India is accelerating its digital trajectory in response to the challenges of the Covid 19 pandemic. It is projected that more than 2 billion people will have digital bank accounts on digital platforms and just 20% of the heritage financial services will survive in the next decade. So, the future of banking appears to be personalized, practical, platform-based and predominantly online, as well as seamless, speedy and super safe.
- Definition / Scope
- Market Overview
- Key Metrics
- Market Risks
- Market Drivers
- Market Restraints
- Industry Challenges
- Technology Trends
- Other Key Market Trends
- Market Size and Forecast
- Market Outlook
- Technology Roadmap
- Competitive Landscape
- Competitive Factors
- Key Market Players
- Strategic Conclusion
- References
- Appendix
Definition / Scope
Banking is defined as the act of accepting, safeguarding and lending money to individuals and entities to conduct economic activities such as making profit or simply covering operating expenses. Simply, a bank is a financial institution which is licensed to receive deposits and make loans.
Banks play financial intermediary role in the economy so it has contagion effect on the entire economy. Banks are also major source of external finance for most businesses for capital allocation, liquidity, money supply as well as price stability.
Market Overview
The Indian banking system consists of 12 PSBs, 22 PVBs, 46 foreign banks, 56 active RRBs, approximately 1,485 urban cooperative banks and 96,000 rural cooperative credit institutions. As of March 2020, there were 221,579 ATMs, 57.7 million credit cards and 828.6 million debit cards in India. Additionally, on the backdrop of digital financial inclusion movement in India, total adult bank account penetration reached over 80%.
Considering only the asset size, the five largest PSBs in India are State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank and Bank of India, and the five largest PVBs in India are HDFC Bank Limited, ICICI Bank Limited, Axis Bank Limited, Kotak Mahindra Bank Limited and IndusInd Bank Limited.
In 2021, the Finance Minister of India, Nirmala Sitharaman shared the government’s target of privatizing two public sector banks and a general insurance company. In order to attract investors into the country, the government has amended the General Insurance Business Act (GIBNA) and Banking Regulation Act, 1949. Furthermore, Government plans to decrease gross fiscal deficit to below 4.5% of GDP by 2025-26. As per the Monetary Policy 2021-22, the government has an aim of setting inflation at 4% till 2025.
Market Risks
Due to the global economic downturn led by the Covid 19 pandemic, the banking sector will have to bear high level of credit losses and insolvencies. Besides this, limited staff, inadequate digital maturity, and increasing pressure on the conventional banking process have brought the financial services sector to its knees.
Covid 19 has stimulated decline in revenue and profitability, necessitating the need for tighter regulation and competition from new digital entrants. With regards to this, the traditional business model of banks needs to transform swiftly. Perhaps larger banks can enter into insurance business through collaboration or subsidiaries and can reap benefits of financial intermediation.
The short term, medium term as well as long term impact of the pandemic are detailed below:
As per the RBI Financial Stability report, because of significant policy support, bad loans decreased to 6.9% marking substantial improvement in the capital position of banks. However, when the policy support starts to fade, then banks may have grapple through stress essentially in micro, small and medium enterprises and personal loans segments. The report estimates non-performing assets to further escalate above 8% under the baseline scenario and may also foresee steep rise in bad loans. All of which demands banks to be more cautious lenders.
Top Market Opportunities
While the Omicron variant is highly transmissible but it is proving to less fatal as compared to previous variants. India with 70% vaccination rates, booster campaigns, herd immunity and coping abilities, the impact to livelihoods is likely to be limited than the second wave.
In FY 2020-2021, India’s economy shrank by 7.3% in terms of the gross domestic product (GDP). Likewise, banks provision coverage ratio also improved and reached 75.5%. In 2022, the growth of the economy is forecasted to be within the bracket of 9%–10%. In addition, India’s prompt vaccination, stimulus policies and packages like ‘AatmaNirbhar Bharat’ as well as all-encompassing supervisory policies spread across both banking and non-banking sectors would help restore the normal functioning of the financial market.
There has been surge in digital and contactless payments as of the fear of paper money being contagious. There has also been drastic change in the mindset of the people as they feel less intimidated to avail banking services through their phones.
Collaboration and Partnerships
The pandemic has also unlocked collaboration and partnerships between financial institutions and digital service providers such as fin-tech and digital payment companies. The Modi government has not tabled the Banking Laws (Amendment) Bill 2021 which in turn has delayed the privatization of two-state-owned banks. This is a part of disinvestment drive to earn 1.75 lakh crore. The government is planning to introduce the Banking Laws Bill by the end of December 2021. This move appears to reduce minimum government holding in the PSBs from 51% to 26%.
Digitization
The implications of Covid 19 have forced banks and its customers to adapt to restrictions on physical connections. Considering this, banks are focusing on digital enablement where customers are switching to contract centers not just digital platforms to resolve problems, seek advice and open new accounts.
The economic slowdown has had greater impact on banks than any other sector. The reserve bank of India (RBI) has announced different measures to retaliate the Covid-19 challenges by providing relief to the lending institutions. Also, the RBI have integrated new technologies such as Artificial Intelligence (AI) as well as semantic computing to realign data silos for improving efficiency. In general, banks in India are eyeing to make their operations 100% digital to reduce cost across different business lines.
India is pushing to transcend to digital economy from cash-based economy. The digitalization of the financial sector is an important step to achieve this digital push. In this regard, there has been integration of Fin-Tech is increasing at a speedy rate in India through mass adoption of digital payments, increase in financial literacy and effective cyber security protocols to protect and augment financial systems. India’s digital economy is estimated to grow from $85-90 billion in 2920 to $800 billion markets by 2030.
Banks are beginning to shift their routine transactions to digital. Banks are also communicating the benefits of going digital which has accelerated its rapid adoption. However, banks should not overinvest in wrong digital experiences instead they should invest in enablers that would improve overall efficiency, retain customers, reduce cost as well as improve customer value for them.
Digitalization in the banking industry plays an increasingly important post Covid as of lockdown and travel restriction. However, with digital disruption, other cyber security and regulatory issues also become apparent.
Volatile interest rates on loans
In response to increasing GDP and inflation, RBI appears to hike interest rates leading to uncertainty in financial markets. Even though RBI has not changed its policy regarding the repo and reverse repo, other measures like variable rate reverse repo auctions and sale of government securities has begun. With this there has been absorption of liquidity and have led short term rates to rise which at present is close to 4%. Likewise, the rates on long term bonds will also rise as a result of higher yields on US bonds and higher domestic inflation.
Indian banks have incurred lower impaired loans and improved profitability as of forbearance measures and large write-offs. The banks’ balance sheet is yet to adjust the impact of Covid resulting in high unemployment and dwindling private consumption. Essentially, state banks remain more risk-averse reflecting their weak credit growth.
Fitch predicts India’s real GDP growth at 12.8% in 2022. Over 80% of the new infections are in six prominent states, which make up for roughly 45% of total banking sector loans. Banks have introduced Covid-related provisions of 0.5-1.5% of loans. Furthermore, the central bank permitted banks to use floating and counter-cyclical provisions so as to address NPLs. Banks are also continuing to raise capital from equity markets and the government. Any further disruption in economic activity in these states would result in capsizing of the economy.
In May 2021, the central bank announced to inject $6.78 billion of liquidity to ease access to emergency health services. This enables commercial banks to borrow money from the central bank through repurchase agreements, or repos (at 4%), and lend it out to Covid-19-related businesses.
Market Drivers
High demand for banking and related services
India’s rapidly growing working population and disposable income will result in high demand for banking and related services. By 2025, India’s Fin-tech market is expected to hit $83.48 billion.
Cyber security resilience
In February 2021, a comprehensive guideline on Digital Payments Security Controls was issued to formulate a strong governance structure for monitoring and controlling digital payment systems such as internet/mobile banking and card payments.
The Computer Security Incident Response Team for the Financial Sector (CSIRT-Fin) under The Indian Computer Emergency Response Team (CERT-In) on boarded 158 financial sector entities in the Cyber Swachhta Kendra to track vulnerable services and malware infections and build cybersecurity capacity.
Business fundamentals
As of the growing fee incomes for banks their revenue streams are improving. Also, high net interest margins along with low level of NPA will encourage healthy business fundamentals.
Innovation
There has been remarkable improvement in mobile, internet banking as well ATM facilities in the country which has resulted in improving operational efficiency of banks.
- RBI declared the first global Hackathon viz Harbinger 2021, innovation for transformation with the theme of smarter digital payments.
- By the end of November 2021, the number of bank accounts opened under the government’s flagship financial inclusion drive ‘Pradhan Mantri Jan Dhan Yojana (PMJDY) totaled 43.81 crore and deposits in the Jan Dhan bank accounts amounted over $ 19.89 billion.
- In December 2020, in response to the RBI direction, the Digital Lenders’ Association issued a revised code of conduct for digital lending.
- In October 2020, HDFC Bank and Apollo Hospitals joined hands to launch the ‘HealthyLife Programme’ – a healthcare solution that makes healthy living accessible and affordable on Apollo’s digital platform.
Government and Policy support
In India, different regulatory measures are taken to reinforce financial institutions such as easing access to financial products, fortify the grievance readdressal mechanism and defend he interests of depositors and investors. Following the course of the pandemic, RBI permitted commercial and cooperative banks as well as overall financial institutions and non-banking financial companies, a three-month moratorium to make payments for installments.
For Indian banks there are comprehensive policy support from private sector through participation and liquidity infusion. On similar lines, RBI introduced the RBI Retail Direct Scheme for retail investors so as to increase retail participation in government securities. In September 2021, Central Banks of India declared to link its digital payment systems by July 2022 to ensure instant and low-cost fund transfers. As per Union Budget 2021-22, the government plans to disinvest IDBI Bank and privatize two public sector banks thereby reducing the number of public sector banks by eight.
According to RBI banking sector in India is well capitalized and regulated countering the challenges of the Covid pandemic. Banking in India is in transformation drive through the adaptation of innovative banking models like payments and small finance banks. India has been achieved strides in digital payment systems as its immediate payment Service (IMPS) garnered level five in the Faster Payments Innovation Index (FPII).
Market Restraints
Industry Challenges
Traditional banking business models
Revenue pressure, low profitability (due to low level of interest rates and high level of capital), stringent regulation and escalating competition from the new digital entrant pose significant challenges to the banking the industry.
Require prudent regulatory responses
With growing number of digital disruptors entering the industry to compete with the conventional business models of the banks, there needs to be level playing field among the incumbent and the new entrants. Banks liquidity risks are still low as of the prudent measures such as quantitative easing and other measures introduced by central bank since the start of the pandemic.
New digital entrants
During the Covid crisis, to offset restrictions in bank lending, non-bank lenders, FinTech and shadow banks have stepped up to provide innovative digital experiences. Likewise, there has been surge in the digital channels and tools like mobile money, internet banking, e-insurance etc. With regards to ever changing banking customer expectations, an agile technology enables banks to extend their existing systems with the latest FinTech capabilities.
Technology Trends
Digital transformation
Banking industry is focusing on digitization by the adoption of emerging technologies to induce faster service delivery, enhance operational efficiency and increase customer intimacy. Banks are consolidating through mergers and reducing the number of branches to promote self-service digital channels. Mobile and internet banking as well as digital wearables devices are aiding in the process of enhancing customer experiences.
Leveraging the power of FinTech
Before FinTech were viewed as competitors of banks whereas now banks are eyeing to leverage the power of Fintech either through in-house development or by partnering with FinTech companies. Fintech offer marketing, loan servicing, administration and other services that provides access to assets and customers products.
AI and robotics
Leading BFS companies are applying AI in their operations to operate chat bots for agile customer services in during odd hours as well as for enhancing critical functions such as anti-fraud and regulatory compliance. Likewise, machine learning and robotics are replacing labor-intensive, manual workflows and triggering the use of biometric-based authentications, voice commerce and robo- advisors. Considering this, banks are in the need of people with techno-functional skillsets.
Blockchain
Blockchain is leading banks to question their business models by advancing peer-to-peer lending, smart contracts and digital payments, thus, eliminating the need of intermediaries. It is predicted that Blockchain could save as much as $20 billion for BFS industry. Additionally, Blockchain derived cryptocurrencies such as Bitcoin, Ethereum and Ripple are also diluting the need of cash. With this, there has been rise in new regulations such as Open APIs and PSD II.
Cybersecurity
With the growing case of online financial transactions, banks are focusing on cybersecurity to protect their sensitive financial information and avoid financial loss and reputational damage.
Regulatory Trends
Legal framework for banking regulation
The enactment of the Insolvency and Bankruptcy Code 2016 (IBC) has countered the increasing instances of non-performing assets. Furthermore, RBI instituted a remedial framework through the Prudential Framework Circular of 7 June 2019, to support the IBC framework and foresee time-bound implementation of resolution plan. Due to the advent of coronavirus pandemic, the Resolution Framework for Covid-19 related Stress offer lenders a limited-time window to implement a resolution plan which is contingent on corporate exposures. Based on these efforts to improve banking asset quality, there has been a significant decline in gross NPA ratios.
Banking and related financial services are governed primarily by the Banking Regulation Act, 1948 (Banking Regulation Act). The reserve bank of India act, 1934 allows RBI to issue rules, regulations, directions and guidelines relating to banking and financial sector. The RBI is the central bank of India, and the primary regulatory authority for banking. Cross-border transactions and related activities are governed by the Foreign Exchange Management Act, 1999. The Ministry of Finance also supervises and legislates the functioning of banks and financial institutions.
RBI works closely with SEBI, IRDAI as well as IBBI to regulate banking activities.
- Securities Exchange Board of India (SEBI) is the regulatory authority for securities market in India.
- Insurance Regulatory and Development Authority of India (IRDAI) regulates the insurance sector.
- Insolvency and Bankruptcy Board of India (IBBI) conducts insolvency proceedings under the Insolvency and Bankruptcy Code (IBC).
Fintech regulatory initiatives
RBI introduced Fintech competition initiative, with the purpose of encouraging innovation in institutions, instruments and practices all the while ensuring financial stability. Financial inclusion initiatives through the differentiated bank license regime-small finance banks and payment banks.
Regulatory sandbox
The Reserve Bank has selected “MSME lending” as the theme for the third cohort for regulating Fin-tech sector.
The Indian banking system has shown strong resilience in terms of asset quality, capital position and profitability. However, in 2021, policy support has been slowly fading out which may dent the overall health of the banks.
The Indian government are taking calculated measures towards increasing liberalization and domestic economic stability. This move led to the adoption of the deregulation policy resulting in tighter competition in the Indian banking sector further ensuing in narrow spreads. To enhance liberation and stability of domestic economy, some of the key initiatives include:
- Introduce India as an International Finance Centre through the GIFT city program
- Liberalize capital controls through enhanced limits under the LRD (Liberalized Remittance Scheme)
- Credit risk rationalization initiatives
- Initiate the Bankruptcy code
- Introduce initiatives to rationalize NPA such as standard asset categorization, joint lending forums, strategic debt restructuring, forensic reviews and early warning systems
- Basel III initiatives such as leverage ratio and liquidity coverage ratio as a result of mounting stress on banking capital due to rise in NPA
Other Key Market Trends
Consolidation of banks
Banks are consolidating through mergers and acquisitions for reducing overcapacity in terms of staff and branches. Banks are going under planned domestic and cross border mergers in a bid to diversify risk. As a part of the government’s plan to merge 1 Private State banks into 4, in 2020 the number of PSBs dropped to 12 from 27 in 2017.
Synergistic bank mergers allow banks to minimize overlap in operations and right size staff. These mergers also help to condense the gestation time for introducing new product portfolios and gain competitive advantage, etc.
In January 2021, the Sub-Committee of the Financial Stability and Development Council (FSDC-SC), chaired by the Governor, Reserve Bank of India (RBI) discussed the scope for improvements in “the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC), utilization of data with the Central KYC Records Registry and changes in the regulatory framework relating to Alternative Investment Funds (AIFs) set up in the International Financial Services Centre (IFSC).
In April 2021, the FSDC-SC assessed emerging issues of second wave of the COVID-19 pandemic as well as inter-regulatory issues. The members resolved to remain vigilant and proactive to ensure that financial markets and financial institutions remain resilient to address the challenges brought by resurgence of the pandemic.
Merge Urban Co-operative Banks
The enactment of Banking Regulation (Amendment) Act, 2020 allows Reserve Bank to sanction merger of weaker urban co-operative banks with stronger entities on certain conditions.
Credit related measures
To alleviate potential stress to individual borrowers and small businesses due to the COVID-19 pandemic, a limited window up to September 30, 2021 was opened by the Reserve Bank under Resolution Framework 2.0. Likewise, MSMEs and other small businesses with aggregate exposure upto 50 crore was classified as standard. Moreover, priority sector classification was extended to fresh credit advanced by SFBs to specified categories of NBFC-MFIs and other MFIs for the purpose of on-lending to individuals in order to address the emergent liquidity stress faced by smaller MFIs.
With regards to the impact of pandemic on service sectors, the Government extended the scope of Emergency Credit Line Guarantee Scheme (ECLGS) through introduction of ECLGS 3.0 to cover the credit needs of business enterprises in hospitality, travel and tourism, leisure and sporting sectors. Then after, ECLGS 4.0 covered the credit needs of hospitals for setting up oxygen generation plants while expanding the coverage of ECLGS 3.0 to include the civil aviation sector and extending the validity of the schemes to September 30, 2021.
As Asset classification and provisioning norms provides prudential assessment of the true financial position of banks and other lending institutions. However, post pandemic, the Government, the Reserve Bank, the Supreme Court disclosed that borrowers’ accounts had not been classified as non-performing as on August 31, 2020 so therefore it should be retained in the same category till further orders. Post the Supreme Court’s verdict, the Reserve Bank issued instructions so as to ensure consistent application of prudent asset classification and income recognition norms by lending institutions.
Develop credit risk market
Considerable contraction of credit means, lack of funds for corporate and households. Shortage of credit will slow down consumption, investment and overall economic growth. As of this, alternative sources of lending which are subject to less regulatory scrutiny may come to the forefront which could bring financial risk. In light of the COVID-19, most of the government led initiatives rely on banks to grant the loans, so if banks are risk averse it could lead to credit crisis for the economy.
To aid diversification of credit risk, in the banking sector, the Reserve Bank is eyeing to revise securitization framework for transfer of loan exposures and on institutionalizing a secondary market for corporate loans. Considering this move, it has set up Secondary Loan Market Association (SLMA) regulatory body including market participant.
Bad Bank
In Union Budget of FY 2021-22, the Government announced a proposal for setting up the National Asset Reconstruction Company Limited (NARCL), to consolidate and acquire stressed debt from banks, based on specific characteristics.
Centralized Payment Systems
At present, the Centralized Payment Systems (CPS), known as, Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) largely function on a bank-led model. However, non-bank payment gateways are emerging in country so that they are given direct access in CPS as per the Payment and Settlement Systems Vision 2019-2021.
Market Size and Forecast
The Indian banking system is highly competitive with the presence of public, private and foreign banks. In India, domestic banks account for 92% of total banking assets in India where as foreign banks accounts for 8% of the total assets of the banking system. Consequently, foreign banks market share does not exceed 15%. Moreover, the insured deposits of banks constitute 50.9% of the total assessable deposits. Also, it is estimated that the public sector banks accounts for over 75% of the total banking industry assets in 2020.
Market Outlook
Indian economy post Covid
In 2021 International Monetary Fund predicts world’s economy will improve by 6% where as India’s economy will grow at a CAGR of 9.5%. Regardless of the fact that in the early 2021, the second wave of Covid left Indian economy devastated, India soon swung back strong with its rapid one billion vaccination drive. Not only this, India supplied medical supplies, equipment and vaccines across 150 countries. India is taking over the G20 presidency in December 2022 and with this India is reinventing itself as one of the global powerhouses in the post Covid world.
To tackle effect of pandemic, Indian government invested in food security, allocated extra funds for health care and extended tax deadlines for individuals and businesses. Additionally, Indian government has been targeting inclusive growth and self-sufficiency. Under this, India plans to promote digital empowerment and financial inclusion. Government has supported digital payment system welcoming the unbanked and poor sections of the population to have formal access of financial services.
Indian banking sector post Covid
The Indian government have declared the National Infrastructure pipeline and National Monetization Plan to enhance infrastructure and consolidate banking reforms. The reserve bank of India to avail $50 billion to the Indian financial system. India’s swift response to the pandemic comprising fiscal and economic reforms underpins one of the fastest rebound of all major economies.
As per Greenwich 2021 study, State Bank of India and private banks such as Axis Bank and HDFC Bank along with foreign banks such as Citi and HSBC were some of the companies’ leading sources of support during the crisis.
Within a span of a decade, technology has changed the way we bank. Mostly connected to our phones but by 2030, the everyday banking experience could be entirely virtual. By then, it is projected that more than 2 billion people will have digital bank accounts on digital platforms and just 20% of the heritage financial services will have survived. Some banks will be completely virtual, facilitated by open banking fueled by data stored and shared on the cloud and made faster and safer by Blockchain technology. Customers could also get the equivalent of private banking service as data aggregators cross reference spending habits with online activity all which will create a unique profile for banks to offer bespoke services. Looking forward to an AI-powered, virtual banking assistant, handling payments, investments and instant transfers at the command of voice.
As banks begin to get more personal, so will the ways we pay. In the future, cash is no longer king. Instead, paying with phone or wearable will be the status quo rendering physical cards unnecessary. It is expected that 60% of financial organizations to make wearables a common payment method. Physical shops will still exist but the way to pay will change, with money changing hands virtually in real time. Cryptocurrencies may rival cash with an estimated 200 million Blockchain wallet users by the end of this decade. Additionally, many currencies could digitize and even decentralize, simplifying travel and trade. However, for all of this to happen, security should be every bank’s number one priority. Protection against cybercrimes and fraud will be powered by predictive analytics and artificial intelligence. However, pins and passwords will be a thing of the past. There will be much tighter security, thanks to instant biometric verification including voice recognition and finger printing.
Technology Roadmap
Modernizing legacy enterprise systems
Banks are migrating their core legacy systems to the cloud. Legacy data systems were slow and siloed. Banks are eyeing to upgrade their traditional data management value chain by applying advanced data architecture capabilities, advanced analytics and next-generation cloud-based data stores. This will enable them to make faster automated decisions though quicker processing of data. Ai is also reducing the workforce needs as the demand for self-service options are getting popular. As per retail dive report, about 73% of the consumers want self-service technology.
Fintech
It is estimated that nearly 75% of the global population are using FinTech services for financial transactions. Some of the categories or components of the FinTech transforming the traditional banking sector are as follows:
Incipiently, Fintech has been disrupting the banking sector by remodeling and expediting the conventional processes. Fin techs are also increasing being used in risk management, fraud exposure, individual data security as well as improved client experience.
Public banking
Banks will partner with third party businesses to protect users’ data through application programming interfaces. The pandemic has adverse consequences for the regular banking and international money neo-banks. It is expected that the pandemic will increase investments in the open banking sphere. The conventional issues of regular banks and neo banks are further exacerbated by the pandemic. So in order to retaliate the challenges banks are adopting and investing in digital and branchless banking model.
Regulatory technology
The RegTech enables the financial companies to realign the rapidly changing laws. Likewise, the SupTech ensure security of FinTech and its incumbents. Consequently, banks can fortify it risk management systems, decision making methods as well as agreement schemes. Thus, the RegTech as well as SupTech helps to solve agreement concerns and build trust.
Banking as a Platform (BaaP)
Over the years, BaaP has shown growth momentum and is displacing the standard product-centered strategies and vertical business types. The aim is to tie-up with third party providers to improve banking resolutions and enhance knowledge of the incumbent.
AI
Banks are leveraging the power of machine learning to derive data analytics. The models derived from ML helps to garner real-time processing of data, find patterns, discover anomalies, generate insights as well as make predictions to transition to the automated decision making. Banks have been developing proof-of-concepts and aim to make MLOps a standard practice.
Cybersecurity
Cyber-attacks in the banking industry is becoming more frequent and sophisticated. Considering this, banks all over the world are strengthening their security measures. On of such concept is zero trust verification, where every action or request should be verified and validated on all available data points and networks to gain customer trust.
Mobile payment services
Mobile payments systems are getting more advanced through the application of NFC and facial recognition systems. Mobile payments are fast replacing the credit card as it much secure and convenience to use. Large telecommunication companies are shifting to develop Fin-tech solutions as of its wide customer portfolios and similar technological background.
Blockchain
The emergence of crypto currency along with it a decentralized world has accelerated the use of block chain technology. Block chain is considered as one of the most secure means to track financial transactions. In light of this, banks are considering the integration of blockchain into their systems. This technology even poses a significant threat to the traditional banking system.
Competitive Landscape
Key Market Players
There are alternative banking banks popular as Neo banks or digital only banks which are challenging the traditional banking processes of banks and financial incumbents. As Neobanks free up legacy impediments, they appear to transform the conventional banking space. The top digital-only banks in India are explained as follows:
InstantPay
InstantPay offers personal, business as well as all-inclusive banking solutions to individuals and businesses. It delivers instant activation, money tracking and cash deposit features. InstantPay can be used on the web and mobile. Businesses can integrate InstantPay’s API with their business applications or accounting systems. Startups and SME businesses can open a Smart Bank Account. Its prominent banking partners in India are ICICI Bank, Axis Bank, IndusInd Bank and Yes Bank. Large enterprises can avail scalable and cost-effective solutions offered by InstantPay. The InstantPay Digi Kendra service offers basic banking, insurance, and travel booking facilities, among others
Niyo
Founded in 2015, with a team of over 800, Niyo caters to mostly to blue-collared sectors and to the Indian travel enthusiasts globally. Supported by the bank’s digital platform, users can pay bills, transfer funds, make online purchases, track their spending habits as well as access ATMs anywhere in the world. The bank offers a host of benefits over traditional banks like higher interest rate on a savings account, zero % commission on mutual fund investments and zero % on forex. In May 2020, Niyo announced its ‘Niyo Pathshala’ initiative for India’s labor force to enhance their financial literacy. As part of the digital initiative, the company is educating individuals on the benefits and features of branchless banking.
Open
Founded in Bengaluru in 2017, Open began its FinTech journey as a neobank which offers small businesses and startups an online bank account and a credit card that combines banking, payments and accounting in a single place. By signing up on Open, businesses can get access to instantaneous online bank account plus credit card to facilitate rapid payments collection without any limit. Open is mostly popular amongst the E-commerce players which integrates payment gateway API with its website customers can pay during the checkout process. In June 2019, Open raised $30 million in its Series B round from Tiger Global, Tanglin Venture Partners, 3one4 Capital, Speedinvest and AngelList Syndicate.
RazorpayX
RazorpayX is the neo banking platform of India’s unicorn Razorpay. As of October 2020, RazorpayX has has served over 10,000 businesses – process their payroll through Opfin, pay for expenses through Corporate Card, and pay the vendors of businesses in real-time. Besides providing standard banking features such as cheque book, debit card, and account statements, the platform also offers API banking, approvals workflow, and insightful reports. E-commerce players are using RazorpayX, to make instant refunds to credit cards, bank accounts and UPI ID. In addition, it also generates automated refund process of Cash on Delivery (CoD) orders with Payout Links or through API or the Dashboard.
Strategic Conclusion
Banks play a pivotal role in easing impact of Covid-19 on health and economy. Covid-19 provided valuable lessons for banks on its customers, capabilities as well as overall market. Banks has been responding well to the economic ramifications of Covid 19 on the backdrop of favorable regulatory support, technology advancement and high demand for its services.
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- https://www.imf.org/en/News/Articles/2021/11/02/na111121-indias-economy-to-rebound-as-pandemic-prompts-reforms
- https://uk.practicallaw.thomsonreuters.com/w-007-9424?transitionType=Default&contextData=(sc.Default)&firstPage=true
- https://thelawreviews.co.uk/title/the-banking-regulation-review/india
- http://porters5forceanalysis.blogspot.com/2008/07/porters-5-force-analysis.html
- https://ibsintelligence.com/ibsi-news/4-top-neobanks-in-india-innovating-in-the-banking-space/
- https://www.knightfintech.com/knowledge-center/articles/learning/structure-of-the-indian-banking-system
- https://www.weforum.org/agenda/2021/11/india-s-future-and-role-in-the-post-covid-19-world/
- https://www.thehindubusinessline.com/money-and-banking/indian-banks-to-feel-the-effect-of-covid-second-wave-long-after-infections-fade-sp-global/article35063683.ece
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- https://ibsintelligence.com/ibsi-news/4-top-neobanks-in-india-innovating-in-the-banking-space/digital only banks/neo banks/ virtual banks
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Appendix
| AI | Artificial Intelligence |
| ATM | Automated Teller Machine |
| BaaP | Banking as a Platform |
| BFS | Banking and Financial Services |
| CAGR | Compound Annual Growth Rate |
| CPS | Centralized Payment Systems |
| CERT-In | Computer Emergency Response Team |
| CSIRT-Fin | Computer Security Incident Response Team for the Financial Sector |
| ECLGS | Emergency Credit Line Guarantee Scheme |
| EXIM | Export-Import Bank of India |
| FinTech | Financial Technology |
| FPII | Faster Payments Innovation Index |
| FSDC-SC | Financial Stability and Development Council |
| G20 | The Group of Twenty |
| GDP | Gross Domestic Product |
| HDFC | Housing Development Finance Corporation Limited |
| IBBI | Insolvency and Bankruptcy Board of India |
| IBC | Insolvency and Bankruptcy Code |
| IFCI | The Industrial Finance Corporation of India |
| ICICI | Industrial Credit and Investment Corporation of India |
| IDBI | Industrial Development Bank of India Limited |
| IRDAI | Insurance Regulatory and Development Authority of India |
| LRD | Liberalized Remittance Scheme |
| MLOps | Machine Learning Operations |
| MOF | Ministry of Finance |
| MSME | Micro, Small & Medium Enterprises |
| NABARD | National Bank For Agriculture And Rural Development. |
| NARCL | National Asset Reconstruction Company Limited |
| NBFCs | Non-Banking Financial Company |
| NEFT | National Electronic Funds Transfer |
| NPA | Non-Performing Asset |
| OEM | Original Equipment Manufacturer |
| PSBs | Public Sector Banks |
| PVBs | Private Banks |
| PMJDY | Pradhan Mantri Jan Dhan Yojana |
| RBI | Reserve Bank of India |
| RegTech | Regulatory Technology |
| ROA | Return on Assets |
| RRBs | Regional Rural Banks |
| RTGS | Real Time Gross Settlement |
| SEBI | Securities Exchange Board of India |
| SIDBI | Small Industries Development Bank of India |
| SME | Small and Medium Enterprises |
| SupTech | Supervisory Technology |
| SLMA | Secondary Loan Market Association |
| UK | United Kingdom |
| US | United States |
