Introduction – The Future of Banking and Finance in India – Research & Ranking

The origins of banking in India can be traced back to the late 1700s, (yes really!) when the Bank of Hindostan was established in Kolkata (Calcutta back then). It was established in 1770 by the agency of Alexander and Company, which had British origins. From that humble institution 251 years ago to the current age of online banking and fintech, we have come a long way.

A sixteen Rupee note issued by the Bank of Hindostan sometime in the 1830s

Source: British Museum Images

The Indian banking system in its current form consists of 12 PSU banks, 22 private sector banks, 46 foreign banks, 56 regional rural banks, 1,485 urban cooperative banks, and 96,000 rural cooperative banks in addition to cooperative credit institutions. This is as per IBEF (Indian Brand Equity Foundation), a Trust established by the Department of Commerce, Ministry of Commerce and Industry, Government of India.

Over the course of the next five articles, we will take you through the phenomenal transformation the Indian banking system is going through.

Traditional branch banking will no doubt be an important part of banking in India. However, there are many layers that have got added to this important peg – online banking, new ways of client acquisition, privatization, technology adoption, the emergence of \”fintech\”, the use of block-chain technology in banking, etc.

The futuristic face of banking in India

We will break up the wonderful journey of banking in India into the following five parts:

1. The evolution from branch banking to online banking – Starting from ICICI’s foray into internet banking in 1997, online banking received a boost due to the 2015 “Digital India” campaign and was further strengthened in 2020 as COVID forced everyone to stay indoors. After initial reluctance, Indians adopted online banking fairly well. For customers, it saves the hassle of going to the bank and getting transactions done. For the bank, it saves the cost involved in serving customers. For the overall economy, it reduces total cash in circulation, thereby reducing leakages and counterfeiting. Online banking involves a complete range of banking services that can be done without stepping into a bank branch. This includes
   1. Deposits, withdrawals, and transfers
   2. Account management
   3. Buying financial products
   4. Loan services
   5. Bill payments

1. Privatization – a bitter pill that will have to be swallowed – The Government has been working on privatization of PSU banks, a challenging exercise politically and logistically. After the merger of 10 PSU banks in CY2020, there are still 12 PSU banks in India. While the 1980s saw a wave of nationalization of banks, we are currently trying to do the reverse. Both exercises are relevant and right in their own context and time frame. Privatization of PSU banks is necessary to improve efficiency and reduce the burden of funding on the Government, besides other reasons. The biggest roadblocks are, however, political. 
2. Use of block-chain technology – Block-chain is not just about Bitcoins, it is being used in the banking sector as well. Block-chain improves efficiency, strengthens security, hastens transaction time, and reduces costs. In 2019, a consortium of India’s largest 11 banks including ICICI Bank, Kotak Mahindra Bank, HDFC Bank, Yes Bank, Standard Chartered Bank, RBL Bank, South Indian Bank, and Axis Bank launched the first-ever blockchain-linked loan system. The trend is expected to catch up with allied sectors such as Insurance, Trade Finance, Cross Border Payments, Digital Identities, etc., leading to a more robust BFSI industry. 
3. Evolution and role of Fintech – Part I – FIntech simply means the use of technology to enhance Financial services and make them seamless. Technology is being applied to various facets of the financial services industry to enhance its functionality. Out of 21 unicorns in India, one-third in India are Fintech companies. The Fintech markets in India are expected to grow at a CAGR of 23% to reach Rs. 6tn by 2025. Broadly, Fintechs can be divided into:
   1. Lending
   2. Wealth Tech
   3. Insurance Tech
   4. Payments
   5. Regulations Tech 
4. Evolution and role of Fintech – Part II – In this section, we take a look at the most prominent Fintechs in the country. Most of these are start-ups started by 20-somethings, some of these have grown into Unicorns with funding from prominent investors. These Fintechs generate employment, fuel the entrepreneurial spirit of young Indians and have a domino effect on several allied sectors.

The banking sector has gone through a sea of change over the decades. From people making a beeline outside banks for tasks as mundane as filling passbooks and starting Fixed/Recurring Deposits, we have now evolved to doing the most complex tasks online.

Not just banking, but the entire financial services gamut is going through evolutionary changes. Apps are now available for insurance, broking, bill payments, loans, and many other services. While making life easier for customers, the revolutionary changes have reduced operating costs for companies. Finance start-ups have led to employment generation and addressing of specific needs of customers.

We are sure you will gain a lot of insights from this wonderful series that we will be running through this week. Don’t miss any of the stories that you will receive. Do let us know your feedback, we will be more than happy to hear from you!

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