Digital Banking – A New Frontier in Indian Business

Paper submitted to

IFIM Business School, Bangalore, India

for the

CONVERGENCE -10th International Conference on

‘Digital Business: New Frontiers in Management’

Scheduled on

February 4-6, 2016

by

Prof. Chowdari Prasad Dr. K. S. Srinivasa Rao

Dean (Planning and Development) Dean (Academics)
IFIM Business School, Bangalore IFIM Business School, Bangalore
chowdarip@gmail.com, +91 9482549472 (M) srinirao35@yahoo.com, +91 9620559612 (M)

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 Digital Banking – A New Frontier in Indian Business

Banking has taken a paradigm shift in India now even though it has a historical legacy for
over two centuries. Definition of Banking has taken a different meaning with technology
becoming a cutting edge in business. A major revolution is taking place in Banking Sector
due to the Economic and Banking Sector Reforms going on since 1991. New private and
foreign banks gave a threat and challenge to Indian Pubic Sector Banks as an outcome of
Liberalization, Privatization and Globalization (LPG) measures by the Government of India.
Stand-alone branches have taken a new ‘avatar’ due to Core Banking facilities. Banks are
differentiating from each other in rendering best customer service through digital banking to
handle large volumes of business and meeting the Financial Inclusion goals set by the
government. Computerisation and ATMs made the life of customers easy for processing of
their cash transactions and retail banking needs. Online Banking made the job further
simplified in all kinds of transactions. With the advent of mobile technology and smart
phones, M-Banking is now the order of the day making the traditional banks as ‘virtual’.
Interestingly, PSBs in India withstood the onslaught to give tough competition to their
counterparts using technology, after a time tuning of two decades. Technology in Banking
Sector made the banks to also think about Lean and Green Management. Digital Marketing
became a strategy to attract Gen-Y customers even in Banking Sector. The authors have
taken secondary data and analysed the Indian Banking System on how Technology supported
in the development of the Banking Business in recent years.

Key Words: Bank, Business, Digital Banking, Indian Banks, Technology, Utility Services

1. Introduction

1.1 History of Banking in India

Indian Banking System comprising of Commercial, Developmental and Central
Banking (RBI) witnessed several twists and turns for over two centuries. These
include Organisational changes, Operations and Geographical Spread, Legal and
Technological interventions and Offering of various types of products and services by
the Public, Private, Foreign and Cooperative Sector Banks. Broadly, the functioning
of banks can be divided into three phases viz., (i) prior to 1969 - first nationalisation,
(ii) between 1969 to 1990 - growth period and (iii) after 1991 - consolidation with the
introduction of Economic Reforms through Liberalisation, Privatisation and
Globalisation (LPG).

The IT revolution during mid-1980s had a great impact on the Indian Banking system.
Use of computers for back-office reconciliation extended to front-office operations in
due course leading to introduction of Online Banking. Several innovations and
computerisation increased their business many-fold as the country's banking sector
reached global standards. The domestic banks were finding it difficult to compete
with their international counterparts in terms of customer service without the use of
Information Technology. The new wave ushered in a modern outlook and tech-savvy
methods of working for traditional banks to offer top class customer service at all

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levels. All this led to the Retail Banking boom in India by turn of the twenty-first
century.

1.2 Reforms in Banking Sector with focus on Technology

RBI formed several Working Groups and Expert Committees on Mechanisation /

Computerisation in the Banking Industry as given in Table-1. Major
recommendations of these Groups / Committees were to introducing MICR
Technology, use of standardized cheque forms/encoders, settlement operations in the
Clearing Houses, computerisation of branches by increasing their connectivity, Issues
relating to Payments System, Cheque Clearing for Securities Settlement, Electronic
Funds Transfer (EFT) System, Electronic Banking, ‘Doing Banking by Using
Technologies’ like - internet and networking, so as to increase efficiency, quick
service, productivity and transparency. These initiatives brought in remarkable
changes in the working of banking system eventually as is experienced today.

Table 1: Committees of RBI for Technology in Banks

S. Year Name of the Committee Chairperson

No.
1 1982 Working Group to consider feasibility of Dr Y B Damle, Advisor,
introducing MICR / OCR Technology for Management Services
processing of Cheques Dept., RBI
2 1984 Committee on Mechanization in the Banking Dr. C. Rangarajan, Deputy
Industry Governor, RBI
3 1987 Committee on Communication Network for Banks Sri. TNA Iyer, Executive
and SWIFT implementation Director, RBI
4 1988 Committee on Computerisation in Banks Dr C. Rangarajan, Deputy
Governor, RBI
5 1994 Committee on Technology Issues relating to Sri. W S Saraf, Executive
Payments Systems, Cheque Clearing and Securities Director, RBI
system in the Banking industry
6 1995 Committee on Proposing Electronic Funds Smt. K S Shere, Principal
Transfer and Electronic Payments Legal Adviser, RBI
7 1999 Committee on INFINET Sri. Vasudevan RBI Expert
8 2001 Committee on Legal Aspects of Bank Frauds Dr. Mitra
9 2002 Working Group on Electronic Money Ms. Zarir Cama RBI
10 2003 Working Group on Cheque Truncation and e- Dr. R B Barman, Executive
Cheques Director, Reserve Bank
11 2011 Working Group on Information Security, Shri G Gopalakrishna, RBI
Electronic Banking, Technology Risk Management
and Cyber Frauds
12 2013 Committee on Comprehensive Financial Services Dr. Nachiket Mor, RBI
for Small Businesses and Low Income Households Board Member
(formation of Payment Banks)
Source: Various Reports of RBI

What began with usage of Advanced Ledger Posting Machines (ALPMs) for service
over the counter during seventies, reached today’s most sophisticated levels of Mobile
and Network banking. In the process, several products and services like clearing of
cheques, reconciliation of accounts, offering of services like Credit / Debit / Smart

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 Cards, Kisan / SME Cards, Dematerialisation, Core Banking Solutions, Cross Selling,
faster remittance of funds through RTGS / ECS / EFT / SEFT / SWIFT, Cheque
Truncation, etc., are being offered by all banks. Usage of NICNET, I-NET, RABMN,
BANKNET, INFINET, RBINET, NDS, SFMS have become the order of the day.
Similarly, compliance to prudential norms like CAR, CRR, SLR, NPA, KYC, ALM
and Risk Management has become smooth. Benefits of Interest Rate Deregulation is
being extended to customers efficiently. Robust MIS mechanisms are withstanding the
onslaught and Management of Disasters, Cyber Crimes, Money Laundering, Phishing,
Pharming, Hacking, Vishing, Skimming, Smishing, Trojan, etc.

1.3 Digital Banking

Internet has brought in the biggest change in the way we have been banking for
centuries. Digital Banking is the present trend in banking. It is not only merely using
the internet and is much more, based on the SMAC (Social, Mobile, Analytics and
Cloud) model, which puts customer first and cuts costs associated with banking.
SMAC makes banking business more agile and customer centric which contributes to
the building of the Digital Banking. There are other elements such as Big Data and
user-experience that also contribute to the concept.

2. Review of Literature

2.1 Articles from Research Journals

K.S. Srinivasa Rao and U.Rama Rao (1998) discussed on the issues and challenges of
the utility services offered by Banks using technology proposed by WS Saraf as
PUSHPA System.

Chowdari Prasad and K.S. Srinivasa Rao (2004) analysed the Performance of Public
Sector Banks and compared them with their counterparts and indicated how
technology would be taking a cutting edge for the future banking business.

K.S. Srinivasa Rao and Chowdari Prasad (2006) studied on the sustainability of
Foreign Banks operating in India in-spite of their Technology advantage.

Ankit Gupta (2010) studied on the Mobile Banking adoption in rural India as case
study.

Varalakshmi A, Chowdari Prasad and K.S. Srinivasa Rao (2013) created awareness on
Lean and Green Banking and suggested how technology in Banking can reduce
wastage.

Anshu Tyagi and Smitha Chitranshi (2015) have studied the relationship between
Electronic Banking and Customer Satisfaction in a select Indian bank. Davinder
Kumar and Bhubaneswar Sharma (2015) have discussed about how virtual circuits
will become permanent in making M-Banking applications a success. They focussed
on the issues of cost effective planning of network and location management between
ATMs and WATMs (White Labelled ATMs).

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Gomathy Thyagarajan (2015) has studied more on issues related to Mobile Banking in
India. Muhammed Juman BK and J. Christopher (2015) have indicated that e-
Banking in India is still in evolution stage eventhough Government of India and RBI
have taken several initiatives. Kamaleswar Boro (2015) has studied on the prospects
and challenges of technological innovations in Indian banks viz. ATMs, Credit Cards,
Debit Cards, Internet Banking, Mobile Banking, ECS, RTGS, and Mobile Wallet in
North Eastern India.

S Nagaraju and Latha Parthiban (2015) have discussed about the advantages of Cloud
Technologies and mentioned about issues like data security and privacy. They have
presented a multi-factor authentication scheme using biometric finger prints as a key
parameter for online banking systems. Thankom Arun and Rajalaxmi Kamath (2015)
have opined that Financial Inclusion is the key enabler for development. The macro
data analysed by them through round table discussions, gave different regional
perspectives on the policies and practices of financial inclusion in India, South Africa
and Australia.

V. Varalakshmi (2015) has described about the attacks on PIN entry and secure ATM
transaction methods used to reduce physical and electronic thefts in ATMs. Y V Rao
and Srinivasa Rao Budde (2015) have studied on the development in Information
Technology which enables banks in making value-added services to be more effective
in satisfying customer needs by adopting innovative solutions in banking services. R.
Srinivasan and M. Subramanian (2015) have demystified about Payment Banks and
how they are going to support in Digital Banking revolution.

Aboagye Michael Osei et al., (2016) have suggested through a survey findings on
how to redefine the SERV-QUIL dimensions and constructs while applying to
Electronic Banking.

2.2 Reports of Consulting Companies on Digital Banking

 Infosys-2012: Branch Bank of the Future- Transforming to Stay Relevant

Infosys believes that technology, innovation and channel integration will play
a key role in re-engineering and re-energizing the bank branch as one of the
preferred mode of banking.

 McKinsey & Company -2013: Retail Banking in Asia Actionable insights

for new opportunities

Retail Banking in Asia is on the cusp of a new era—an era of amazing growth
and opportunities but also an era that will see downward pressure on returns.
Asia will reach over USD 900 billion in retail banking revenue by 2020,
growing at about 14 percent per year from 2010. It is expected to be the
second largest wealth management region globally after the United States,
with more personal financial assets residing here in Asia than Europe by 2015.
This is also a market where they are seeing and will continue to see rapid
shifts in three consumer behaviours—heightening demands on frontline
services, fast adoption of new mobile platforms, and increasing need for credit

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 and a larger variety of products alongside growth of the middle class and
urbanization, amongst others.

 WIPRO and Efma-2013: The Global Retail Banking Digital Marketing

This study was based on global surveys of banks covering marketing and
digital channels, and is also based on interviews with banks from all regions of
the world. Digital Marketing Capability Index shows that only a few banks
can consider themselves to be world class when it comes to Digital Marketing.
The potential for improvement at most banks is huge. Social media also
introduces lots of new issues for banks in their Digital Marketing activities.

 India Brand Equity Foundation (IBEF)-2013: The Indian Banking

Sector: Recent Developments, Growth and Prospects

Though the Government is working hard to control inflation rates, the industry
expects full implementation of Basel III (currently banks in India are
following Basel II) norms by March 2018. This will require a considerable
credit raise, especially for public sector banks; however, an assessment of the
assets of private sector banks such as ICICI and Kotak Mahindra reveals that
they already have sufficient capital, and will sail through this change.

 Deloitte Consulting Pvt. Ltd- 2014: Digital Transaction Banking:

Opportunities & Challenges

In this study, Deloitte explores in-depth the digital phenomenon developing in

the transaction banking landscape by identifying key global technology trends
and changes to the end-clients’ ecosystem, as well as the different degrees of
trend prevalence and maturity across key industries. Deloitte then examined
the current state of the incumbents and alternative service providers in the
industry, and finally, takes a glimpse into the road ahead.

 PWC Report 2014: Productivity in Indian Banking

The report deals with Digital Banking – Opportunity for Extraordinary Gains
in Reach, Service, and Productivity in next 5 years as well as its Disruptive
Potential.

 Happiest Minds Technologies Pvt. Ltd. – 2014: Digital Transformation in

Banking – The Future of Banking

Today’s demand of banking is ‘anytime anywhere banking’. This requires

innovative, robust, secure, optimized and ready to meet the expectations of
empowered and tech-savvy customers. Digital Transformation is far beyond
just moving from traditional banking to a digital world. It is a vital change in
how banks and other financial institutions learn about, interact with and satisfy
customers. An efficacious Digital Transformation begins with an
understanding of digital customer behavior, preferences, choices, likes,

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 dislikes, stated as well as unstated needs, aspirations etc. And this
transformation leads to the major changes in the organizations, from product-
centric to customer-centric view.

 Cognizant (2014): Digital Banking: Enhancing Customer Experience;

Generating Long-Term Loyalty

To stay profitable and grow in the new digital economy, banks need to adopt a
customer-centric business model, diversify online delivery of products and
services channels, and begin making meaning from valuable trails of digital
information. Digital modernization gives traditional banks a second chance. A
smart, enterprise-wide approach positions them to deepen customer
satisfaction and loyalty, driving long-term relationships and profitability.

 EY and IBA (2014): Banking on Technology Perspectives on the Indian

Banking Industry

Responding to Basel norms and a more aggressive supervisory regime, banks

have undertaken risk and compliance management system implementations.
Information Management and Analytics are in focus as banks have built out
large data warehouses in an attempt to leverage their data assets to better
understand, sell and serve their customers. All this points to a flourishing
industry, focused on technological innovation. However, while there has been
significant action, considerable amount remains to be done. The next few
years are critical as banks focus on “sweating” their technology investments to
increase their Return on Investment.

 BCG and IAMAI Report – 2015: India @Digital.Bharat – creating a $200

billion Internet economy

The Boston Consulting Group and Internet and Mobile Association of India
envisage that Indian economy will create a $200 billion business for mobile
banking shortly.

 McKinsey & Company -2015: Digital Banking in Asia: What do

consumers really want?

Asian consumers are moving quickly into Digital Banking, McKinsey’s latest
research shows. Incumbents and new entrants alike should plan for the
implications.

 DBS Group Research Equity 2015: Regional Industry Focus- ASEAN

Banks

Banks have started to invest in digitization which includes key areas such as
back-office automation, digitization of document management and automation
of credit decisions. DBS stated in its 2013 Annual Report that it plans to invest
S$200m a year over three years in Digital Banking. As per the McKinsey Asia
Personal Financial Services Survey, 2015; extracted from Digital Banking in

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 Asia: What do consumers really want?, it was noticed that India has 18%
penetration out of other several Asian countries, in which South Korea and
Australia got highest penetration (96%) with a least penetration in Philippines
(13%).

 PWC- ASSOCHAM India-2015: Logging into Digital Banking, Creating

access and transforming lives

ASSOCHAM and PwC present this knowledge paper with the objective of
contemplating the issues and challenges being faced by IT and telecom
companies in providing a platform for taking banking to the unbanked masses.

3. RBI Guidelines on Technology

3.1 Corporate Governance of Banks in India

IT Governance is an integral part of the Corporate Governance that constitutes

accountability framework of a bank. It involves leadership support, organizational
structure and processes to ensure that a bank’s IT sustains and extends business
strategies and objectives. Effective IT Governance is the responsibility of the Board of
Directors and Executive Management. Access to reliable information has become an
indispensable component of conducting business, indeed, in a growing number of
banks, information is business. Today, almost every commercial bank branch is at
some stage of technology adoption: Core Banking Solution (CBS), or alternate
delivery channels such as internet banking, mobile banking, phone banking and
ATMs.

3.2 Reserve Bank of India, Department of Payment & Settlement Systems, Payment
Settlements in India - Vision 2012-15
Vision Statement: To proactively encourage electronic payment systems for ushering
in a less-cash society in India and to ensure payment and settlement systems in the
country are safe, efficient, interoperable, authorised, accessible, inclusive and
compliant with international standards.
The Vision Document "Payment Systems in India - Vision 2009-12", sought to reflect
the changes in the entire gamut of the payment systems, post-legislation of the
Payment and Settlement Systems Act, 2007. The Mission Statement accordingly
reflected the public policy objectives of the Reserve Bank "to ensure that all the
payment and settlement systems operating in the country are safe, secure, sound,
efficient, accessible and authorised" and contained both short and medium term plans
along with a slightly longer term perspective to achieve those goals.
To accomplish the vision of a less-cash society, if not cashless society, the key
elements which would impact all our efforts towards creation of a modern and
widespread payment system are: Accessibility, Availability, Awareness, Acceptability,
Affordability, Assurance and Appropriateness (7 A’s). The Vision Statement 2012-15
sets out the roadmap to ensure benefits of a structured modern payment and
settlement systems, including innovative products, to reach out beyond the currently
served target groups thereby facilitating greater financial inclusion. This is to be
achieved by nurturing a payment system that adequately serves the national and
international transaction needs of the nation.

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3.3 IDRBT, Hyderabad

Institute for Development and Research in Banking Technology was set up and
funded by RBI in Hyderabad to provide technological and operating support to banks
and financial institutions. It is an autonomous centre for development and research in
banking technology. It is a ‘Think-Tank’ for promotion of technological research and
consultancy and provides V-Sat based financial network for banks. It also is engaged
in Data Warehousing and Data Mining and publishes a journal on IT in Banking.
IDRBT offers web-based training to all bank executives using Indian Financial
Network (INFINET).

IDRBT has outlined its plans to launch a Digital Banking Framework in 2016 aimed
at making Digital Banking versatile by incorporating new channels of payments. The
framework / platform being developed with inputs from banking sector players,
technology firms and IDRBT research teams, is aimed at also meeting the emerging
requirements in the e-Commerce sector.

Recent advances in Big Data and Analytics has thrown up immense possibilities in
identifying areas of business propositions for banks, while meeting choosy demands
of their customers. Big Data has become the mantra for understanding new leads for
banks, likes and dislikes of customers, their behavioural analysts and information
security threats, among other issues. IDRBT will introduce a Post Graduate Diploma
in Banking Technology (PGDBT) program beginning July 2016.

Table-2 gives a gist of Technological & Innovative Products and Services being
offered by some Indian Banks and other new wave technology platforms which
evidence on Digital Banking initiatives:

Table 2: Technological & Innovative Digital Banking Products and Services

offered by some Banks

S. Type of Name of the Bank Technological & Innovative

No. Bank Digital Banking Products and Services

1 Public Sector State Bank of India In-touch, InCube (Start-up Branch), ExclusiF
(3.7 lakh touch points, (Wealth Management), ATMs, Point of Sale
16,415 branches, 56,930 Terminals, Core Banking, Internet Banking, State
group ATMs including Bank Anywhere Smart Mobile Banking, Business
Multi-Function and Self- Correspondents, Customer Service Points, Buddy
Service Kiosks and Cash (Anyone, Anytime, Anywhere), SBI Quick (Missed
Deposit Machines, 2.4 Call Banking), Foreign Travel Card, SBI Online
Lakh POS Terminals Customer Acquisition Solution (OCAS) and SBI Self
and 58,571 Customer Service Kiosks (Bank @ Your Service 24x7), e-
Service Points) Smart SME (e-Commerce Loan), e-auctions and e-
CRM
Mobile ATMs, Green Channel Banking, SBBJ e-

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2 Public Sector SBBJ LOBBY, Internet and Mobile Banking, e-Trade, e-
Tax Payment, e-Remittance, Quick Missed Call
Banking
NEFT, RTGS, Cash Deposit Kiosk, SMS Banking,
3 Public Sector Panjab National Bank IMPS, e-Statement, ECS, Fee Portal, Mobile
Banking, Internet Banking, EMV Debit Cards,
Talking ATMs, Doorstep Banking, Credit Cards
Rapid Funds2India, Baroda Flash Remit (with UAE
4 Public Sector Bank of Baroda Exchange), Speed Remittance (with UAE/Lulu/Al
Ansari Exchange), MTSS and Swift Remittance
5 Public Sector UCO Bank UCO Tap & Pay (for College Students and
Corporate) and UCO m-Passbook
6 Public Sector Andhra Bank Digital Wallet, Speed Pay, etc
1. IMPS through branches for Retail and Corporate
customers
2. Mobile Passbook ( M Passbook)
3. Missed Call facility for Mobile Banking &
Account balance
7 Public Sector Union Bank of India 4. SMS based value added services
 Blocking Debit Card
 Balance enquiry of various accounts
 Aadhar ID seeding
 Enable/Disable user id of internet banking
 ATM and Branch Locator

8 Old Private Core Banking, Internet Banking, Money Plant

Sector Bank Karnataka Bank (ATMs), Quick Remit (for NRIs), Moneyclick, KBL
ApnaApp and KBL m-PassBook
9 Old Private FedBook (mobile app), Co-branded VISA Credit
Sector Bank Federal Bank Card (with SBI), Automated Chat Facility (Virtual
Relationship Officer), e-Passbook App
10 New Private ICICI Bank Rail Ticket Booking on Website (IRCTC), etc
Sector Bank
11 New Private HDFC Bank Click2ProtectPlus and others
Sector Bank
12 Foreign Bank Citi Bank e-Core Banking through ATMs
13 Foreign Bank Standard Chartered Standard Chartered Breeze-Mobile Banking
Bank
14 Regional 66 Grameen Banks Online Transaction services from Regional Rural
Rural Banks sponsored by Banks, Internet Banking (non-transactional services
(RRBs) Commercial Banks view only) for weak Banks
15 Cooperative Saraswat Cooperative ATMs, NFS Network, E-payments-VISA Bill
Bank Bank Ltd. Payment, Go-Recharge, RTGS, NEFT, Missed Call
Service, GOMO-Mobile Banking, Online Trading
16 Wallet Instant Money Transfers anytime anywhere using
Banking Oxigen IMPS, recharge your Phone or book a Movie ticket
(2004)
Wallet Mobile Recharge, DTH Recharge, Utility Bills,
17 Banking MobiKwik Online Shopping
(2009)
Online Mobile Recharging, Online Bill Payments,
18 Wallet Paytm Online Bus Travel, Credit and Debit Card Payments,
Banking Net Banking, BCCI Payments, Mobile Wallet, etc
(2015)

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 19 Deposits, Cash Management, Manpower and
Payment FINO Pay Tech Technology (partnering with ICICI Bank),
Bank (2015) Recharges for Mobiles, Utility Bill Payments, Ticket
Booking, Insurance Distribution, and Assisted
Online Shopping
20 Payment Tech Mahindra – A first of its kind “Tap N Pay”, Contactless Digital
Bank (2015) Mobo Money Payment Solution (Near Field Communication)
Source: Information taken from various websites, Newspaper Reports and Advertisements

4. Objectives of the Research Study:

By understanding the way Technology is entering into the banking system in India by
design through the regulatory body, the researchers have taken the following
objectives for the study:
1) To understand the importance of Digital Banking in Indian Banking System as
per the Vision document of RBI on Payment Systems
2) To analyse the Banking business using IBA data
3) To understand the advantages of Digital Banking for the Stakeholders
including intermediaries using Big Data of RBI on Payments
4) To understand the importance of SMAC as a competitive Strategy for Digital
Marketing
5) To create Awareness of Threats and Challenges of Digital Banking in terms of
Cyber Crimes

5. Research Methodology:

After doing the Literature survey, an interest was developed to work on the status of
Digital Banking with reference to Indian Banks. Type of Research is of Exploratory
mainly as the concept is still at the evolving stage in India. On several parameters of
Financial and Technological strengths of Banks, the research is of descriptive nature.
The work is more on Secondary Data which was collected from various sources of
Bank Websites, Newspaper Advertisements, and Information through Press Releases.
The objectives of the Research were verified through the information available but not
tested by any hypothesis.

6. Limitations of the Study

The concept of Digital Banking is at the primitive stage and government is also taking
lot of initiatives to promote assessing the situation time to time. This limited the
authors to confine to descriptive analysis rather predictive.

7. Analysis

A Bank interested to do a new initiate should make their financial strengths in order.
As Digital Banking is a new initiate, all banks are competing and trying to grab the
market. The Descriptive Analysis done based on the data taken from IBA website on
the core financial aspects like Deposits, Advances, Investments, Total Assets, Total
Income, Total Expenditure, Net Profit, and Net NPA for the periods of 2013-15 and
given in Table – 3 (a) to 3 (d).

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 Table: 3 (a) – Status of Aggregate Deposits and Advances of Banks in India
Types of Banks / Deposits (Rs. Crores) Advances (Rs. Crores)
Year 2013 2014 2015 2013 2014 2015
Public Sector 5,745,697 6,589,02 7,195,480 4,472,84 5,101,142 5,476,250
Banks (77.3) 0 (77.2) (76.6) 5 (76.1) (75.7) (74.5)
Private Sector 1,395,836 1,591,69 1,787,761 1,143,24 1,342,935 1,543,917
Banks (18.8) 4 (18.7) (19.0) 9 (19.4) (19.9) (21.0)
288,144 352,459 414,441 263,680 291,142 327,615
Foreign Banks (3.9) (4.1) (4.4) (4.5) (4.3) (4.5)
7,429,677 8,533,17 9,397,682 5,879,77 6,735,219 7,347,781
Total (100.0) 3 (100.0) (100.0) 3 (100.0) (100.0) (100.0)
Note: Figures in Brackets indicate Percentage to Total Source: IBA website
All banks are in steadily moving in terms of Aggregate Deposits and Advances but for
Public Sector Banks, there is a slight downfall in terms of Advances over the period of
2013-15. Interestingly, even though the actual numbers are different across banks, in
terms of Percentage over Total Deposits and Advances, all banks are going on the
same pace by facing the competition.

Table: 3 (b) – Status of Investments and Total Assets of Banks in India

Types of Investments (Rs. Crores) Total Assets (Rs. Crores)

Banks / Year 2013 2014 2015 2013 2014 2015
1,759,0 1,974,1 2,168,8 6,961,9
Public Sector 56 89 52 88 7,968,41 8,678,77
Banks (77.3) (77.2) (76.6) (76.1) 6 (75.7) 0 (74.5)
1,989,7
Private 625,931 648,698 727,998 97 2,258,81 2,534,55
Sector Banks (18.8) (18.7) (19.0) (19.4) 0 (19.9) 8 (21.0)
Foreign 228,063 260,456 254,020 637,894 748,809 754,356
Banks (3.9) (4.1) (4.4) (4.5) (4.3) (4.5)
2,613,0 2,883,3 3,150,8 9,589,6 10,976,0 11,967,6
51 44 71 79 35 84
Total (100.0) (100.0) (100.0) (100.0) (100.0) (100.0)
Note: Figures in Brackets indicate Percentage to Total Source: IBA website

All banks are in steadily moving in terms of Investments and Total Assets but for
Public Sector Banks, there is a slight downfall both in terms of Investments and Total
Assets over the period of 2013-15. Interestingly, even though the actual numbers are
different across banks, in terms of Percentage over Investments and Total Assets, all
banks are going on the same pace by facing the competition.

Table: 3 (c) – Status of Total Income and Total Expenditure of Banks in India
Total Expenditure (Rs.
Types of Banks / Total Income (Rs. Crores) Crores)
Year 2013 2014 2015 2013 2014 2015
611,65 685,35 489,81 557,70 613,68
Public Sector 6 8 751,782 9 5 5
Banks (71.0) (70.7) (70.5) (73.1) (73.4) (73.5)
196,27 224,61 147,62 165,35 180,82
Private Sector 9 0 249,226 3 4 4
Banks (22.8) (23.2) (23.4) (22.0) (21.8) (21.7)
53,460 59,258 65,332 32,945 36,571 40,088
Foreign Banks (6.2) (6.1) (6.1) (4.9) (4.8) (4.8)
Total 861,39 969,22 1,066,34 670,38 759,63 834,59
5 6 1 (100.0) 7 0 7

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 (100.0) (100.0) (100.0) (100.0) (100.0)
Note: Figures in Brackets indicate Percentage to Total Source: IBA website

All banks are in steadily moving in terms of Total Income and Total Expenditure but
for Public Sector Banks and Foreign Banks, there is a slight downfall in terms of Total
Income over the period of 2013-15. In case of Foreign Banks, there is a slight
downfall even in terms of Total Expenditure over the period of 2013-15.
Interestingly, even though the actual numbers are different across banks, in terms of
Percentage over Total Income and Total Expenditure, all banks are going on the same
pace by facing the competition.

Table: 3 (d) – Status of Net Profit and Net NPA of Banks in India

Types of Banks / Net Profit (Rs. Crores) Net NPA (Rs. Crores)
Year 2013 2014 2015 2013 2014 2015
Public Sector 50,583 37,019 37,820 89,950 130,360 159,973
Banks (55.5) (45.8) (42.6) (91.2) (91.6) (91.2)
Private Sector 28,995 33,755 38,219 5,994 8,862 13,680
Banks (31.8) (41.7) (43.0) (6.1) (6.2) (7.8)
11,586 10,132 12,802 2,661 3,160 1,761
Foreign Banks (12.7) (12.5) (14.4) (2.7) (2.2) (1.0)
98,606
91,165 80,906 88,842 (100.0 142,381 175,414
Total (100.0) (100.0) (100.0) ) (100.0) (100.0)
Note: Figures in Brackets indicate Percentage to Total Source: IBA website

All banks are in steadily moving in terms of Net Profit and Net NPA but for Public
Sector Banks and Foreign Banks, there is a slight downfall in terms of Net Profit over
the period of 2013-15. In case of Foreign Banks, there is a slight downfall even in
terms of Net NPA over the period of 2013-15. Interestingly, even though the actual
numbers are different across banks, in terms of Percentage over Total Income and
Total Expenditure, all banks are going on the same pace by facing the competition.

Annexure-I gives about Big Data on Digital Banking. RBI has taken data from
various aspects of Technologies like RTGS, CCILK, Electronic Clearing, Cards, PPIs,
Mobile Banking, and also Paper Clearing. This Big Data gives a clarity how in fact
the Digital Banking concept is working.

8. Digital Marketing

One should see the key issues in Digital Marketing for banks and other financial
services firms, taking a truly global perspective. Online and Mobile Banking are at or
near the top of the banks agendas. What services to introduce, how to engage
customers, and how to use customer information to personalise marketing are typical
questions. There is a high degree of uncertainty because banks are still learning and
the digital environment is constantly changing. It was not a surprise to find that banks

13
 in countries as different as India. Singapore, United States and Sweden are all
thinking about the same issues when it comes to digital channels and Digital
Marketing. Perhaps more surprising is the time it’s taking for banks to develop really
world class Digital Marketing capabilities. Most banks have some form of presence
on Social media but how far should they develop transactional capability and how
deep should they make customer engagement will depend on how they brand
themselves.

9. Cyber Risks to Banks

Human risk is a big problem for Indian financial institutions and banks need to start
proactively educating their employees and customers to prevent cyber threats from
persisting. Banks should work on improving awareness of the different threats that
currently exist, including e-mail fraud, Phishing, Vishing, Smishing, Skimming,
Hacking, and Trojan. Banks need to work on how to have effective customer
awareness programs as far as cyber fraud and banking fraud are concerned.

10. Financial Inclusion

Financial inclusion or inclusive financing is the delivery of financial services at

affordable costs to sections of disadvantaged and low-income segments of society, in
contrast to financial exclusion where those services are not available or affordable. An
estimated 2 billion working-age adults globally have no access to the types of formal
financial services delivered by regulated financial institutions.

11. India @ Digital Banking through Financial Inclusion

 New ‘Avatar’ of ATMs

ATM (Automated Teller Machines) is also known as an Automated Banking

Machine (ABM), cash machine, cashpoint, cashline, minibank, bankomat or
colloquially ‘hole in the wall’ in some countries. It is an electronic
telecommunications device that enables the customers of a financial institution to
perform financial transactions, particularly cash withdrawal, without the need for a
human cashier, clerk or bank teller.

In India, ATM facility was first introduced in 1988 in Mumbai. Over a period, there
are a variety of ATMs being offered by all types of Banks, Non-Banking Financial
Companies, India Post Offices and others. These are On-site, Off-site, Solar-based,
Bio-metric, Floating, Mobile, Micro, While-labelled, Brown-labelled and even
Talking ATMs. GOI is envisaging to allow more free ATM transactions for certain
types of accounts as part of its drive to deepen financial inclusion through spread of
cash vending machines. Very soon, 1.55 lakh Post Offices across India will also have
ATMs, in combination with third parties in order to leverage electronic banking for
financial inclusion.

ATMs will soon become as good as bank branches. Customers will be able to apply
for credit cards and avail of loans using these self-servicing machines. There are over
1.90 lakh ATMs across India. In January 2016, RBI allowed banks to extend all their
banking products and services through their ATMs provided their technology allows

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 it. Till recently, banks could provide services on ATMs like deposits and withdrawals,
PIN change, cheque book requisition, statement of account, balance enquiry, funds
transfer, bill payments and purchase of railway tickets. Now, even Vehicle Insurance
facility can be availed through ATMs. Several studies in India and abroad have
indicated that the cost per transaction to the bank is economical through ATMs or
Online Banking vis-à-vis when a customer visits the branch.

In view of low penetration of ATMs in rural and semi-urban centres, a panel of RBI
has recommended that the Rs. 2,000 crore Financial Inclusion Fund (FIF) should be
utilised to encourage installation of ATMs in these centres. The RBI Committee on
Medium-term path on financial inclusion observed that as of 2014, there were only 18
ATMs per one lakh adult population in India against 65 in South Africa and over 180
in Russia. The objective of FIF which is managed by NABARD is to support
‘developmental and promotional activities’ including creating financial inclusion
infrastructure across the country, capacity building of stakeholders, creating
awareness to address demand-side issues. The Committee headed by Shri Deepak
Mohanty, ED of RBI, is of the view that installing of more ATMs in rural and semi-
urban centres will create more touch points for customers. Micro ATMs can be used
by the Banking Correspondents.

 Government’s Initiative: PMJDY

Pradhan Mantri Jan-Dhan Yojana (Prime Minister's People Money Scheme) is

National Mission for Financial Inclusion to ensure access to financial services,
namely Banking Savings & Deposit Accounts, Remittance, Credit, Insurance, and
Pension in an affordable manner. This financial inclusion campaign was launched by
the Prime Minister Shri. Narendra Modi on 28 August 2014 for which the
announcement was made on Independence Day speech on 15 August 2014. Run
by Department of Financial Services, Ministry of Finance, on the inauguration day,
1.5 Crore (15 million) bank accounts were opened under this scheme. It was
informed by Indian Finance Minister Shri. Arun Jaitley that increased banking
penetration and use of technology in payments will reduce the prevalence of
unaccounted money. PM' s Jan Dhan Yojana - a program to provide bank accounts to
all — with a game plan to digitize most payments and through Digital Banking more
money in tax net.

 Government’s Initiative: e-NPS

e-NPS is a scheme of government through online portal (https://enps.nsdl.com) of

National Pension Scheme (NPS) Trust wherein a subscriber can register and
contribute under NPS online. Through e-NPS, a subscriber can register, generate a
Permanent Retirement Account Number (PRAN) and contribute his/her account
through use of Net Banking / Debit Card or Credit Card.

 Regulatory Body Initiative: Rupay

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 RuPay is an Indian domestic card scheme conceived and launched by the National
Payments Corporation of India (NPCI). It was created to fulfill the Reserve Bank of
India’s desire to have a domestic, open loop, and multilateral system of payments
in India. RuPay facilitates electronic payment at all Indian banks and financial
institutions, and competes with MasterCard and Visa in India. NPCI maintains ties
with Discover Financial to enable the card scheme to gain international acceptance.

 Regulatory Body Initiative: Payment Banks

The term “Payment Banks” is new and seems to have been invented in Indian
context. In September 2013, a “Committee on Comprehensive Financial Services for
Small Businesses and Low Income Households”, headed by Nachiket Mor, was
formed by the RBI. By January 2014, the Nachiket Mor committee submitted its
final report and one of its recommendations was the formation of a new category of
bank called payments banks. Out of 41 applicants in the race, on 19 August 2015,
RBI gave "in-principle" licences to following eleven entities to launch payments
banks:-

1 Aditya Birla Nuvo

2 Airtel M Commerce Services
3 Cholamandalam Distribution Services
4 Department of Posts
5 FINO PayTech
6 National Securities Depository
7 Reliance Industries
8 Dilip Shanghvi, (founder of Sun Pharmaceuticals)
9 Vijay Shekhar Sharma, (CEO of Paytm)
10 Tech Mahindra
11 Vodafone M-Pesa

 Regulatory Body Initiative: Wallet Banks

As the technology advents from Technology Banking in terms of Usage of ATMs,

Online Banking using Internet to Mobile Banking, Payment Banks became the order
of the day. The usage of M-Banking in India is increasing day by day as India as a
Country having largest younger Generation. The Volume and Value of the Mobile
Banking Business (year 2011-2013) is given in the following diagram:

16
 Wallet Banks are special type of Mobile Banking systems where money can be
transferred from Mobile to Mobile and can be used for the several Utility services
including Banking. The following information gives more details of Wallet Banks:

(a) MobiKwik was founded by Bipin Preet Singh and Upasana Taku in 2009. Over
the years, MobiKwik extended their service on mobile apps. They tied up with
various online merchants such as eBay India, BookMyShow, Dominos
India, ShopClues and Snapdeal to provide accessibility of their wallet as a
payment option on e-commerce sites. Moreover Mobikwik also introduced the
feature of sending and receiving money via MobiKwik mobile app. Mobikwik
raised under $5 million in its Series A funding from an unnamed US-based VC
firm in 2013 and is expected to get another $30 million in the coming year.

(b) Oxigen Services India Pvt. Ltd was founded in July 2004, out of a vision of an
Indian professional entrepreneur - Mr. Pramod Saxena in partnership with the
Blue Label Telecom, a South African company with an objective to reach services
to the masses of India, through a virtual network for Payments and Services. In a
short span of 10 years, Oxigen has become a leading payment solutions provider
with a retail footprint of 1, 30,000 + outlets pan India and more than 35 million
transactions on a monthly basis. Oxigen is the first virtual wallet in India, to be
integrated with NPCI (National Payments Corporation of India) that allows for
Instant Money Transfers anytime, anywhere using IMPS. Oxigen Wallet is secure.
This mobile wallet technology is built using multiple layers of security and is
designed with anti-hacking codes. The website is secured using 128 bit SSL
encryption. It uses authentication tools to protect your account from any
unauthorized access. Thereby you limit chances of any fraud.

12. Conclusion

The prognosis for Indian banks is positive with the domestic credit as a percentage of
the GDP having grown substantially over the last decade. This was primarily because

17
 the conventional policies of the RBI have worked well to limit India’s exposure to the
sub-prime crisis of 2008, which stemmed when regulators eased their grip on
financial corporations, thereby leading to the high risk leveraging of assets.

Over the last decade, technology has transformed the landscape of Indian banking.
Implementation of core banking platform has automated basic processes, enabled the
movement to a single customer view and allowed for optimization of work across
branch and hub network. Core banking platform have also given banks a strong
launch pad to offer digital channel capabilities — almost all banks today are
feverishly building out their online and mobile channel offerings. ATM deployments
and technology-enabled business correspondent (BC) network have allowed banks to
service large parts of the Indian hinterland.

The strategic use of technology to implement a differentiated business model, a

transformed customer experience and an optimized cost structure will separate the
leaders from the laggards in the industry. According to McKinsey’s analysis (2015),
depending on the starting point, banks that adopt and implement Digital Banking
systems could see a 30-50% impact on net profits. About two-thirds of the gains are
expected to come from cost savings and the rest from new products and market share
gains. On the other hand, inaction could possibly result in banks losing between 29-
36% of bottom line. They are not able to quantify this at this juncture.

Information Technology (IT) today has become an important tool for an efficient
banking system, and Indian Banks have put in place a fairly strong infrastructure to
leverage its benefits. It has made a visible difference in the functioning of banks and
conduct of banking operations. IT is one of the most important facilitators for the
transformation of the Indian Banking industry in terms of its transactions processing
as well as for various other internal systems and processes.

With the advent of mobile technology and smart phones, M-Banking is now the order
of the day making the traditional banks as ‘virtual’. Interestingly, PSBs in India
withstood the onslaught to give tough competition to their counterparts using
technology, after a time tuning of two decades. Technology in Banking Sector made
the banks to also think about Lean and Green Management. Digital Marketing became
a strategy to attract Gen-Y customers even in Banking Sector.

13. Scope for further Research

As the Banks are able to generate both volume and value in business, there is a score
of working on time-series fluctuations for the data related to new initiatives like M-
Banking, W-Banking etc. One can work on the data using Multivariate Analysis once
a good amount of data is captured over a period of time. Also, the customer
perception towards Digital Banking can be studies by collecting primary data across
verticals and across different types of banks.

14. Bibliography

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In Electronic Banking from Extant Theories”, British Journal of Economics, Management &
Trade, Vol. 11 (3), pp.1-22

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2) Ankit Gupta (2010), Mobile Banking Adoption in Rural India, PGDM e-Business, Welingkar
Institute of Management Development & Research
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Banking”, International Journal of Education and Science Research Review, Vol. 2 (3), pp.10-
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4) Chowdari Prasad and Srinivasa Rao KS (2004), “Can Public Sector Banks compete with
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A Statistical Analysis”, Advances in Research in Business and Finance, 2005, Vol.III, Banking
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Friendly Environment: A new Trend of Lean and Green Management”, Journal of
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Enhancing Customer Value and Satisfaction”, Indian Journal of Science and Technology”,
Vol.8 (33), pp.1-10

Industry Reports:

17) Reserve Bank of India, Department of Payment & Settlement Systems, Payment Settlements
in India : Vision 2012-15
18) Infosys, “Branch Bank of the Future- Transforming to Stay Relevant”, 2012
19) McKinsey & Company, “Retail Banking in Asia Actionable Insights for New Opportunities”,
2013
20) WIPRO and Efma, “The Global Retail Banking Digital Marketing”, 2013
21) Industry Report of India Brand Equity Foundation (IBEF), “The Indian Banking Sector:
Recent Developments, Growth and Prospects”, 2013
22) Deloitte Consulting Pvt. Ltd, “Digital Transaction Banking: Opportunities & Challenges, 2014
23) PWC , “Productivity in Indian Banking”, 2014
24) Happiest Minds Technologies Pvt. Ltd., “Digital Transformation in Banking – The Future of
Banking”, 2014

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 25) Cognizant, “Digital Banking: Enhancing Customer Experience; Generating Long-Term
Loyalty”, 2014
26) EY and IBA, “Banking on Technology Perspectives on the Indian Banking Industry”, 2014
27) BCG and IAMAI Report, “India @Digital.Bharat”, 2015
28) DBS Group Research, “Regional Industry Focus- ASEAN Banks”, 2015
29) McKinsey & Company, “Digital Banking in Asia: What do Consumers Really Want?”, 2015
30) PWC- ASSOCHAM India, “Logging into Digital Banking Creating Access, Transforming
Lives”, 2015

ANNEXURE – I: Big Data on Digital Banking

6 Prepaid 11 Grand
2 CCIL 4 Retail
3 Paper Payment 7 Mobile Total
1 RTGS Operated Electronic 5 Cards
Clearing Instrument Banking (1.1+1.2+2+
Systems Clearing
s (PPIs) 3+4+5+6)
1 5 11 17 22 29 33 39
Finan
cial Val Val Val Val Val Val
Val Val
Year ue ue ue ue ue ue
Volu ue Volu Volu Volu Volu Volu Volu Volu ue
(Ru (Ru (Ru (Ru (Ru (Ru
me (Ru me me me me me me me (Ru
pee pee pee pee pee pee
(Mil pees (Mil (Mil (Mil (Mil (Mil (Mil (Mil pees
s s s s s s
lion) Billi lion) lion) lion) lion) lion) lion) lion) Billi
Billi Billi Billi Billi Billi Billi
on) on)
on) on) on) on) on) on)
2015- 640 530 544 192 554 648 191 197 967 1178
16 (*) 64 199 2 017 729 45 5 98 0 87 477 287 213 3 7 183
2014- 929 752 854 168 653 842 254 103 1171 1682
15 93 333 3 000 1197 34 7 66 4 15 314 213 172 5 8 461
2013- 904 621 125 933 478 721 221 980 1519
14 81 968 3 570 7 16 1108 56 9 60 134 81 95 224 2 235
102
2012- 635 501 131 100 318 617 186 832 1329
13 69 0 2 598 3 168 694 81 4 71 67 79 53 60 0 239
107
2011- 979 406 134 990 205 573 155 767 1080
12 55 1 2 071 2 12 512 76 2 11 31 62 26 18 3 539
2010- 941 383 101 119 114 108 7925
11 49 039 2 901 139 3 406 45 502 2 0 0 0 0 2 35
101
2009- 169 387 138 104 596 213 8928
10 33 9 1 396 0 099 314 6 404 882 0 0 0 0 3 78
2008- 611 320 139 124 416 208 7726
09 13 399 1 168 7 691 281 4 387 839 0 0 0 0 0 61
2007- 482 264 146 133 149 215 6873
08 6 946 1 403 1 961 304 34 384 821 0 0 0 0 5 01
2006- 4 246 1 163 136 120 325 861 352 709 0 0 0 0 204 4778

20
07 192 334 7 424 7 9 96
2005- 115 107 128 113 106 157 2222
06 2 408 1 521 7 291 83 6 202 398 0 0 0 0 3 76
2004- 406 771 7820
05 0 62 1 13 0 0 58 777 171 310 0 0 0 0 230 1

Source: RBI website

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