The Future of Banking in India

Published on: 2017/10/26

SA Raghunathan


What does the future hold for Indian banking?

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Future of banking in India, banking, finance

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Indian banking sector

A bank is a financial institution or intermediary that accepts deposits and channelizes the deposits into other lending activities directly or through capital markets. The Indian banking system dates back to 18th century, the first banks in India were The General Bank of India, 1786 and Bank of Hindustan, 1790. The oldest functioning bank in India is State Bank of India, started in the year 1806 as Bank of Calcutta.

The Reserve Bank of India (RBI) is the central bank of the country, which commenced its operation in the year 1935. The primary function of RBI is to regulate the issue of banknotes, maintaining the cash reserve to have monetary stability and to operate the credit and currency system of the country. RBI was nationalized in the year 1949.

Prior to liberalization, RBI played special role development of many institutions like Unit Trust of India, Deposit Insurance and Credit Guarantee Corporation of India, Industrial Development Bank of India (IDBI), National Bank of Agriculture and Rural Development (NABARD), Rural development, etc This helped to build the financial structure of the country.

The liberalization on the 1990s the focus of RBI shifted to other functions like bank supervision and regulation, monetary policy, supervising payment system, and developing financial markets.

The banking sector in India comprises of scheduled banks and non-scheduled banks. Scheduled banks are further bifurcated as State Bank of India and its associate banks, Regional Rural Banks, private sector banks and foreign banks. The banks that are included under the 2nd schedule of Reserve Bank of India Act, 1934 are scheduled banks.

Future of banking in India

Cashless economy

With the introduction of digital banking, and payments bank, the traditional banking system has scaled up and now focussing more on ease of use and customer satisfaction. In recent years, we can see a tremendous growth in the services provided by banking companies. The 2016 Indian banknote demonetization, a critical drive to move the major population to the banking system, has resulted in many people in rural areas using banking services. In urban areas, the demonetization drive has forced many to use cards, payments bank or cashless transactions even for buying petty things.

FinTech partnerships

Digitalizing banking transactions and moving to the cashless economy has also embarked many FinTech transactions between banking companies and technology providers. The main aim of FinTech players worldwide is to address the problems faced by customers while using financial services. Bringing forth convenient banking system is the prime agenda of FinTech partnerships.

Artificial Intelligence and  Big data

The banking industry is full of unstructured data. By the data, the banking industry can function more efficiently and cater to the varying needs of the customers. The artificial intelligence has provided a scope for a number of advancement in the future of the banking sector in India. Language processing, language generation, machine learning, image recognition, cognitive computing, etc will enable technologies to perform tasks as a human brain does.

Blockchain and cybersecurity

Information security has become critical with the various incidence of phishing and “vhising” in the Indian banking industry. Many customers have lost a huge amount of money to the hackers. Securing customer data and technology associated with the banking transactions hold the future of digital banking sector. Also, the blockchain technology and distributed ledgers provide an architecture that is highly tamper-proof and secure. Blockchain technology will be the biggest disruptor of the banking sector in the future.

Read more – Future of Banking in India by SA Raghunathan, a financial expert points out the problems in the present banking model and the future challenges of the Indian banking sector.