Academy of BFSI,


There seems to be a lot of confusion in the usage of these words and these two are also often used interchangeably. Digitalization cannot happen without digitization first.

Digitization is the conversion of analogue to digital, whereas digitalization is the use of digital technologies and digitized data to impact how work gets done and to transform how customers and companies engage and interact, and also create new (digital) revenue streams.

Digitization refers to the internal optimization of processes (e.g., work automation, paper minimization) and results in cost reductions. Conversely, digitalization is a strategy or process that goes beyond the implementation of technology to imply a deeper, core change to the entire business model and the evolution of work.

Indian Banking, post-LPG

The LPG (Liberalization, privatization and globalization) era, post-1991, and the RBI’s policy of granting new licences to private players have exposed India’s banking customers to new technologies available elsewhere in the world. Undoubtedly, ICICI was the pioneer in introducing new technologies to Indian customers. ICICI and IDBI converted themselves from Developmental Banking Institutions (DFIs) into Universal Banks.

Unit Trust of India (UTI), Life Insurance Corporation of India (LIC), General Insurance Corporation of India (GIC) and its four insurance subsidiaries floated a new bank named UTI Bank Limited (which ultimately became Axis Bank); HDFC Limited floated HDFC Bank, which went on to become the number 1 private sector bank in India, beating the behemoth ICICI.

Thus, post-liberalisation, Indian private sector banks embraced and adopted new technologies to transform the way banking was being done hitherto and also transformed the way customers interact with their banks. As supply exceeded demand, banking customers also transformed from docile customers of PSBs to demanding customers of private sector banks.

Not to be left behind, Indian public sector banks also adopted new technologies. From distributed branches, centralized banking solutions emerged and the concept of “customers of the branch to customers of the bank” happened. However, most of the PSBs lost their market shares to new generation private sector banks. The entire Indian banking landscape witnessed changes as never before and customers became the focal points of banks’ innovation processes.

How well-digitized are Indian Banks?

Digitization, as we have seen earlier, is the conversion from analogue to digital and the process is highly disruptive. In the older era, tallying of books was the main focus of banks. Inter-branch reconciliation was a nightmare and an area prone to frauds. For staff working in the branches also, much of the time was spent on tallying huge manual ledgers. Despite all these, banks were reluctant to embrace new technologies. With much of the PSBs and older private sector banks being highly unionized, RBI faced a tough time in nudging the banks to adopt computerisation, which was done in phases. RBI adopted a carrot-and-stick policy – incentive by way of an additional increment to all the staff and at the same time warning the banks that the reconciliation-mess couldn’t continue. Banks took tentative baby steps and, after tasting success, went full steam ahead in embracing technology.

To know how well the Indian banks are digitized, we have to turn to the data published by the Ministry of Electronics and Information Technology (MeitY) of Government of India. According to the Ranking Chart issued by MeitY for the month of February 2020, private sector banking behemoths HDFC and ICICI, along with Fino Payments Bank are the leaders in enabling digitization of country’s payment ecosystem.

Laggards, ‘also-rans’ and leaders

The data has sprung a lot of surprises. The performances of banks like Deutsche Bank, Union Bank of India and Bandhan Bank were found to be ‘unsatisfactory’. Even the performances of several leading banks like Bank of Baroda, Citi Bank, Kotak Mahindra Bank and Federal Bank, were found to be just ‘average’.

ICICI Bank and HDFC Bank were ranked the first and the second (both scoring 79 out of 100), while Fino Payments Bank stood third in the rankings (with a score of 76). And, surprise of surprises, Oriental Bank of Commerce secured the fourth rank, while Axis Bank secured the fifth spot. These were closely followed by the largest lender of the country State Bank of India.

How are the banks ranked?

The overall rating is based on a number of factors such as percentage of digital transactions achieved, Unified Payment Interface (UPI) and Aadhar Enabled Payment Systems activation (AePS) and the digitization of the respective merchant networks of these banks.

Why does digitization matter?

If businesses have to become agile in today’s cut-throat competition, reaching out to customers through digital channels is imperative. It may mean the difference not only between success and failure but also on the very survival of the entity itself. As banks scramble to cut costs, they need to move customers from the banks’ counters to ATMs and other alternative delivery channels, which would drastically reduce the cost of servicing the customers. It has been estimated that the per-transaction cost declines drastically from Rs. 25-30 per transaction in case of branch banking to Rs. 0.50 to 2 in case of internet and mobile banking.

Also, hopefully, COVID-19 would help transform the mindsets of customers-  mostly rural and semi-urban – of many Indian banks who are reluctant to use digital channels and push them towards these channels. It seems in the near future digitization would be the Hobson’s choice, both for the banks and their customers.

About the Author

Rajan Sundaram

Rajan Sundaram is a banker with more than 3 decades of experience with Canara Bank. Earlier, he was a faculty with Canara Bank, specializing in the area of Credit, Risk Management and Legal & Recovery. He has also been AVP (Credit Analyst) with Wells Fargo.

A holder of MBA (Finance) and PG Diploma in Human Resources Management from IGNOU, Rajan Sundaram has been Academic counsellor for MBA Program at IGNOU and guided students for their MBA projects. He has taught papers on Statistics for Management and HR for IGNOU. Sundaram has also taught papers on Trade Finance and Quality Management at B Schools. Apart from academic teachings, he is a freelance trainer on credit and soft skills programs.

Furthermore, he contributed articles to Canara Bank House Magazine and Vinimaya a publication from NIBM Pune. He has presented research papers at Management Development Institute (MDI), Gurgaon and other colleges. Currently, he is serving as a faculty of Banking in Manipal Global Academy of BFSI.

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