What will be the impact of emergence of Payment Banks on the Conventional Indian Banking System?

#Fincabulary 32 – MiFID II

Meaning – MiFID II is a legislative framework instituted by the European Union to regulate financial markets in the bloc and improve protections for investors with the aim of restoring confidence in the industry after the financial crisis exposed weaknesses in the system. It is a revised version of the Markets in Financial Instruments Directive (MiFID) and was rolled out on January 3, 2018.

While the original MiFID only covered multi-lateral trading facilities, the previously unregulated organized trading facilities (OTFs) have also been added in the new framework. There are new safeguards for algorithmic and high-frequency trading activity. Stricter requirements for portfolio management, investment advice, and other investor protections are also included. Additional and reinforced powers of supervision of derivatives markets, coordinated with the European Securities and Markets Authority (ESMA) is also a part of the new regulations.

#Fincabulary 31 – Contactless Payment

Meaning – It is a secure method for consumers to purchase products or services via debit, credit or smart cards (also known as chip cards), by using RFID technology or near-field communication (NFC).

To make a contactless payment, a person simply needs to tap their card near a point-of-sale terminal – leading to the nickname “tap-and-go”. Since contactless payments do not require a signature or a PIN, transactions sizes on cards are limited. The allowable amount for a contactless transaction varies by country and by the bank. Examples of non-credit or debit card contactless payments include transit cards, Apple Pay, Android Pay and Google Wallet.

Volume 2, Issue 2

December 2017 Issue, Volume II, Issue No. 2

As the year 2017 comes to an end, we look back and realize that this year has witnessed some very important events which had the potential to transform many economies around the world.

This issue of TAPMI Journal of Economics and Finance (TJEF) focuses on some of the prominent topics in the field of Finance and Economics. The journal contains papers on below topics:

  • SHOULD YOU RIDE THE BITCOIN WAVE? – By Vidhi Jain & Vignesh V
  • BASEL III NORMS: JOURNEY SO FAR & THE ROAD AHEAD – By Mohit Jain & Barnava Chatterjee
  • BANK RECAPITALISATION:  NECESSITY AND IMPACT – By Anandhan P.T. & Lakshmi Ramakrishnan Nair

We hope that the readers of the journal benefit from the insights of the papers published.

Managing Editor,

Isha Varma

Please read the PDF version of the Journal on – TJEF Volume 2 Issue 2

Future of the Indian Banking Sector

– Manisha Sharma

 

Introduction:

A decade ago, visit to a bank would mean spending money on travel, waiting in long queues and missing a half day’s work. Now, with the growing usage of digital banking, the number of visits to bank branches have reduced.  The latest innovation by HDFC Bank in the self-service channel is the humanoid robot, so you no longer need to wait in long queues. Banks are aggressively using digital marketing strategies to attract new customers and enhance the experiences of existing customers. However, much of the banking sector depends on investment cycle, working capital demand, monsoon, commodity prices and government spending in some sectors such as infrastructure sector.

An assessment of the current scenario indicates that the credit growth has declined to 4.4% in 2016-17 from 8% in 2015-16. The asset quality has deteriorated further in the current fiscal leading to a Gross NPA Ratio of 9.5% with Public Sector Banks contributing the most. The macroeconomic indicator – inflation has dipped to a record low in 2017 and RBI intends to keep it at ~4% by the end of 2017-2018. This, coupled with softer commodity prices induces difficulty in recovery of credit growth. Is this scenario going to change in future?

The future of the banking sector will revolve around evolving customer expectations, technological innovations, improved regulatory requirements, increased competition and change in demographics. Following is the detailed explanation of how these forces will shape the banking sector in future.

A shift from product-centric approach to customer-centric approach:

The demand from customers are evolving and banks are focusing on providing tailor-made products in order to satisfy their needs.  Banks in India are also establishing their footprints in the hinterlands. With the advent of technology and deep branch penetration, agricultural loans will be delivered within 2-3 days in the future, a change from the current 3-4 days. The corporate loan portfolio’s growth rate is declining. This will lead to a shift in focus of the banks towards the retail lending. The banks will invent new loan products in the future to target the retail segment.

Evolving Technology:                                                                                                                  With the growing influence of fintech companies in India, banks will use new technologies like Artificial Intelligence, Machine Learning, Blockchain, Robotics, IOT, etc. not only to enhance customer experience but also to achieve operational efficiency.

 

Picture1Source: PWC Report

 

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