DBU) is a welcome initiative considering the fact that unlike in countries like Singapore, Malaysia, UK, etc. in India no specific digital banking license is issued by the regulator. Though quite distinct from digital banking licenses in other countries, still the proposed DBU guidelines provide enough wherewithal to incumbent banks to create their digital alter ego and expand their reach without much bearing on the related operational expenses. Depending upon the availability of networks, banks can easily expand their digital footprints to far-flung and remote locations. Having said that, the incumbent banks are likely to face a dilemma in balancing their traditional and DBU branch strategy. However, if executed effectively, with synchronized digital education and product offerings, DBU might turn out to be the flagship business vertical of incumbent banks. DBU initiative will not only help in expanding digital literacy but also assist in delivering seamless financial services to a hitherto untapped market.

As Technology is causing massive shifts in the way consumers live, kindly talk to us about the financial aspects of the same.

Technology is rapidly transforming the traditional way of customer engagement. With technology influencing every aspect of customers’ life, increasingly customers are expecting an integrated financial service rather than disjointed standalone services.  Whether it be savings, borrowing, investments, or any financial contracts, financial institutions are hard-pressed to deliver financial services conveniently and at scale. In India specifically, the market infrastructure (India Stack) for digitization of identity, payment innovations through overlay services, an integrated marketplace for lending, and above all the consent-based data exchange is not only empowering the consumers but also revolutionizing the traditional way of financial engagement.

How will technology further enhance the banking experience in the near future?

Needless to say, that technology is the bedrock of evolving banking experience and business transformation. Indian banks are projected to spend over USD 3.5 Bn by 2025 (CAGR of over 16%) on digital transformation initiatives to meet the growing customer expectations while streamlining the back-end operations. Accelerated adoption of cloud, efficiency in data management, expanding artificial intelligence, cybersecurity and blockchain related solutions are some of the key technologies that are expected to dominate the transformation journey.

IDC Corporate Banking predictions: India - Some of the key predictions include:

Prediction #4: AI in payments - By 2025, 40% of payments will be optimized using AI-derived routing models.

• Transaction banking services in particular will witness increased adoption of AI to improve speed and efficiency of payments in cash and trade services. Implementing AI-optimized payments requires a comprehensive strategy for capturing and leveraging payment data with end-to-end visibility. 

Prediction #6: CBDC impact in cash management - With CBDC rollouts gaining momentum, by 2025 more than 15% of tier I corporate banks will offer their clients integrated solutions to unlock liquidity from both traditional and digital assets.

• With CBDC scheduled to be introduced in the current financial year, banks will have to gear up for the changes. They need to evaluate the existing workflow and data structure to identify the processes and systems that require adjustments to support CBDC adoption. Also factor in infrastructural requirement to support custodial and depository services for CBDCs with combination of centralized relational database management systems and distributed ledger technology. 

Prediction #10: Connectivity platforms - 35% of corporate banks will platformize connectivity by 2023 to deal with the growing channel fragmentation. As an added benefit this will be the basis for actionable, proactive alerts and data services.

• Increasingly diverse and fragmented channel offerings and the associated complexity will force corporate banks to develop platform capabilities to ensure consistent, scalable, and standardized data exchange across all interfaces. A connectivity platform can help to drive innovation, help financial institutions to get the most out of present and emerging interfaces, and ensure cost efficiency, quality, and reliability of all connectivity interfaces.