The Prayas ePathshala

Exams आसान है !

Presently, in many regions of the nation, there is an ongoing process of ideation that is resulting in the creation of innovative public goods with global reach.
Nowhere, arguably, do the winds of change exert such a profound influence as in the banking and financial sector. It has played a prominent role in the transformative trajectory of the world’s most populous democratic nation.

The susceptibility of India’s banking system to global concerns:

Over the course of the last quarter-century, there has been a notable occurrence of substantial growth and stability, although encountering several instances of strain stemming from events such as the dotcom boom, the September 11 attacks, the 2008 financial crisis, the European debt crisis, the Covid-19 pandemic, and the Russia-Ukraine War. These unforeseen circumstances have challenged the boundaries of human understanding.
The banking and financial sector in India has also been impacted by similar forces.
Over the course of the past 75 years, the banking industry in India has undergone significant development and has evolved into a dynamic sector. The reforms implemented throughout the last three decades have played a pivotal role in facilitating progress.
The financial sector has become more diverse and inclusive due to many factors such as consolidation in the public sector banking industry, the creation of private banks, specialist non-banking financial businesses (NBFCs), and the growth of the fintech ecosystem.
Banks have successfully addressed the challenges associated with non-performing assets (NPAs) and have demonstrated resilience in navigating external disruptions. Internal accruals have emerged as a viable source of money for facilitating expansion. Given the current trend of declining credit costs, it is anticipated that there will be a robust expansion in loan activity in the forthcoming years.

The adoption of technology within the banking sector holds considerable significance:

Banks in India have embraced technological advancements, thereby positioning themselves at the forefront of the industry, deviating from the traditional bricks-and-mortar approach.
The implementation of universal banking coverage via the Jan Dhan initiative, along with the extensive utilisation of technology to provide financial services through digital platforms, has brought about a significant transformation in the field of finance.
The advent of many technological advancements, such as mobile banking applications, retail electronic cash transfers, UPI, Aadhaar e-KYC, Bharat Bill Payment System, scan and pay, and digital pre-paid instruments, has brought about a significant transformation in the realm of traditional branch banking.

The advent of public financial platforms is poised to provide more momentum to banking services:

The current trajectory of the Indian banking system involves a transition towards a knowledge-based framework, facilitated by the integration of artificial intelligence (AI) and cognitive computing throughout many corporate activities and processes. The implementation of artificial intelligence (AI) empowered functionalities has the potential to assist banks in customising consumer interactions and enhancing their capacity to gain a more profound comprehension of their clientele.

The digitalization of the banking sector presents a number of challenges:

The integration of technology into the banking industry presents a range of novel prospects and obstacles.
The rapid rate at which technology is advancing and the resulting structural shifts in the economy give rise to regulatory gaps and susceptibilities.
The advent of digitalization has not only facilitated the emergence of novel avenues for providing financial services and fostering product differentiation, but it has also given rise to a number of apprehensions. These concerns encompass a wide range of issues, including the proliferation of unregulated digital lending applications, the utilisation of cryptocurrencies, and the vulnerability to cyber-attacks.
The convenience of banking services in contemporary times necessitates an increased obligation to uphold the presence of essential support infrastructure for a secure payment settlement system, automated teller machines (ATMs), internet and mobile banking platforms, the management of cyber security risks, and the resolution of customer complaints. These measures collectively guarantee the uninterrupted provision of banking services.

The banking sector is faced with increased duties as a result of climate change:

The issue of climate change has become a significant obstacle for financial institutions.
The concept of “equal but differentiated responsibility” among nations has led to the emergence of numerous initiatives aimed at advancing decarbonisation endeavours.
The aforementioned developments present novel prospects for commercial ventures in the realm of renewable energy, urban gas distribution, green hydrogen production, and the trading of environmentally friendly commodities. These opportunities aim to effectively address the imperative of achieving a net-zero transition.
It is anticipated that banks would play a significant role as financiers in the efforts to combat climate change. Banks must incorporate this emerging risk into their risk management practises, particularly when faced with substantial methodological and data-related obstacles.

The necessity of a proficient human resource to effectively adjust to change:

The quality of human resources will emerge as a significant determinant of success in the forthcoming years, alongside technology.
The expansion of the skill gap is evident in an environment characterised by dynamism and fast change. In order to effectively tackle this issue, banks and financial institutions must employ strategies to attract, develop, and retain skilled personnel.
There exists a heightened demand for personnel to possess flexibility, adaptability, a willingness to embrace emerging technology, and a proactive attitude towards acquiring new skills in order to maintain their relevance and utility.
Consequently, upskilling and reskilling of human resources is a sine qua non to address the developing difficulties. Capacity building will assume a significant role in the financial sector.
In addition to training, it is imperative for the financial services sector to allocate resources towards research and demonstrate a willingness to embrace and cultivate unconventional ideas in order to achieve seamless service delivery and the hyper-personalization of goods. Banks and financial organisations may need to contemplate the establishment of in-house data science laboratories or sandbox environments in order to experiment with novel concepts.

In conclusion:

The government has implemented recent policy efforts, including the Insolvency and Bankruptcy Code, as well as the establishment of NaBFID and NARCL. These measures aim to rectify market failures by establishing institutions that promote long-term stability within the banking system.
Hence, the banking industry is at the forefront of the endeavour towards achieving an Atmanirbhar Bharat, promoting fair and sustainable progress that encompasses the prudent integration of innovation and technical expertise to serve the welfare of humanity.