Academy of BFSI,

Reach of digital banking in India

This is part 9 of a series of articles on the impact of COVID-19 in the banking and insurance sector with inputs from leading BFSI experts of the Manipal Global Academy of BFSI. Read part 1part 2, part 3part 4part 5part 6, part 7 and part 8 here. This article was written by K. Venkataraman, a faculty member at Manipal Global Academy of BFSI.

Banking in India varies in structure, dimension and volume from that of any country in the world. Ununited by a common business language and culture, India is a complex country with 1.3 billion population need banking services.

India boasts of the highest number of bank branches (130k) in the world. Out of these almost 50% are lying in rural and semi-urban areas, which are decidedly lagging in tech infra compared to Tier-1 cities and metros

It is in this context we need to analyze the digital possibility and progress

Functions of a typical Bank branch in India

  • Primary Functions
    • Accepting Deposits, compliance, maintenance and service requests
    • Advancing loans, compliance, maintenance and service requests
    • Collection of Instruments
    • Creation of Credit
    • Remittances –inward/outward/local/cross border
  • Secondary functions
    • Agency work-collection of tax, third party products, Forex, Standing Instructions, trustee role etc.
    • Utility services-Payment of Utility bills, Safe deposit lockers, social welfare programs and Business stats supply etc.
  • Products/Services
    • Alternate Delivery channels-CDRs, ATMs, E-Kiosks, POS, Bank on wheels, Debit/credit cards and travel cards etc.
    • Digital products-I-net, mobile banking, WhatsApp banking, social media banking, Call centres, DLT, Robotic banking and Phone banking etc.

Digital Progress in banking eco-system so far

Perhaps the seeds of digitization program were sown by demonetization move in 2016. This sudden announcement to freeze physical cash in the banking system, drove hard lessons to the common person to shift to digital cash. PayTM became a saviour to the mean and the mighty. People discovered a painless way of settling the payment. Similar agencies like PhonePe sprung up to meet the demand.

The progress in the digitization of products processes and services is impressive and unparallel.  Look at the following milestones:

  • Core Banking Solution: All banks have embraced CBS for the front and back-office transactions. A huge forward step indeed.
  • Clearing operations: This is automated and NACH is running the same smoothly
  • Debit cards/RuPay cards: Debit cards in circulation are inching toward one billion With revamping of card security with EMV and rapid progress of RuPay to displace VISA/Masters, growth is going to be strong.
  • Credit card user base in 2019 reached 47 million and expected to grow at CAGR of 25% plus in 2020-25.
  • Perhaps the spectacular progress is that of Mobile Banking.

Look at the figures for March 2020

Agency Transactions (Billions) Value (Rs in lakh crores)
UPI 1.25 2.06
IMPS 2.17 2.01
NETC (FastTag) 0.85 0.0014

The advent of Fintech and Techfin companies in India has changed the playing field. NASSCOM says 2000 Fintech companies in India will notch up a business of USD 2.4 billion by 2020. They have shown the way that loans too can be through the digital process!

Enabling Factors

Digital revolution has gained pace due to the following

  • 100% of villages in the country stand electrified.
  • GOI under ‘BharatNet’ has already covered 140k gram panchayats with optic fibre facility and will take the tally up to 240k by 2020
  • Mobile penetration is rapidly matching the population size of 1.3 billion. They will serve as tools to transfer money through IMPS, UPI, PhonePe, Google Pay and 2k fintech companies going forward.
  • Non-cash transactions grew by a handsome 12.7% CGAR in FY17.
  • Merchants opting for digital payments rose from 1.5 million in the same year to 10 million

Action needed to foster faster Digitization

  • Internet penetration in rural is only 20.20%. To be enlarged.
  • Physical cash in circulation to be descaled.
  • Strict culling of cybercrime.
  • Internet in vernacular languages.
  • Smartphones at affordable prices.
  • Apps in vernacular languages.
  • Review of ‘Collect request’ feature of UPI to prevent frauds.
  • Revamp Information Technology Act, 2000 and Negotiable Instruments Act, 1881 and other laws.
  • Popularize use of digital signatures.

COVID-19 has arrived at the best of times to nudge all citizens to digital solutions, let it be Banking, Groceries or Medicines.

When the iron is hot, banks will have to strike to push the population to embrace digital banking in all ways possible. They are doing so now. This will continue to happen even after normalcy returns. I see a 90% achievement by the turn of the year.

What still cannot be digitized?

  1. Emotional engagement with the customers.
  2. Referrals and cross-selling by personal rapport.
  3. Loan documentation and security obtention/registration.
  4. Stock checking /inspection of the Business Unit.
  5. Gold loan.
  6. Recovery of loan and a few more.

About the Author

Venkata Raman

K.Venkataraman is a senior professor at Manipal Global Academy of BFSI. He is a multi-talented person – a banker, an advocate, faculty in many educational institutions. He retired as an executive from Canara Bank after serving the bank in various managerial capacities for 34 years.

Prof. Venkataraman holds an MBA in HR, and LLM besides many certification and membership in Karnataka Bar Association. He is a faculty in ICAI, Bengaluru, conducts online classes for business administration students of Sikkim Manipal University and he is a viva panel member in four universities. He also works as an IPR consultant. Since 2011, Venkataraman working with Manipal.

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