Emerging trends of banking in India

1. BANKING &
INSURANCE - 8
Emerging trends of banking in India

2. Emerging Trends in Indian Banking
• The Banking sector plays a vital role in the development of all
countries including India.
• Iinitially, the banks in India were started in the private sector and
moved to the dominance of public sector with the nationalization of
banks in 1969 & 1980.
• The economic reforms initiated by the Government of India in 1990s
again changed the structure and working of Indian banking sector.
• The change is visible in many aspects such as regulatory framework,
governance, quality of services, mode operations etc.
• Due to the advent of digital technology, banking and financial services
have undergone a massive shift in their mode of operations.

3. Following are the important landmarks in the history of
banking in India before economic reforms
•1935- Formation of Reserve Bank of India
•1949 – Enactment of Banking Regulation Act
•1949 – Nationalisation of RBI
•1962 – Deposit insurance scheme
•1969 – Nationalisation of 14 Commercial Banks
•1980 – Nationalisation of 6 commercial banks

4. Recent Trends in Indian Banking
• Increase in deposits and credit
• Digitalisation (Electronic
banking)
• Bank Consolidation
• Universal banking
• New Banking Licenses.
• Open banking
• New payment mechanisms
• NPA Issues
• Implementation of BASEL
accords
• Increased banking frauds
• Outsourcing of activities
• Financial Inclusion measures
• Green banking.
• AI & Robotics etc.

5. 1. Increase in Deposits and Credits
•There has been a phenomenal increase in the bank
deposit and credit in India due to the branch expansion
and the promotion of banking habits among people.
•An average of more than 15% growth of deposit and
domestic credit was reported in India from 1998 to
2020.
•The composition of current, saving and term deposits
in India stood at 9.6%, 31.9% & 58.5% respectively
(RBI, March 2019).

6. 2. Digitalisation (Electronic Banking)
• The introduction of digital banking has revolutionized the
banking sector in India.
• Digitalization means the use of technology in all functional areas
from bank administration to delivery of services.
• The branch automation and the adoption of core banking are the
major technological revolutions in the area of bank
administration.
• Digital banking instruments such as ATM, CDM, bank cards, online
banking, mobile banking, UPI etc., have changed the nature and
quality of banking services.
• Many banking services can be now accessed through web or
mobile applications.

7. 3. Bank Consolidation (Bank Merger)
•Bank consolidation is the process by which
one banking company takes over or merges with another.
•The purpose of bank consolidation is to make banks more
stronger.
•In the last few years, banking sector has witnessed many
mergers.
•Now the public sector banks in India is going through a
consolidation process. Through this consolidation, the
number of public sector banks in India has been reduced
from 26 (2016) to 12 (2020).

8. 4. Universal banking
•Universal banking is a system in which banks provide a
wide variety of financial services, not only banking but
also other services such as insurance, merchant
banking, factoring, investment brokering etc.
•At present, almost all public sector, private sector and
foreign banks in India have universal banking licenses.
•The facility of selling insurance products through
banking channels is termed as Bancassurance.

9. 5. New Banking Licenses
•RBI has granted licenses to number of new private
sector banks after economic reforms. They are
called as New generation private sector banks.
•Examples of new gen banks are Axis bank, HDFC
bank, Kotak Mahindra Bank, IDFC, Bandhan bank
etc.
•Two new kinds of banks, Small finance banks and
Payments banks were allowed in India in 2015 to
serve specific sectors of the economy.

10. 6. Open Banking (Unified Payment Interface)
• It is a regulated system under which the banks allow access and
control of the personal and financial data of customers to third
party service providers.
• In India, Unified Payment Interface (UPI) developed by National
Payment Corporation is an open banking initiative.
• It is an instant real time payment system in the form of a smart
phone application provided by banks and other third party service
providers.
• Through UPI apps, customers can access their bank accounts to
check balance, make payments and to facilitate fund transfer.
• Example: BHIM, Google Pay, PhonePe, paytm UPI etc.

11. 7. New Payment & Fund Transfer Mechanism
•Number of new payment and fund transfer mechanism
were implemented and renewed in India over the years.
•NEFT, RTGS and IMPS fund transfer services are now
available 24 hours in a day and 7 days in a week.
•Aadhar enabled Payment system (AEPS) is offered
through micro ATMs and payments banks.
•The growth of UPI surpasses the growth of card
payments over the last few years.

12. 8. NPA Issues
•A Non Performing Asset (NPA) is a loan that is in
default.
•In India, a loan or advance for which the payment
of principal or interest remained overdue for a
period of 90 days is called NPA.
•The rapid increase in NPA over the last few years
has become a serious concern for the Indian
banking sector.

13. 9. Implementation of BASEL Accords
•Basel accord is a set of international banking regulation
standards issued by Basel Committee of Banking
Supervision (BCBS) of the BIS.
•Its main purpose is to ensure that the banks have enough
capital to meet obligations and to absorb unexpected
losses.
•Three accords (Basel1, Basel 2 and Basel 3) have already
issued by BCBS.
•India has started implementing Basel 3 accord from 01-
04-2013 in phases and almost completed by 2020.

14. 10. Increased Banking frauds
•Bank frauds in India have increased seven fold
in the last 5 years.
•Bank fraud worth more than ₹1.85 lakh crore
were reported in the year ended 2019-20
compared with only ₹ 71,500 crore in the
previous year.
•Reserve Bank of India have taken number of
measures to prevent banking frauds.

15. 11. Outsourcing of activities
•Many banking operations and services are now
being outsourced by Indian banks.
•The outsources services include software
applications, maintenance of hardware and
software, call centres, data maintenance and
security, management of ATM networks etc.
•Outsourcing helps banks to focus on their core
activities and to reduce capital expenditure.

16. 12. Financial Inclusion measures
•Zero balance Basics Savings Banking Account & PM Jan
Dhan accounts are offered for the unbanked people.
•RuPay debit card with lowest processing charges and
extended benefits was introduced.
•MUDRA bank was established to provide credit to Micro,
Small and Medium enterprises through micro finance
institutions.
•Mobile based payments such as UPI, NUUP, AEPS etc.,
were encouraged.

17. 13. Green banking
•Indian banking sector took initiative towards an
environment friendly banking system.
•The green banking practices adopted by Indian banks
include
• Electronic banking instead of branch banking
• Reduce the usage of paper
• Green loan (granting loans to environment friendly projects)
• Solar ATM
• Use of energy efficient machines and equipment etc.

18. 14. Application of Artificial Intelligence and Robotics
•Application of artificial intelligence and robotics is
changing the face of banking in India.
•Software with artificial intelligence is used by
almost all banks for various purposes.
•Chatbots are now widely used by banks in
customer call centres to address the queries.
•Some Indian banks deployed humanoids (example:
Ira by HDFC bank) in bank branches to assist
customers.

19. Dr. Jubair T.
Assistant Professor
Research Department of Commerce
Government College Kodanchery
Thank You