Banking industry has significantly demonstrated resilience and growth, supported by regulatory frameworks and initiatives. With a focus on financial inclusion, technological advancements, and government schemes like Pradhan Mantri Jan Dhan Yojana, the industry has expanded its reach and services. The emergence of fintech, lendtech and digital payments further propels the banking industry, contributing to its promising trajectory and future growth. Banking Industry The Reserve Bank of India reports that the Indian Banking industry is proficiently capitalized and fully regulated. The economic and financial conditions are far better and superior to other countries across the globe. Studies like credit, market and liquidity risk suggest that the Indian banking industry is generally resilient and stands well with the global turndown. However, the Indian banking industry has witnessed the emergence of innovative banking models, including payments and small finance banks. In recent years, the Indian banking industry has focused on increasing its banking industry presence through diverse schemes, including the Pradhan Mantri Jan Dhan Yojana and Post Payment Banks. Such a scheme facilitates major banking industry reforms such as digital payments, neo-banking, and a significant rise of NBFCs and the FinTech landscape, which truly boost Indian financial inclusion and support to provide fuel to the credit cycle within the country. The fintech industry in India is estimated to reach beyond US$150 billion by 2025. India has 3rd largest FinTech ecosystem at the global level and one of the fastest-growing FinTech markets in the world. As per DPIIT reports, approx. 3085 start-ups are operating in India's financial technology (FinTech) sector as of April 30, 2023, and the number is growing rapidly. The digital payment system in India has evolved to be ranked 5th, with only one system in the Faster Payment Innovation Index (FPII) among the 25 countries. Indian Unified Payments Interface (UPI) has also evolved as a real-time payment and is more likely to strive to increase its global presence in recent years. As of reports published in 2022, more than 80% of the Indian population have bank accounts, compared to 17% in 2009. Market Size of Indian Banking Industry 2030 The Banking Industry in India consists of 12 public sector banks, 22 private sector banks, 46 foreign banks, 56 regional rural banks, 1485 urban co-operative banks and approx. 96,000 rural co-operative banks, along with co-operative credit institutions collectively. Till October 2023, the total number of micro ATMs has reached beyond 15, 30,287. Furthermore, 1, 25,969 on-site ATMs and Cash Recycling Machines (CRMs) and 93,771 off-site ATMs and CRMs are available in the Indian banking industry. In FY23, Banks added 2,796 ATMs during the first four months compared to 1,486 in FY22 and 2,815 in FY21. 100% of new bank account openings in rural Indian areas are digitalized. BDG predicts that the proportion of digital payments will grow to 65% by FY26. Public sector banks account for approx. 57.48% of interest income in 2023 (till 1st December, 2023). Interest income in the private banking sector has reached beyond US$70.07 billion. The Indian digital lending market witnessed growth that reached beyond CAGR of 39.5% over a period of 10 years. The Indian digital consumer lending market is estimated to surpass US$720 billion by FY30 and represent 55% of the total US$1.3 trillion digital lending market opportunity in the country. As per RBI’s Scheduled Bank’s Statement, deposits of all scheduled banks surged by a whooping of INR 1.75 lakh core (US$2,110.87 billion) as of 1st December 2023. As per the BCG reports, the banking industry report of 9M FY23, credit growth is believed to hit 18.1% in FY22-23, which is double-digit growth in 8 years. Non-food bank credit registered a growth of 17.6% in November 2022 as compared to 71% a year ago on the back of robust credit demand from the segments including services, industry, personal, and agriculture and allied activities, as per the RBI's statement on Sectorial Deployment of Bank Credit. Understanding Banking Industry The banking industry consists of the systems of financial institutions known as banks, which help people to save, store and use their money. Banks facilitate their potential customer to open bank accounts for different purposes, which include saving or investing money. Moreover, the banking industry is crucial for the economy, as it serves as a resource for individuals, families and organisations to use platforms for transactions and money investments. The banking industry also organises and distributes loans for the applicants so that they can easily fulfil their purpose, which includes purchasing property, starting any business financing for something, etc. Current Trends in the Banking Industry Whereas the banking industry remains constant, it also experiences specific changes whenever new trends arise in society. One of the most popular trends in the banking industry is the usage of online banking systems, which facilitate individual account holders to access and manage their account funds by sitting at home and using electronic devices. A trend in the banking industry can be seen with the rapid growth of mobile banking, which provides users with a new approach to accessing bank accounts easily through electronic devices. Such trends relate to the innovative advancement in technology, which helps the banking industry to enhance its processes. Another trend in the banking industry is increased awareness of investment banking. However, investment banking is a kind of banking service that involves banking professionals offering effective advice to customers related to investment. Due to innovative developments in AI, automation, and machine learning, the entire banking industry process has rapidly increased and advanced in terms of easy usage among the general public. It is evident that most of the people using investment banking to make an informed decision in the investment banking industry landscape and somehow wish to reduce the unnecessary cost of consulting with professional experts; this is quite possible just because several investment banking tasks can easily be completed automatically due to advanced technology advent. Indian Banking Industry Model It is evident that the entire banking industry in India has evolved over several decades and serves the credit and banking needs of the economy. Undoubtedly, the Indian banking industry system provides significant support for economic growth and the development of the country and caters for the specific and diverse financial needs of different potential customers and borrowers. A bank is more likely to intermediate the resources of the depositor to the lender for mutual benefits and allocate such resources in an effective manner to contribute a significant effort to economic growth. Currently, 137 commercial scheduled banks are in India which provide banking services for numerous customers. Moreover, the co-operative banks and local areas banks are also providing banking services in the remote parts of the country. For the purpose of lending to specific sectors, approx. 9,516 Non-banking Financial Companies (NBFCs) and 5 All India Financial Institutions also provide the needs of borrowers. Within the Indian Banking industry, Foreign Direct Investment (FDI) in private sector banks is duly permitted to 49% via automated route and 74% via government approval route. FDI in public sector banks is permitted to 20% via the government approval route. Scheduled Commercial Banks Scheduled commercial banks include the public sector, private sector, foreign banks, regional rural banks (RRB), small finance Banks and payment banks. Public sector banks Public sector banks are duly constituted by the State Bank of India Act of 1955 and the Banking Companies (Acquisition and Transfer of Undertakings) Act of 1970. Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. Currently, there are 12 public sector banks. Foreign Banks Foreign banks is a bank having its headquarters outside India, but its offices are alike the private entity at any other locations in India. Such banks are under obligation to operate under the regulations duly provided by the Reserve bank of India as well as the rule prescribed by the parent organisation located outside India. Private Sector Banks Private sector banks are licensed to operate under the Banking Regulation Act of 1949. Regional Rural Banks (RRB) The banks established under the Regional Rural Banks Act, 1976 with an intent to ensure sufficient institutional credit for agricultural and other sectors. The RRB bank is limited to specific area for its operations as specified by the central government. Although, RRB banks are jointly owned by the Indian Government including the central and state government and sponsor banks. Small Finance Banks (SFB) Small Finance Banks (SFB) are licensed under the Banking Regulation Act, 1949 and established with an intent to boost the financial inclusion through primarily undertaking basic banking activities to undeserved segments such as small business units, small and marginal farmers, micro and small enterprise etc. Payment Banks Payment banks are the public limited companies duly licensed under the Baking Regulation Act, 1949, with specific licensing conditions that restricts its activities in relation to acceptance of demand deposits, and provision of payments and remittance services. Co-operative Banks Co-operative banks refer to state co-operative banks, central co-operative banks and primary co-operative banks. Primary co-operative banks are commonly known as urban co-operative banks, and subsequently, in past years, they have significantly grown in their number, size, and volume in terms of business operations. State co-operative banks are one among the highest level co-operative banks in every state. Basically, it raises funds and provides assistance in the proper allocation of funds among various sectors. Individual borrowers get funds from state cooperative banks via central cooperative banks and primary credit societies. Although the co-operative banks are duly registered under the State Co-operative Societies Act, 2002, and their license is being regulated by the Apex Bank (Reserve Bank of India). Such banks are financial entities and belong to their members, who may be the owners and customers of such banks. Co-operative banks are more likely to provide support and assistance on agricultural activities along with small-scale industries and self-employed workers. Moreover, in addition to scheduled commercial banks and co-operative banks, All India Financial Institutions and Non- Banking Financial Companies also plays a crucial role to promote inclusive growth in the entire country. All India Financial Institutions Financial institutions also play a crucial role in the Indian financial landscape and offer medium to long-term finance to different sectors of the economy. These institutions are mainly established to meet the growing demands of particular sectors, including the export, import, rural, housing and small industries. Such institutions are playing an important role in channelling credit in different sectors and addressing challenges accordingly. Export-Import Banks of India, Small Industries Development Bank of India, National Bank for Agriculture and Rural Development, National Housing Bank and National Bank for Financing Infrastructure and Development are operating as All India Financial Institutions in India. Non-Banking Financial Companies (NBFCs) NBFCs also play an important role in sustaining the consumption demand along with capital formation in the small and medium industrial segments of the country. The NBFC's reach to the last mile has empowered them with agility and innovation with innovative technology to provide financial services to the underserved sections of society. However, a non-bank financial company (NBFC) is duly registered under the Companies Act, 1956 and engaged primarily in the business of loans and advances, acquisition of shares, stocks, bonds, debentures, securities, etc. and is regulated by the Reserve Bank of India. NBFCs can lend money and make investments; thus, their activities are similar to banks. Although a list of differences in the NBFC's activities which makes it different from banks NBFCs can’t accept demand deposits, NBFCs does not form the part of the payment and settlement system and neither authorised to issue cheques drawn on themselves. Deposit insurance facility to deposit insurance and credit Guarantee Corporation is not available with the NBFCs depositors, whereas in cases of banks. Moreover, NBFCs have their regulatory structure comprised of 4 layers based on their size, activity and perceived riskiness. Recent Developments in the Indian Banking Industry Crucial Investments and Developments in Indian Banking Industry are as follows In the year 2023, ICICI prudential life Insurance and Ujjivan Small Finance Bank established a Bancassurance Partnership. AU Small Finance Bank declared the acquisition of Fincare Small Finance Bank in all share deals during the month of October 2023, with an intend to merge these two entities. As per the National Payments Corporation of India (NPCI), UPI transactions were approx. 10.241 billion by 30th Aug 2023. Hitachi Payment Services launched India's inaugural UPI-ATM in September 2023 in collaboration with the NPCI. The Reserve Bank of India introduced CBDC in the call money market in September 2023. Mahindra and Mahindra acquired a minority stake in RBL Bank in July 2023. Meanwhile, the State Bank of India declared the acquisition of a 100% stake in SBICAP ventures from SBI capital for US$85.25 million (INR708 core). In June 2023, the State Bank of India decided to buy the entire 20% stake of SBI Capital Markets in SBI Pension Funds. HDFC bank also revealed plans to acquire a 20% stake or more in Griha Pte, a subsidiary of HDFC Investments, in 2023, April. M&A activity in India has reached a historic US$171 billion in 2022. In April 2022, IDFC finalized the sale of its Mutual Fund Business to a consortium led by Bandhan Financial Holdings for US$ 550.23 million (INR 4,500 crore). In March 2022, Axis Bank acquired Citi's India Consumer business for US$1.6 billion. Furthermore, HDFC Bank also acquired a 7.75% stake in fintech start-up Mintoak in December 2022. Domestic M&A activity will increase to a record level during 2022, with a total volume of US$119.2 billion, a surge of 156.3% from 2021. Different companies such as HDFC Bank, HDFC, Ambuja Cements, ACC, Adani Group, Biocon, Mindtree, L&T Infotech, AM/NS, and Essar Ports were involved during these M&A deals in the year 2022. During 2022, June, approx. 45.60 crore bank accounts were opened under the Pradhan Mantri Jan Dhan Yojana Scheme, with a total volume of deposits of INR 1.68 trillion (US$21.56 billion). During the November month of 2021, RBI initiated the first global hackathon, "Harbinger 2021- innovation for transformation, with the theme of "Smarter Digital Payments". In November 2021, Kotak Mahindra Bank successfully acquired a stake volume of 9.98% in KFin Technologies for INR 310 crore (US$41.62 million). Indian Bank declared the acquisition of a 13.27% stake in the proposed National Asset Reconstruction Company LTD. (NARCL) in October 2021. In 2021 July, Google Pay for Business collaborated with FlexiLoans, enabling small merchants to access credit through the digital lending platform for MSMEs. Axis Bank acquired a share volume of 9.9% in Max Bupa Health Insurance Company in 2021 February. In December 2020, the Digital Lenders Association issued a revised code of conduct for the entire digital lending process, which follows a cautionary message from the Reserve Bank of India. In November 2020, WhatsApp started a UPI payments service in India after getting approval from NPCI. In October 2020, HDFC Bank and Apollo Hospitals aligned to launch the 'Healthy Life Programme' with the intent of delivering a holistic healthcare solution on Apollo's digital platform. During 2019, banking and financial services witnessed 32 M&A activities with a volume of US$1.72 billion. During April 2020, Axis Bank has acquired an additional 29% stake in Max Life Insurance. State Bank of India, raised US$100 million in green bonds through private placement during March 2020. Government initiatives to enhance the Banking Industry The Government scheme, namely Pradhan Mantri Jan Dhan Yojana, has a record level of deposits exceeding the volume of US$25.13 billion in beneficiary accounts, benefitting approx. 51.11 crore individuals by December 2023. During September 2023, the Indian Renewable Energy Development Agency (IREDA) associated with the banks to rapid growth in renewable energy projects across India. However, in March 2023, Indian Post Payments Bank (IPPB) partnered with Airtel and launched WhatsApp Banking services for IPPB customers in Delhi. Additionally, PM Modi launched 75 digital banking units (DBUs) in 75 districts across India in October 2022. The Union Budget 2023 plans for the National Financial Information Registry to centralize financial data and streamline the KYC process by adopting a risk-based strategy. Moreover, the National Asset Reconstruction Company (NARCL) has acquired 15 non-performing loans (NPLs) with a volume of INR 50,000 crore (approx. US$6.70 billion) from banks. The National Payments Corporation of India (NPCI) announced the launch of UPI Lite to facilitate offline UPI services for digital payments up to INR 200, approx. $2.67. Notably, the Union budget 2022-23 specifies its clear intent to introduce a central bank digital currency (CBDC), potentially known as Digital Rupee. The RBI's introduction of the 'RBI Retail Direct Scheme' in November 2021 intends to increase retail participation in government securities while adapting the new auto debit rules in October 2021 to improve the security of card transactions. Collaboratively, the central banks of India and Singapore announced that they will interlink their digital payment systems till July 2022. In August 2021, PM Modi unveiled e-RUPI, a person and purpose-specific digital payment solution, marking a significant advancement in digital transactions. Moreover, efforts to digitize Kisan Credit Card (KCC) lending were initiated with an intent for efficiency and rural economic transformation. The Union Budget 2023-24 emphasized the rapid growth of digital banking, payments, and fintech innovations, proposing the establishment of 75 Digital Banking Units across 75 districts and introducing a digital rupee. Moreover, the Indian government intends to bring all 150,000 post offices together in the digital banking landscape to improve financial inclusion. The Economic Survey during 2022-23 highlighted the impact of RBI measures, including moratoriums and fund infusions, on sectors including real estate, alongside the rise of neo-banking platforms and global investments, to reshape traditional financial services. Future of the Banking Industry Increased investment in infrastructure, speedy project execution, and ongoing government reforms are expected to propel the growth of the Indian banking industry. All these developments suggest that the Indian banking industry is promising with trajectory growth, and as it rapidly grows, businesses will likely turn to banks for their credit needs. Moreover, the recent advancements in technology have led to the usage of mobile and internet banking at the forefront. The banking industry is emphasizing the priority of enhanced services and technological upgrades to enhance customer experiences and give banks a competitive edge. Aligned with the recent advancements in technology, India has witnessed a surge in Fintech and microfinancing. Digital lending in India has surged to US$75 billion during FY18 and is expected to reach beyond US$ 1 trillion by FY24, driven by a five-fold increase in digital disbursements. Considerably, the Indian Fintech sector has secured significant attention, attracting a volume of US$29 billion in funding across 2084 deals between January 2017 and July 2022, representing 14% of global funding and ranking second in deal volume. It is evident from projections that the Indian fintech market could grow to INR 6.2 trillion (US$83.48 billion) by 2025. Conclusion The Indian banking industry showcase a significant growth driven by advent of innovative technologies, innovations, government initiatives and increased investment. With a focus on enhancing customer experiences, expanding digital infrastructure, and fostering fintech ecosystems, the industry is set to play a crucial role in India's economic development and financial inclusion. As the sector continues to evolve and adapt to changing dynamics, it presents potential opportunities for stakeholders to capitalize on and
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