Banking on Indian Banks
The financial centres in India are undergoing reforms as per the need of the hour to enhance customer experience
The banking industry in India has achieved a new height with the changing times. The use of technology has brought a revolution in the working style of the banks. Nevertheless, the fundamental aspects of banking i.e. trust and the confidence of the people on the institution remain the same.
The majority of the banks are still successful in keeping with the confidence of the shareholders as well as other stakeholders. However, with the changing dynamics of banking business brings new kind of risk exposure.
Recently, the Reserve Bank of India (RBI) reduced the benchmark lending rate by 35 basis points to 5.40 per cent amid concerns over slowdown in economy. The fourth consecutive rate cut is expected to lower equated monthly instalments (EMIs) for home and auto buyers, and borrowing cost for corporate. The 35 basis points (bps) cut in repo is unusual, as the RBI has been changing the interest rate by 25 or 50 bps in the past.
When asked why the RBI opted for a 35-basis point rate cut, RBI governor Shaktikanta Das said it is not unprecedented, and added that a 25-basis point reduction was inadequate while 50 bps was excessive, so the monetary policy committee (MPC) took a balanced call.
The move would allow banks to increase their exposure to a single non-banking finance company (NBFC). The move was aimed at boosting credit to cash-strapped NBFCs, or shadow banks. This could augment well for the customers too. Also, the banks had assured India Finance Minister Nirmala Sitharaman of passing on the benefits of RBI's rate cut to borrowers.
The central bank, after the meeting of rate-setting panel MPC, also lowered the GDP growth estimates for the current financial year to 6.9 per cent from its June forecast of 7 per cent.
The MPC, headed by the RBI Governor, decided to continue with the 'accommodative' stance on monetary policy, indicating further easing of monetary policy depending on high-frequency indicators, such as inflation.
"Addressing growth concerns by boosting aggregate demand, especially private investment, assumes the highest priority at this juncture while remaining consistent with the inflation mandate," the RBI said in the third bi-monthly monetary policy review for the current financial year.
On the technology side, the number of captives levitating on pure technology services, especially on digital technologies like Artificial Intelligence and Blockchain, are growing. This has resulted in more and more banks and services to opt for cost-efficient locations to house their back-end operations, in line with efforts to contain costs, as part of their operating model.
Another way that banks are adopting emerging technologies is by using chatbots developed by enterprise startups. These help banks improve customer experience. Banks such as HDFC, State Bank of India, ICICI Bank, Yes Bank and Kotak Mahindra Bank all have chatbots.
Meanwhile, the penetration of smartphones has also helped lenders develop their digital strategies. Mobile banking apps are becoming the norm. App builders are able to understand the direct impact of these apps, designing them to meet the needs of all consumers.
The digital payments system in India has evolved the most among 25 countries with India's Immediate Payment Service (IMPS) being the only system at level 5 in the Faster Payments Innovation Index (FPII).
Besides technology, the banking sector has recently witnessed the roll out of innovative banking models like payments and small finance banks. RBI's new measures may go a long way in helping the restructuring of the domestic banking industry.
As per the RBI, India's banking sector, at the moment, is sufficiently capitalised and well-regulated. The financial and economic conditions in the country are far superior to any other country in the world. Credit, market and liquidity risk studies suggest that Indian banks are generally resilient and have withstood the global downturn well.