Industry Analysis Report

SVKM’S NMIMS Navi Mumbai

Project Report- Banking Industry
Faculty Mentor
Prof. Prashant Barsing

Submitted By:

Reshma Desabathina 80501190012

Anushka Gupta 80501190021

Anushree Gupta 80501190022

Rivea Ravindran 80501190035

Nimisha Shrivastava 80501190042

Maitri Thar 80501190048

Naman Tolambiya 80501190049

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Industry Analysis Report

Table of Contents

1. INTRODUCTION.....................................................................................................................2
1.1. Banking System in India-...................................................................................................................2
1.2. Banks in India-...................................................................................................................................3
1.3. Structure of Indian Banking System-.................................................................................................3
2. PESTEL ANALYSIS.................................................................................................................4
3. REGULATORY ARCHITECTURE IN BANKING SECTOR.............................................9
3.1. Recent regulatory developments.......................................................................................................10
3.2. Bank Capital requirements................................................................................................................11
3.3. FDI in the banking sector..................................................................................................................11
4. KPIS OF BANKING SECTOR..............................................................................................12
4.1. Financial...........................................................................................................................................12
4.2. Manufacturing..................................................................................................................................12
4.3. Human Resource...............................................................................................................................12
4.4. Social Capital....................................................................................................................................12
4.5. Natural Capital..................................................................................................................................13
4.6. Intellectual Capital............................................................................................................................13
4.7. Comparative Analysis of Top 3 players in Banking Industry...........................................................13
4.8. Comparative Analysis.......................................................................................................................15
5. MARKETING.........................................................................................................................17
5.1. Marketing trends...............................................................................................................................18
6. OPERATIONS IN BANKING SECTOR..............................................................................20
6.1. Key Processes...................................................................................................................................20
6.2. Automation in Banking....................................................................................................................23
6.3. GROWTH OPPORTUNITIES IN THE INDIAN BANKING SECTOR:.......................................24
7. CHANGES IN BUSINESS ENVIRONMENT......................................................................26
7.1. IMPACT OF COVID-19 PANDEMIC.............................................................................................28
8. FUTURE OF BANKING........................................................................................................30
9. REFERENCES........................................................................................................................31

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1. INTRODUCTION

A strong banking industry is required for economic development of every country. Banking Sector supports
economic development of the county by providing efficient financial services. A strong and efficient
banking sector is the prerequisite for the economic development of any country. Reserve Bank of India is
the central banking institution for India.
The Reserve Bank of India controls the monetary policy, fiscal policy and currency reserves of the country.
RBI is the soul regulator of the Indian Banking System. RBI issues the mandatory guidelines for the smooth
functioning of the Banking system.

1.1. Banking System in India-

Source: https://www.ipbindia.com/2019/07/11/banking-in-india/

Indian Banking System has a broad established network of Banks. Indian Banking System can be mainly
divided into 4 tiers-

1. Scheduled Commercial Banks- The scheduled commercial banks are established according to the
Reserve Bank of India Act, 1934 (Second Schedule). Nationalized Banks, Foreign Banks and some
private banks form the structure of Indian Banking system.
2. Rural Banks- Rural banks are widely known as Gramin Banks of India. These banks have
functionalities in mainly villages and towns. Rural Banks were scheduled to provide the basic
banking services to Indian rural areas.
3. Co-operative banks- These banks provide basic banking services to the small businesses and
agricultural sectors. These banks operate in rural areas, semi-urban and urban areas.
4. Payment Banks- Payment banks are new age small finance banks started by the Reserve Bank of
India. Payment Banks are formed to strengthen existing channels of Atal Pension Yojana (APY).
Currently 11 payment banks & 10 small finance banks are operating and catering to the Indian
Population.
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1.2. Banks in India-

Indian Banks are divided into 2 categories-

1. Organized Banking- The organized banking institutions are those that are controlled by RBI, IRDA
and SEBI. Organized Banking Sector can be further divided into 2 categories-
1. Banking Institutions 2. Non-Banking Financial Institutions

2. Unorganized Banking- Unorganized banking institutions are those that are outside the control of
RBI and lack the transparency and uniformity in the business dealings. Indigenous Banks, Money
Lenders & local traders are the important part of Unorganized Indian Banks.

1.3. Structure of Indian Banking System-

Source: https://www.quora.com/What-is-the-basic-organisational-and-functional-structure-of-theIndian -
banking-system

2. PESTEL ANALYSIS

The Pestel Analysis is used as a strategic tool which helps to assist the growth of the banking sector. The
analysis helps to provide an outward look and the outside environment-based banking because of the
widespread external activities which can affect the policies & infrastructure. In the PESTEL analysis the
external activities are generally Political, Economic, Social, Technological, Environmental & Legal. A well
performed PESTEL analysis can help to identify the future opportunities in the market and the factors that
can affect the industry. Following are the key variables that are considered in the PESTEL Analysis-

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Political Factors-

Politics plays an important role in the functioning of the banking industry. Every government has their own
policies and objectives to fulfill during their tenure and this affects the banking sector. The synergy between
the government and RBI plays an important role in the drafting of many policies and in their effective
execution. In the past, we have already seen that because of the disparity between the thoughts of RBI and
the government Mr. Raghuram Rajan and Mr. Urijit Patel resigned for their RBI governor post. Sometimes,
to get the vote banks and increase popularity among the voters the government declares measures like
waivers of agricultural loans. Various Co-operative banks are run and organized by the politicians and the
government appoints the chairman and top management positions. Sometimes these factors exploit the
banks. Economic Factors

It can be understood by the current GDP growth in India which is considered as 4.5% and because of this
low growth rate the government is asking the banks to motivate the businesses by giving them the loan at
low prices to improve their business activities. Because of the current pandemic going on unemployment
rate is at peak and because of these, banks delayed the moratorium of loans since March and it affected their
asset quality and NPA. Because of this reason the government. Reduced the loan rates and FD rates. The
current inflation rate also impacts the monetary and fiscal policy monitored by RBI. So, from above
mentioned factors we can clearly understand that the current economy plays an important role in the
functioning of the Banking Industry.
Social Factors

Social Factors play an important role in the services and stability of the banking industry. The individual
purchasing practices and their necessity affects the usage of their banking services. Any individual visits the
bank for help or credit for business, family or personal needs or saving the money in FD. Customers want a
seamless experience with banks and thus Banks are becoming more customer oriented in their services and
products. Banks are focusing on providing customized services to every customer. According to the
customer needs the banks introduced loans to farmers, women entrepreneurs, traders & businesses. They
also provide education loans to fulfill the need of students to get higher education.

Technological Factors

Technology plays an important role in the bank’s internal control and external services. The latest
technology developments changed “Branch Banking” to “Anywhere Banking”. The internet helped to
establish the ATM network in the country. Increasing use of technology introduced the POS transactions
and thus reducing the need of physical currency. Many banks offer mobile banking, internet banking
through their mobile apps to eliminate the need to visit physical branches. Banks are providing loans
through these applications also to provide a seamless experience to the customers. UPI infrastructure is the
new concept from which you can send money by using your mobile and saving time and complications to
visit the bank.

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Environmental Factors

With the advent of online banking and mobile banking services the use of paper is diminishing. The
customers reduced the usage of ATM and that is also helping to save the paper. The bank statement, online
forms, cheques, passbook everything is transformed into a digital form and it helps to reduce the usage of
paper and helps our environment. HDFC has started using sun-light based ATMs powered by lithium-ion
batteries to reduce the electricity consumption and reduce the greenhouse gas emissions. These small small
steps are helping the environment.

Legal Factors

Legal factors have a countless impact on the banking industry. The laws related to security, buyer laws,
trade structures, antitrust laws govern the functioning of the banking industry. We need to make sure that
these laws facilitate the transactions related to business and customers. Numerous laws influence the
financial business and have an impact on the banking industry.

Conclusion

The banking industry should go for a PESTEL analysis before activating the marketing process. PESTEL
analysis helps to understand all the external factors and help banks to define/modify their strategies to
handle the uncertainties affecting the banking industry. Banking industry should follow ethical practices and
improve transparency in their approaches to make customers trust them.

SWOT ANALYSIS OF THE INDIAN BANKING SECTOR

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STRENGTHS-
1. Diversified services: The banking industry offers a variety of services, from CASA to insurance,
and is not just limited to keeping accounts. They provide loans and give investment options to the
customers as well
2. Robust Central bank: The RBI is the central authority that governs over all banks in India. Their
regulatory oversight and robust monetary policies have ensured that the Indian banking structure
remained strong, even in times of economic crisis, when the banking sectors of other major
economies have collapsed (For e.g. Lehman crisis).
3. Continuous demand for Banking services: With India’s growing economy, demand for banking
services is always on a rise, and with Government’s support and initiatives, it is reaching out to
remote areas, thereby sustaining the industry’s demand as a whole.
4. Increase in Cashless transactions: Cash management has always been a risky and costly affair.
However, with the rise in digital modes of cash management, banks have been able
to reduce a considerable amount of costs and are able to streamline the banking activities in a better
manner

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WEAKNESSES-
1. Structural weakness: The banking industry is prone to a number of structural limitations like weak
corporate governance, low capital availability, lack of institutional support, political pressure, and
ineffective regulations. The overall fragmented industry structure has thus become a huge problem
for the Banking industry
2. High chances of default: As we have seen in the last few years, the risk associated with the
banking sector for defaults and NPA is very high. The sector as a whole suffers a lot from NPAs and
in the last few years, a number of banks have gone bankrupt due to this. This is a huge issue that the
Indian banking segment needs to address.
3. Not much reach in the rural and under-penetrated market: The rural areas of India are still not
availing the benefits of these banks. Even though the government has come out with a lot of
initiatives like the Pradhan Mantri Jan Dhan Yojana (PMJDY) there is a great lack of awareness and
misinformation amongst the rural crowd which does not give them the confidence to avail the
benefits of banking. They still rely on the landlords and other non-official methods to get credit.
4. High employee turnover: The employee turnover of the banking industry as a whole seems to be
higher than most other growing industries.

OPPORTUNITIES-
1. Expansion into untapped markets: Penetration into the rural markets can be a gamechanger for the
banking industry. Also, by bringing the rural population under the purview of an organized banking
system, it will not only benefit the banks but also the rural crowd who have for a long time been
victims of unfair credit transactions.
2. Change in Socio-cultural and demographic factors: There has been a huge shift in the age
profiles and socio-cultural motivations of the people considering banking transactions. Younger
people are motivated to start saving from the start and people are not skeptical of taking loans. The
spending power of people has also increased which are all favorable signs for the banking sector in
India.
3. Rise in private banking: For a long time, the banking sector was dominated by public sector banks
and there was relatively no competition and boom in the sector. However, with the advent of private
banks, there has been a favorable structural and functional change which has to lead to an increase in
competition and banks are now trying to improve their service offerings, thus benefiting the
customers.
4. Technological revolution: With the advent of Industry 4.0, now banking is revolutionizing all its
processes from physical mode to digital methods like online banking, digital wallets, net banking,
etc. This will completely change the phase of banking from a time-consuming lethargic process to a
fast, easy, and efficient process. Blockchain and other such emerging technologies are also looked at
as opportunities for providing greater security and reduction in the number of human errors.

THREATS-
1. Stability of the Banking system: When even one bank fails to keep its functions running, the
stability of the entire banking system gets hit. The faith of the people in all banks starts to falter and
the central bank has to take many steps to ensure that the system gets back on its foot.

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2. Recession: Any huge shock in the economy or collapse of a huge business can affect the banking
system and vice-versa. It is a vicious cycle that takes up a lot of time to heal.
3. Frequent announcements of Takeovers/ M&As: A lot of banks due to their poor performance are
being taken over or merged with other public banks, which disturbs the functioning of the private
sector and causes uncertainty in the minds of customers.
4. Relaxation of FDI investments: The GOI/RBI’s decision to relax the FDI norms can prove to be a
cause of worry for the management, as it may reduce their stake in the banks and this might also lead
to more stringent competition in the sector.

3. REGULATORY ARCHITECTURE IN BANKING SECTOR

Reserve Bank of India (R.B.I.), which is the central Bank of India, is the main regulatory entity when it
comes to banking. To be in the banking business, banks need to first obtain a license from R.B.I.

RBI exercises the following powers for regulating the banking sector-

● Deciding the norms for setting up Banks

● Giving licenses to banking companies
● Corporate governance
● Prudential as well as provisioning norms
● Rules for structuring products and services

Below mentioned are the Key Acts that regulate the banking industry in India:

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1. Reserve Bank of India Act, 1934- Through this Act, the R.B.I was established to carry out the
functions of currency management ( which was being done by central govt ) and managing the banking
business as per this Act.

Some important provisions are:

● Establishment and incorporation of Reserve Bank.

● Capital of the RBI.
● The obligation of the RBI to transact Government business.
● Denominations of notes and Re-issue of notes.
● Cash reserves of scheduled banks to be kept with the Bank.

2. Banking Regulation Act, 1949- The main purpose of this Act was to safeguard the interests of the
depositors, prevent abuse of powers by banking personnel (who controlled the banks. This Act does not
take precedence over any other laws relating to banking. It allows RBI to issue new licenses and regulate
shareholding and voting rights of shareholders and also regulate the appointment of Board of directors. It
also contains instructions related to liquidation, mergers, moratoriums.

Different provisions in the BR Act are:

● The business of Banking companies

● Activities which are prohibited for banking companies
● Acquisition of banks
● Winding up of banking business
● Applications of this act concerning cooperative banks·

3. Foreign Exchange Management Act, 1999-This act helps in regulating the transactions between
different countries to maintain the foreign exchange of India. Thus, it helps in facilitating trade, payments
in cross border transactions.

In addition to the above 4 Acts, some other Acts are:

• Recovery of Debts due to Banks and Financial Institutions

• Payment and settlement system act
• Bankers Books evidence act
• Regional Rural Bank Act
• State bank of India Act
• Prevention of Money Laundering Act
• IRDA Act

3.1. Recent regulatory developments

1. In March, the RBI allowed banks, financial and non-financial institutions to grant a 3-month
moratorium for instalments that were due by May end.

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2. In June, the cooperative banks were brought under the purview of RBI. This was done by amending
the Banking Regulation Act, 1949. This amendment will also make it easier for cooperative banks to raise
capital. They will now be able to do so through raising equity, preferred stocks, unsecured debentures
contingent to the central bank's approval

3. To strengthen the banking industry, the recommendations of the Basel Committee have been
implemented in stages since 2013. The last phase of Basel III was implemented by the end of FY 2019.

4. A framework to assess the asset quality of banks, their profitability measures, was revised in 2017
by the RBI. RBI shall also suggest needed actions for these areas.

5. Insolvency and Bankruptcy were implemented in 2016. It describes the insolvency processes for
individuals, companies, and partnership firms. Under this, either the debtors or the creditor may start the
process of recovery. It also states that the insolvency process must be completed within 6months. It has
helped to tackle the issue of bad loans in the banking sector.

Banking Governance and Internal Control- The banks that are set up in India have to be in the form of
banking companies. The exception to this is foreign banks operating in India

Following criteria must be followed by Banks, as outlined by the Banking regulation act-
• The directors must have professional/other experience.
• More than half of the directors should have professional experience in the field of banking,
accountancy, and economics.
• There must be two directors who should have specialized knowledge in the agrarian sector and rural
economy.
• The directors cannot be appointed for more than eight years
• A person cannot hold the position of director of two banks. However, if the appointments are made
by the RBI itself, a directorial position in two banks can be held.

According to the BR Act and the RBI Act, the banks need to follow certain corporate governance standards.

3.2. Bank Capital requirements

The BASEL III was implemented from April 2013. All banks with the exception. The BASEL III has a set of
rules and regulations that aims to increase the stability of financial sector systems and prevent unnecessary
risk thereby protecting the economy of the banks.

In India, Banks are required to maintain a certain capital to risk-weighted assets ratio. This ratio is set to 13
% in the initial three years of the banks and 9 % afterwards continuously. RBI, however, can mandate a
higher ratio.

The payment banks are required to maintain a share capital of Rs 100 cr and a leverage ratio of at least 3 %.
There is not a threshold set for CCB and CCCB ratios.

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Certain banks which have been categorized as Domestic systemically important banks need to maintain
extra capital in addition to the prescribed minimum requirements. As of now, these include- HDFC, SBI and
ICICI banks

All banks are subject to the supervisory review and evaluation process by RBI. Under this process, Internal
Capital Adequacy Assessment is carried out and if required ratios are not maintained, remedial actions are
recommended.

3.3. FDI in the banking sector

Currently, in public sector banks, 20 % of foreign investments are allowed through the government approval
route. For Private sector banks, the cap is set at 74%. Any foreign entity cannot have more than 10% stake.
4. KPIs OF BANKING SECTOR

KPIs in the banking Sector are the quantitative values that determine how efficiently, and effectively
specific banking operational goals and objectives are achieved by the bank over a certain period of time.

Some of the KPIs which are effective measure of the performance of the banks are-

4.1. Financial
1. Operating Profit
2. Revenue 3. Expenses.
4. Return on Equity
5. Return on Assets
6. Capital Adequacy Ratio
7. Current Ratio
8. Face Value of Share
9. Dividend per Equity Share

4.2. Manufacturing
1. Number of Credit Cards
2. Number of Debit Cards
3. Increase in number of ATMs
4. Increase in number of Banking Outlets

4.3. Human Resource

1. Number of Employees
2. Percentage of Employees Trained

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4.4. Social Capital

1. Customer Complaints Pending at year end (%)
2. Customer Base
3. Number of lives impacted through Social initiatives
4.5. Natural Capital
1. E-Waste Generated
2. Energy Consumption per Employee

4.6. Intellectual Capital

1. Number of Digital Projects gone live
2. Number of Queries handled
3. Number of Registered Trademarks

4.7. Comparative Analysis of Top 3 players in Banking Industry

The Top 3 major players in Indian Banking Industry in terms of Market Specialization are:

1. HDFC Bank
2. State Bank of India
3. ICICI Bank

HDFC Bank
Housing Development Finance Corporation known as HDFC started operating in January 1995. Currently it
is India’s largest bank in terms of market capitalization. Analyzing the performance and growth of the
HDFC bank over the last five years:

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State Bank of India

SBI was established in 1806. It is the largest public sector bank in India. It has a market Capitalization of
287327 Crores. It offers a variety of banking services like home loan, debit card, mudra loan, personal loan,
fixed deposits.

Analyzing the performance and growth of SBI over last five years:

ICICI Bank
ICI acronymic as Industrial Credit and Investment Corporation of India was established in 1955. Its
registered office is in Gujrat while it is headquartered in Mumbai. It provides a wide variety of services like
Venture Capital, Asset Management, Non-Life Insurance, etc.

Below is analysis of the performance and growth of ICICI bank over the last five years:

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4.8. Comparative Analysis

Below is the comparative analysis of all the three banks on the basis of various parameters-

● HDFC bank has the highest net profit margin because of its high margins and largest market
capitalization in the last few quarters.

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● ICICI Bank has the highest of the current ratio as in the last quarter the bank has reported a 15%
jump in the CASA openings as well as 20% year-on-year growth on term deposits as of December
2019.
● HDFC has the highest Capital Adequacy ratio which means ratio of capital to the risk weighted
assets. That means HDFC can withstand financial unforeseen loss downturn better than SBI or
ICICI.
● HDFC has the highest Return on Assets ratio which means that the bank is more effective in
converting the cash into income as compared to the other two.
● Return on Net worth is also higher in HDFC which means the bank is generating more profit on
investment and is utilizing the money efficiently than the other banks.
● SBI has the largest number of employees as well as the banking outlets and ATMs as it is the largest
and oldest public sector bank of India.

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5. MARKETING

Banks’ primary facility includes Loan Advancement and Depositing cash. But over the years, banks have
diversified into various services. A few of the services are mentioned below:

Generally, banks used to be viewed like custodians of cash. Steadily it has modified its role as the cash
makers. Currently the extent to which the banks have broadened sensationally, these institutions are viewed
like an institution that deals in money for the whole country. The healthy financial framework acts as a
lifeblood to creating a country along with it mirrors development of a nation. Budgetary consideration
forms a significant plan for the RBI. In absence of budgetary incorporation, banks can't arrive at the un-
banked. It is likewise a significant advance towards expanding reserve funds and accomplishing adjusted
development. Two gatherings in Bombay featuring the problems:

1. The Sixth Banking Tech Summit of Confederation of Indian Industry (CII)

2. Society for Worldwide Interbank Financial Telecommunication.

From 6.9 billion individuals in the world, only thirty percent possess accounts of banks along with seventy
five percent individuals—possess mobiles. India, has just 200 million individuals approach a ledger along
with 811 million have a mobile. In populace - 1.2 billion individuals, it converts to sixty eight percent
possessing a mobile along with just seventeen percent possessing ledger. This Statistics represent with
regards of coming to people who do not possess an account in bank along with broadening money related
consideration for the bigger populace, cell phones are the key. Observing the above measurable information,
it can be reasoned that there is as yet a sufficient degree for the development of the banking part.
Subsequently, it requires sound and imaginative promoting techniques to catch the undiscovered market.

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5.1. Marketing trends

1. Grasping Customer information

Significance of purchaser insights along with information is of higher priority in recent times. Previously,
most marketers were more talk than activity around "huge information" as it failed to possess expertise
along with financial proposal to put it into action. Recent apparatuses progress assessment available for
each evaluated affiliation, along with computerized means along with longing for customer specific
proposition make the enthusiasm for data examination compulsory for progress.

2. Increased Mobile Usage

Counting this factor as a major aspect of a bank's or credit association's advertising optional, at this point
not mandatory because purchasers carry out critical exploring of their mobiles. Driving associations in the
retail and different businesses are as of now utilizing the cell phone for areabased offers and deals
messages. As purchasers move significantly further onto the web and versatile financial channels,
advertising spending plans must do likewise.

3. Expanding Focus on Returns

Elevating endeavors should be assessed to gauge accomplishment. The ability to evaluate results were never
so notable, as new gadgets would have the option to look at the customer purchase cycle to make sense of
what blend of diverts were used in the decision strategy.

4. Focusing on Customer Cycle

The standard advancing channel is dead. Fantastic experiences with various brands – various brands in
financial organizations – just as from absolutely remarkable industry verticals have been lighting up the
inclination in regard to your customers on what's in store for them. Unfortunately, there are various limits to
revealing reality around the purchase adventure. Mostly, the huge being structure of inspirations which is to
honor branch workforce to resume on the web, versatile buys to ensure honors given to channel (branch)
instead of an advanced other option.

5. The strategy from Customizing to Personalizing

Giving importance on the upgraded buyer experience along with capacity of newer ways of data assessment
in banking, altered consistency requires more serious need in coming years. The upsides of personalizing
consolidate better response along with change rates, brand steadfastness, along with customers improved
reach. Shoppers show a hankering for custom courses of action reliant on their own conditions dynamically
6. Optimization of the channel

Past multichannel or omnichannel, the idea of optimum channel in promoting alludes to having the option
to convey and bolster a customer's purchasing process utilizing best channel. Objective is helping seamless

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change among computerized as well as physical channels of conveyance just like among advanced and
broad communications correspondence channels for the most ideal experience.

7. Content Marketing enhancement

There exists a noticeable necessity for pertinent and natural substance advancing which can be passed on
using the right stations at ideal time. Promoting content plans should consolidate clever assessments, getting
ready for keeping people clicking and sharing information which can be used in deals formation.

8. Using Social Media

Amongst informal networks, Facebook has been most standard for publicists, as the framework is greatest
and considering the way that the framework has developed a five-star advancement system. Facebook data
and concentrating on gadgets license promoters to modify their social fights in a scale. Snapchat, Twitter
and Instagram are in like manner getting much standard having explicit sections of people.

9. New Channels

Augmented reality along with virtual reality aren’t standard promoting channels as of now, advertisers
ought to get settled with advanced modernized decisions because engineers go after adjusting channels.
Starting uses might pivot around advancing internal applications, like ATM/ Branch finder. Very soon, few
money related affiliations might give an all-out 360-degree buying experience. Distinctive experiences may
provide purchasers inspirations to connect with bank without visiting physical places.

6. OPERATIONS IN BANKING SECTOR

There are various operations involved in the banking sector. The operations are to be studied to understand
the value chain. It involves various processes from cash deposits, clearing cheques to wealth management.

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Source: https://sis.smu.edu.sg/master-it-business/research/ubpf
6.1. Key Processes
Lending Operations
Personal - In personal lending, the liquid cash or loan is given for a personal use like, car loan, education
loan etc. In recent years the personal lending operations have become centralized. The loan sanctioning
process has become faster and efficient with the help of online application forms, links directing to credit
agencies and credit scoring. Automation is letters and documents being posted. Automatic decision making
has been implemented where there is an automatic consequence by performing a certain activity, for
example, automatic deduction of processing charges.
Business -This involves lending money or providing capital for businesses. Automating the credit
sanctioning process can be done with the help of credit scores. Credit monitoring software’s, automation in
account management with software’s like SAP have been the latest developments. Security - the process of
lending derivatives, stocks or any such securities to a business or investors. The loan borrower should
provide at least hundred percent of the value of security to be provided as collateral according to the
regulations set up.
Customer Accounting - the customer accounting includes Customer accounts data, Cash Handling,
Processing of charges, managing group accounts, loan repayments, processing of cheques and other
payments, bank statement processing etc.

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Supply chain in banking-

Source: Deloitte ,Optimizing the retail bank supply chain 2013

Cash supply chain-

Cost incurring in the retail banking sector has highly increased with the increase in demand for money and
increased use of sophisticated technology in the banking supply chain.

In the banking sector, the inventory is the cash and the flow is from central banks to the end consumer.
Building blocks of an integrated cash supply chain - for integrating and centralizing the operations in
banking, it is necessary to have a proper understanding of current supply chain and processes, which
includes, the day cash withdrawal amounts, cash handling processes, suppliers, network.

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According to estimations made by McKinsey, 75 to 80 percent of transactional operations like processing

of payments, general accounting can be automated from 75-80% and strategic operations like reporting,
planning and analysis of finance, financial controlling, managing treasury can be automated to about up to
40 percent

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6.2. Automation in Banking

1. It helps in Simplifying the work routines and reduces rework of processes that can be done by
integrating human and AI skills in running the process with maximum efficiency.
2. Automation in banking processes Improves the work quality and reduces any errors caused by
human touchpoint in the banking value chain
3. Robotic process automation can help in reducing resource capacity and focuses on activities with
higher value thereby increasing productivity and efficiency.
4. It helps in speeding up the innovation process and reduces the time to market

The power of robotic process automation to instigate bank operations is very bonafide and reduces the time
taken to perform tasks 90% and the costs can be lowered up to 80%, as estimated by Accenture.

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Benefits of IT and technology in Banking

● By making the processes streamlined and maintaining a consistent good quality

● Analytics driven management with predictive analytics can be used of proactive decision making
and streamlined and customized processing
● As the processes move online, the response time gets faster
● Customers can be given personalized data helping them have the best experience
● Reduces bank visits from the customers and the process gets smoothened out also reducing the
investments made into physical assets
● Interactive and AI powered chatbots can reduce the need for customer care centres
● With implementation of technology the transactions are made faster and real time data of banks can
be retrieved by both banks and customers
● Automated Clearing House can make money transfers between various accounts faster

Blockchain in Banking

● Increases efficiency of operations. It stores the data in the form of blocks which increases the
mobility of data
● It enhances the trust as the processes get transparent
● It reduces the errors caused by human error and every single action can be recorded
● According to Accenture the banks can save up to 10Bn$ by implementing blockchain

6.3. GROWTH OPPORTUNITIES IN THE INDIAN BANKING SECTOR:

Some other major growth opportunities in the Banking sector are:
1. ‘The Next Billion’ to be the largest customer base for the Banking sector:
For a long time, the Indian banking has catered to the middle- and upper-class households. This is
bound to change with greater accessibility and use of technology. The income group right below the
middle class with and income range of Rs.90K to Rs. 0.2Mn will be the next new base. New low-
cost models owing to reduction in cost from cost management techniques will be explored by the
banking sector thereby catering to this segment’s needs.
2. Wealth management to grow with 10X growth: The growth of wealth in the top band of income
earners is expected to go up more than ever. This will give rise to a greater demand in wealth
management services and this will form an integral part of the bank’s product portfolio.
3. Fintech Partnerships with Banks: There has been an unprecedented growth in the Fintech sector in
India, as our country becomes a digital economy with over 330 million internet users, and their
interdependence with banks is increasingly being realized. More and more banks will be seen
integrating with Fintech companies and implementing innovative solutions to better address the
needs and issues of customers.
4. Cognitive analytics and technologies in Banking: Information discovery and use has reached new
levels with cognitive computing solutions, which will give rise to Smart banking embracing AI and
Cognitive technologies. With cognitive computing. Customers will be able to get quick personalized
services, for e.g. it will be capable of building a profile of customers showing potential matchups
with different types of wealth management products that the customer will be most interested in.

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7. CHANGES IN BUSINESS ENVIRONMENT

Scanning of business environments means scanning the organizational internal and external environment so
that organization can plan its course of action for the coming years. The environmental understanding in
which the industry operates helps to avoid any shops and recognize the threats and opportunities and
improve long term and short-term planning for the industry as well as for the organization.

The changes observed in the environment in which the banks operate in India are:
1. Rise in ATMs internet banking and mobile banking- From providing plain vanilla banking
services, banks have transformed themselves into universal banks. ATMs, internet banking and
mobile banking in social banking have made anytime anywhere banking the norm. Now, the non-
cash payments comprise about 91 % of total transaction in terms of value and around 50% in terms
of volume. The growth is just not restricted to the metropolitan urban cities. The policy makers are
constantly working on the financial inclusion of the secluded areas, where internet is still a luxury.

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2. Development of New Banks-Progress has been made on issuing the draft norms for new banking
licenses. Also, in the recent 5 years, mergers of banks were a delightful sight which was undertaken
by the RBI to make the PSUs more strong and top players in the industry. Few of the recent mergers
can be seen in the below picture.

Source: Moneycontrol, Analysts give thumbs up to mega merger of public sector banks,2020
3. AI and Banking- Artificial intelligence (AI), machine learning (ML) and big data are becoming
prime to the innovation in the financial sector, and can also help in fraud detection and in
identifying better ways of monitoring use of funds by borrowers, tracking suspicious transactions,
etc. by processing large datasets. The best use of this technology and innovation will help in
bringing down the intermediation cost while protecting their bottom lines.
4. Green Banking- With economies making their business sustainable, it is time the financial sector
should also act upon it. Green banking means for promoting and the environmentally friendly
practices and reducing the carbon footprints from the banking activities undertaken by the customers
as well as the bank itself. Green banking aims at improving the operations and technology while
simultaneously making the client habit environment-friendly in the banking business. The following
can be achieved by taking certain strategies in their banking businesses. There is scope for banks to
adopt paperless banking and inculcating minimum use of paper and switching to electronics.
5. Fintech Companies- Fintech companies are acting as a disruptor in the sector. The advent of
financial technology companies can be taken as an opportunity for growth in terms of innovation.
They are and will prove to be a significant part of the financial ecosystem. Fintech companies
specialize in developing technology solutions that can help companies to manage their financial
aspects of varied and diversified businesses, like new software’s, applications, processes as well as
business models. Investments made in Fintech companies have increased drastically around the
globe in the past decade making it a multi-billiondollar industry.

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6. Blockchain- Blockchain is the new word of the town. Though still under development, it can act as
a disruptor in the banking systems across the nations. Blockchain has made its way into the Indian
financial sector but strict monitoring from the government is required to keep a check on the misuse
of the technology. By adopting blockchain technology, the country will experience immense growth
and investments in the following have already been started. States like Kerala, Maharashtra,
Karnataka, Telangana and Andhra Pradesh are supporting blockchain startups and projects and
organizing conferences and hackathons on the topic.

Source: Forbes India

7.1. IMPACT OF COVID-19 PANDEMIC
All the economics around the world have been held by the covid-19 pandemic and Indian economy is no
blind eye. The pressure on the consumers is growing as the financial institutions try to manage their revenue
and juggle between the customer expectations and growth of the economy. While the RBI and the
government are already working on its way to keep the economy on track the concerns are alarming. There
is a chance of a significant increase in the number of NPAs (bad loans) as the economy progresses ahead.
The entire banking sector has been hit very hard and recovery is on the charts but when, can’t say. Estimates
show that there will be shrinkage in the pool of the prime borrowers and also more requirement for working
capital due to the lockdown in the entire country, which has prevailed for more than 2 months. The main
objective of the banks will be to manage the credit risk as well as the NPA risk and simultaneously
minimize any slippages which might happen in future. According to the report published by PWC there is a
chance that banks might increase the provision to be maintained for all the loan accounts who have opted
for the moratorium scheme.

The area of focus here for the bag should be to reset the strategy and plan accordingly for the coming years
focusing on the larger picture and channelizing their efforts in potential growth. Encouraging the usage of
chatbots and interactive voice response systems can prove to be a good measure in order to revive
customers and generation too. Indian fintech’s and digital payment companies can be the new future as the
shift in the digital choices of the population can be observed widely. High dependence on IMPS, UPI and
other means of digital payments may eliminate or may lessen the dependence on banking branches. This
also proves to be a huge opportunity from a business point of view for companies like Paytm, PhonePe to
attract traffic.

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Source: India Rating , 2020

8. FUTURE OF BANKING

The IT revolution has significantly boosted the Indian Banking sector and technology has uplifted how we
perceive the banking sector, let alone be a part of it. From “conventional banking to convenience banking,
from long queues to opening a bank account just by few clicks, the value generation for customers and
society has been huge and impactful. Although there has been a rapid increase in the adoption of technology
by banks, this increase has been found to be majorly only in urban areas and metros. The true benefits of IT
are yet to reach the rural population. This is something that has to be tapped by the Banking sector to realize
its true potential. One great way would be to get the programs and software in the regional languages to get
the rural customers comfortable in using banking services.

There have been a number of digital transformations that organizations all over the world are seeking.
While the banking industry has already started incorporating a lot of these technologies, especially digital
payments, and secured transactions, it is anticipated that they will soon be embracing cloud technologies
and advanced analytics to streamline its processes.
The Digital Banking Report of 2020 has found out the top ten trends in retail banking for year 2020, and a
lot of these initiatives are expected to continue for the next 2-3years. The top three trends and predictions
are:
• Following a customer centric approach and trying to remove the friction from the customer’s
journey (58%)

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• Use of AI, Big data and cognitive computing to leverage the real time data received by the Banks
(43%)
• Making use of APIs for the transformation of traditional platforms to an open banking platform
(33%)

9. REFERENCES

1. https://www2.deloitte.com/us/en/insights/industry/financial-services/financial-servicesindustry-
outlooks/banking-industry-outlook.html
2. https://gatehub.net/blog/banking-trends-of-2020/
3. https://howbankswork.com/
4. https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Financial Services/gx-fsi-ca-
optimizing-the-retail-bank-supply-chain-2013-10.pdf
5. https://www.globallegalinsights.com/practice-areas/banking-and-finance-laws-andregulations/india
6. https://www.nabard.org/auth/writereaddata/tender/1409164242RRB_Act1976.pdf
7. https://www.mckinsey.com/industries/financial-services/our-insights/bankingmatters/banking-
operations-for-a-customer-centric-world#
8. https://www.slideshare.net/rajeevderoy/retail-banking-operations-centralisation
9. https://bankingblog.accenture.com/automating-bank-operations-keep-eyes-
wideopen#:~:text=Automation%20aims%20to%20reduce%20errors,innovation%20and%20ti me
%20to%20market.
10. https://patch.com/iowa/iowacity/bp--5-advantages-of-new-banking-technology-for-smallbusinesses
11. http://newagebankingsummit.com/europe/4-key-advantages-of-using-blockchain-inbanking/
12.
13. https://www2.deloitte.com/in/en/pages/financial-services/articles/weathering-thecovid19.html
14. https://home.kpmg/in/en/blogs/home/posts/2020/07/how-covid-19-acceleratingdigitalisation-
banking-payments-industry.html

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15. https://www.hdfcbank.com/content/api/contentstream-id/723fb80a-2dde-42a3-97937ae1be57c87f/
1bcf4f2c-17cc-4759-9081-dcc0f5beeb60?
16. https://www.hdfcbank.com/personal/about-us/investor-relations/annual-reports
17. https://www.icicibank.com/aboutus/article.page?identifier=news-performance-reviewquarter-ended-
march-31-2020-
20200905195637303#:~:text=Net%20nonperforming%20assets%20reduced%20by,%25 %20at
%20March%2031%2C%202020.
18. https://www.rbi.org.in/Scripts/ATMView.aspx?atmid=46

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