Few Trends in Banking and Financial Services in India That Are Changing the

Entire Scenario
1. Digitization:
With the rapid growth of digital technology, it became imperative for banking and
financial services in India to keep up with the changes and innovate digital
solutions for the tech-savvy customers. Besides the financial institutions,
insurance, healthcare, retail, trade, and commerce are some of the major
industries that are experiencing the enormous digital shift. To stay competitive, it
is necessary for the banking and financial industry to take the leap on the digital
bandwagon. Core Banking Solutions The banking sector opened itself for private
and international banks which is the prime reason for technological changes in

the banking sector. Today, banks and financial institutions have benefitted in
many ways by adopting newer technologies. The shift from conventional to
convenience banking is incredible.

(Source – FIBAC 2019)

Modern trends in banking system make it easier, simpler, paperless, signature
less and branchless with various features like IMPS (Immediate Payment Service),
RTGS (Real Time Gross Settlement), NEFT (National Electronic Funds Transfer),
Online Banking, and Telebanking. Digitization has created the comfort of
“anywhere and anytime banking.” It has resulted in the reduced cost of various
banking procedures, improved revenue generation, and reduced human error.
Along with increased customer satisfaction, it has enabled the customers creating
personalized solutions for their investment plans and improve the overall banking
experience.

2. The Rise of Cryptocurrency and the Prevalence of Blockchain

 For many financial institutions, lending is still a paper-intensive process.

o "The documents involved in these processes – mortgage notes,
vehicle loans and equipment leasing contracts – have cash value tied
to them, often in the hundreds of thousands or millions of dollars,
and if these documents are destroyed, their value is completely lost."
 Blockchain's digital ledger has the potential to make this process much
more secure.
o "When a transaction occurs, everyone who has permission on the
network knows about it. It’s tamper-proof and everything happens in
real-time."
 Blockchain could also be helpful from a regulatory compliance
perspective.
o "Banks and lenders are under increasing regulatory compliance
pressure and need the ability to quickly demonstrate how processes
take place. One of the most exciting features of blockchain from a
 legal and compliance perspective is its 'immutability,' meaning that
as soon as transactions are recorded into the blockchain ledger, they
cannot be altered or deleted."

Blockchain may even make the process of lending faster and cheaper, in
addition to being more secure.

o "Distributed ledger technology has the potential to dramatically

reduce costs related to the manual processing of loan documents."
o "Blockchain fundamentally eliminates the need to manage paper-
based assets as financial institutions can significantly reduce manual
intervention when transferring digital assets to parties in the lending
ecosystem."

2. Artificial Intelligence is on the Rise

AI can be broken into three main types:

1. Cognitive automation: These are tools that are used to create “deep
domain-specific expertise and then automate related tasks.”
2. Cognitive engagement: These systems use “cognitive technology to engage
with people, unlocking the power of unstructured data (industry reports /
financial news) leveraging text/image/video understanding, offering a
personalized engagement between banks and customers with personalized
product offerings and unlocking new revenue streams.”
3. Cognitive insights: This refers to “the extraction of concepts and
relationships from various data streams to generate personalized and
relevant answers hidden within a mass of structured and unstructured
data. Cognitive Insights allow to detect real time key patterns and
relationships from large amount of data across multiple sources to derive
deep and actionable insights.”
How Can Artificial Intelligence Impact Financial Institutions?

Examples of how AI is changing different departments of financial institutions

globally:

 Compliance
o AI is used in compliance primarily in investments management and
banking, because of the volume of data and transactions. It's helpful
for screening for money laundering, market manipulation, insider
trading, and third-party risk, according to Compliance Week.
o In the UK, regulators are looking at using AI machine learning in order
to enforce financial compliance. While they’re still investigating how
to properly implement this new technology, their leaders have
mentioned that they are looking to “support the adoption of
automated, digitized compliance.” This will be a game-changer, and
could have huge repercussions if adopted by American regulators.
 Sales
o AI has the potential to improve the customer experience by analyzing
the data and providing better insights into consumer behavior.
o Cutting-edge voice and chatbot technology will likely be incorporated
into the process for online sales. In addition, the insights AI delivers
can be used to support marketing and sales communications.
o Bank of America recently introduced an intelligent assistant called
Erica to share financial guidance with their 45M+ customers.
 Management

o Because AI has the potential to supplement and even replace certain

human functions, the technology and automation may result in
reduced costs.
  Operations
o JPMorgan is using AI to analyze legal documents and identify the
most important details and clauses with their recently adopted COiN
technology.

 3. Changing Consumer Behavior Leads to a Changing Branch Network

Customer behavior in all industries, including banking, is radically different than it

was 5-10 years ago.

With the surge in mobile banking over the past few years, the idea that “more
banks = higher profitability” no longer accurate. The bank branch is no longer the
only, or even the primary, way that customers can interact with their bank. This
is particularly true of millennial customers.

At the same time, regulatory scrutiny on Fair Lending, CRA, and Redlining is still
dependent on an understanding of the markets you serve. Changing your branch
and ATM network can result in positive or negative impacts to your Fair Lending,
CRA, and Redlining compliance risk.

How A Better Branch and ATM Network Can Lead to Growth

1. Replacing older ATMs with on deposit-taking ATMs in strategic locations.

2. Investing in online and mobile banking that really meets their customers'
needs.
3. Assessing the location of their branches, to determine if any can be closed
without negatively impacting their CRA or Fair Lending performance.
4. Identifying locations for new branches that will attract customers of all
demographics, and serve the unique needs of the community.
5. Evaluating ways to save money and reduce risk throughout their branch
network through branch relocations, downsizing, and strategic
renovations. 
3. Changing Consumer Behavior Leads to a Changing Branch Network

Customer behavior in all industries, including banking, is radically different than it

was 5-10 years ago.

With the surge in mobile banking over the past few years, the idea that “more
banks = higher profitability” no longer accurate. The bank branch is no longer the
only, or even the primary, way that customers can interact with their bank. This
is particularly true of millennial customers.

At the same time, regulatory scrutiny on Fair Lending, CRA, and Redlining is still
dependent on an understanding of the markets you serve. Changing your branch
and ATM network can result in positive or negative impacts to your Fair Lending,
CRA, and Redlining compliance risk.
How A Better Branch and ATM Network Can Lead to Growth

Some ways that banks are responding are:

1. Replacing older ATMs with on deposit-taking ATMs in strategic locations.

2. Investing in online and mobile banking that really meets their customers'
needs.
3. Assessing the location of their branches, to determine if any can be closed
without negatively impacting their CRA or Fair Lending performance.
4. Identifying locations for new branches that will attract customers of all
demographics, and serve the unique needs of the community.
5. Evaluating ways to save money and reduce risk throughout their branch
network through branch relocations, downsizing, and strategic
renovations. 

.
Decline in number of ATMs deployed across the country; PSU banks leading ATM consolidation

5.UPI (Unified Payments Interface):

UPI or Unified Payments Interface has changed the way payments are made. It is
a real-time payment system that enables instant inter-bank transactions with the
use of a mobile platform. In India, this payment system is considered the future of
retail banking. It is one of the fastest and most secure payment gateways that is
developed by National Payments Corporation of India and regulated by the
Reserve Bank of India. The year 2016 saw the launch of this revolutionary
transactions system. This system makes funds transfer available 24 hours, 365
days unlike other internet banking systems. There are approximately 39 apps and
more than 50 banks supporting the transaction system. In the post-
demonetization India, this system played a significant role. In the future, with the
help of UPI, banking is expected to become more “open.”
FDI and Government Initiatives

 Bank Board Bureau

With a view to improve the Governance of Public Sector Banks (PSBs), the
Government had decided to set up an autonomous Banks Board Bureau.
The Bureau will recommend for selection of heads of Public Sector Banks
and help Banks in developing strategies and capital raising plans. The Banks
Board Bureau has three ex-officio members and three expert members in
addition to Chairman. Except ex-officio members, all the Members and
Chairman are part time. The BBB has started functioning from 01.04.2016.

 Capital for Public Sector Banks (PSBs)

Under the Indradhanush Plan, action related to (i) Appointment (ii) Bank
Board Bureau (iii) Capitalization (iv) De-stressing PSBs (v) Empowerment (vi)
Framework of Accountability (vii) Governance Reforms has been initiated
by the Government.
Further, the Government of India had proposed to make available Rs.
70,000 crores out of budgetary allocations for four years. The Government
has infused a sum of Rs. 25,000 crores in 19 PSBs during financial year
2015-16, and in FY 2016-17, Rs. 22,915 crores was allocated to 13 PSBs. An
amount of Rs. 10,000 crores has been proposed for Re-capitalization of
PSBs for the Financial Year 2017-18.
Further, the Government has allowed all PSBs to raise capital from Public
markets through Follow-on Public Offer (FPO) based on specific criteria.
 Merger of SBI Associates with State Bank of India (SBI)
 Government has approved the proposal for merger of (i) State Bank of
Bikaner & Jaipur (SBBJ), (ii) State Bank of Hyderabad (SBH), (iii) State Bank
of Mysore (SBM), (iv) State Bank of Patiala (SBP) and (v) State Bank of
Travancore (SBT) with State Bank of India (SBI) and the same has been
notified in the Gazette of India on 22.02.2017. The merger has come in
effect from 1st April, 2017. Subsequent to merger, the existing customers
of Subsidiary Banks will have access to SBI’s global network which spans
across all the time zones.
 Merger of Bhartiya Mahila Bank (BMB) with State Bank of India (SBI)
Government has approved the proposal for merger of Bhartiya Mahila Bank
(BMB) with SBI and the same has been notified in the Gazette of India on
20.03.2017. The merger has come into effect from 1st April, 2017.
 BRICS Interbank Co-operation Mechanism
EXIM Bank is the nominated member development bank from India under
the BRICS Interbank Co-operation Mechanism. The Bank entered into a
multilateral general co-operation agreement with the New Development
Bank, along with other development banks of the BRICS nations. India was
the Chairman of the BRICS Forum for 2016. Having assumed the Presidency
of the BRICS Interbank Co-operation Mechanism, Exim Bank organized a
series of events and seminars in 2016. The Annual Meeting of the BRICS
Interbank Cooperation Mechanism, and the Annual Financial Forum were
organised in Goa on October 15, 2016.

 Conversion of Kisan Credit Card (KCC) into RuPay KCCs

The Government has been closely monitoring the progress of conversion of
Kisan Credit Cards (KCCs) to RuPay ATM cum Debit Kisan Credit Cards
(RKCCs). NABARD will coordinate the conversion of operative/live KCCs into
RKCCs by Cooperative Banks and Regional Rural Banks (RRBs) in a mission
mode.
 Producer’s Development and Upliftment (PRODUCE)
In compliance to the announcement made in the Union Budget, 2014-15,
an amount of Rs. 200 crore has been released to NABARD. The Scheme is
 under implementation by NABARD, under which 800 Producers
Organizations (POs) have to be promoted during 2014-15 and 1,200 POs
during 2015-16. Against the target for forming 2,000 Farmers Producers
Organisations (FPOs), NABARD has sanctioned 2,172 FPOs as on 31st
December, 2016.

The Payment and Settlement Systems (Amendment) Act, 2015

The Payment and Settlement Systems (Amendment) Act, 2015 was enacted
by Parliament and received the assent of President on 13.05.2015. The
Amendment Act, inter-alia, sought to introduce reforms to increase
transparency and stability of Indian financial markets in line with globally
accepted norms. The Payment and Settlement Systems Act, 2007 was
enacted with a view to providing a sound legal basis for the regulation and
supervision of payment systems in India by Reserve Bank of India.
 Regional Rural Banks (Amendments) Act, 2015
Regional Rural Banks (RRBs) were established under Regional Rural Banks
Act, 1976 (the RRB Act) to create an alternative channel to the cooperative
credit structure and to ensure sufficient institutional credit for the rural and
agriculture sector. RRBs are jointly owned by Government of India, the
concerned State Government and Sponsor Banks. In view of the growing
role of RRBs in extending banking services in rural areas, a need to amend
the Regional Rural Banks Act, 1976 was felt.
 Card acceptance infrastructure
To augment card acceptance infrastructure for use of debit cards, a major
drive was undertaken between December 2016 and March 2017, resulting
in an increase in the number of card acceptance terminals at Point of Sale
(PoS) by an additional 12.54 lakh, up from 15.19 lakh as on 30.11.2016.
Further, to improve such infrastructure in villages, 2.04 lakh PoS terminals
have been sanctioned from the Financial Inclusion Fund by NABARD.
  BIFR/AAIFR
The Gazette notification regarding bringing into force the Sick Industrial
Companies (Special Provisions) Repeal Act, 2003 under section 1(2) of the
Act and provisions regarding abetment of cases with BIFR/AAIFR under
section 4(b) of the Act have been issued, dated 25.11.2016. Both the
notifications come into force with effect from 01.12.2016 resulting into
winding up of BIFR and AAIFR and abetment of cases. In order to maintain
the continuity, the winding up of BIFR/AAIFR is to coincide with constitution
of the National Company Law Tribunal (NCLT)/ National

Company Law Appellant Tribunal (NCLAT), as per the provisions of

companies (second Amendment) Act, 2002.

 Debt Recovery Tribunals

The Recovery of Debts Due to Banks and Financial Institutions (RDDB & FI)
Act, 1993 and Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act (SARFAESI Act), 2002 were amended
by the Enforcement of Security Interest and Recovery of Debts Laws &
Miscellaneous Provisions (Amendment) Act, 2016 to rationalize the
procedures and timelines followed by these Tribunals for expeditious
adjudication and speedier resolution of defaulted loans in time bound
manner.

Investments
FDI in this sector has been raised. 74% FDI via the automatic route is allowed in the private sector
banks. This means that the aggregate foreign investment in any private bank considering all sources
should be up to 74% of the paid-up capital. In the case of nationalized banks, the Portfolio and FDI
investment’s maximum limit is 20%. This cap also applies to the investment in state banks and other
associated ones.

 Jul 28, 2019

Alteria Capital closes its maiden venture debt fund at $ 139.6 mn
 
 Jul 12, 2019
Singapore’s state investment arm Temasek, which has seen its India portfolio grow to $
11 bn, is looking to deploy more capital in India.

 Feb 01, 2019

The Reserve Bank of India on Thursday launched an ombudsman scheme for digital
payments

 Upto 100% FDI permitted under Financial services activities regulated

RBI, SEBI, IRDA or ant other regulator.
 About $ 82 bn FDI inflows attracted under the service sector including Fin.,
Banking, Insurance, Non- Fin / Business outcoursing, R&D, Courier, Tech,
Testing and analysis during April 2000 to March 2020