EMERGING TRENDS IN BANKING SECTOR IN

INDIA (With Special Reference to Digitization)

Dr. Karuna Gupta, Mr. Ravindra Arya, Mr. Vineet Goel

ABSTRACT
The Financial sector, of which Banking sector is the largest player, plays a dominant role in building the
economy of an individual as well as a nation. Banks have control over a large part of the supply of money in
circulation. They are the main stimulus for the economic progress of a country. A strong banking and finance
sector is, therefore, necessary for a country to emerge as a developed one. It is vital for growth, creation of jobs,
generation of wealth, eradication of poverty, encouraging entrepreneurial activity and increasing the gross
domestic product. Today banking is known as innovative banking. Information technology has given rise to new
innovations in the product designing and their delivery in the banking and finance industries. Customer services
and customer satisfaction are their prime work.The focus is shifting from mass banking to class banking with
the introduction of value added and customized products. Technology allows banks to create what looks like a
branch in a business building‘s lobby without having to hire manpower for manual operations One of the most
significant areas where IT has had a positive impact is on substitutes for traditional funds movement services.
With the advent of electronic banking, electronic funds transfer and other similar products, funds transfer within
time frames which would have appeared impossible a few years ago has made it reality. With networking and
internet connection new challenges are arising related to security privacy and confidentiality to transactions.
Finally the banking sector will need to master a new business model by building management and customer
services with a variety of products and controlled cost to stay in the long run and services.
The paper attempts to present the emerging trends and its challenges that recently emerged in the banking
sector with special emphasis on digitization. It will be useful to the academicians, banking and insurance
personnel, financial advisors, professionals, students and researchers. Common readers will also find it
informative and inculcating.

I. INTRODUCTION
Digitization in banking industry essentially means making banking smooth and seamless for the customers.In
the recent years, there is a notable drop in the usage of branches and tremendous increase in digital banking
consumption. Most of the private banks and public sector banks are focused on offering new technology-based
services to its customers like mobile banking, mobile banking apps and e-wallets. The biggest advantage of
digital channeling in banking is its ability to provide new propositions and customer specific business models by
analysing this banking pattern which explores the customer value to the maximum.

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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. Digitization is not an option for
banking industry rather it is envitable because every industry is being digitized and banking sector is no
exception for that. Now India as well as Indians is ready to become cashless in this era of Digitization. It is no-
brainer that banks are the backbone of the economy, they sink and sail with it.Though riddled with lot of risk,
banking services steadily moved forward with digitizationto offer customer services at their fingertips and
laptop screens. The 'Digital India' campaign Started by Mr.Narendra Modi has the potential to transform the
Indian banking industry.While highlighting the progress of 'Digital India', more than 12,000 rural post office
branches have been linked into payment banking. Apart from giving licences to new payment banks, many other
policies and regulations are expected to be in place in the upcoming years which can bring a paradigm shift in
the Indian banking sector. The Digital India vision aims to transform our country into a digital economy with
participation from citizens and businesses.Over 190 million accounts have been opened under the financial
inclusion scheme, with around 38 per cent of these being zero-balance accounts. It aims at achieving the
maximum -- maximum value, maximum empowerment to people and maximum technological penetration
among the masses. India, being a nation which continues to be driven by cash, is also moving towards a cashless
economy with financial inclusion policy and ‘Digital India’ campaign by the government, with the aim of
controlling the flow of black money.

II. OMNI CHANNEL APPROACH

The most effective way to understand and bring the organization from traditional banking to digital banking is
Omni-Channel approach. Omni-channel is a multichannel approach to customer service where all the channels
are tightly integrated, keeping customer in the center of the integration. As customers continue to change their
channel usage patterns, banks and credit firms need to focus on delivering a seamless customer experience
across various touch points. More than just an axiom, Omni-channel banking is a prospect to take bottom-line
on higher note by gaining insights from customers’ channels, behavior and preferences. Today’s customers are
more sophisticated and tech savvy, and to cater to their specific needs, each customer needs a unique experience

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from banking. They want the companies to understand their unstated needs as well as their likes. So, it should
come as no surprise that these customers are expecting similar kind of response and service from banking
institutions too. From researching new services, opening an account, checking balance, conducting transactions,
loans, credits, wealth management, customer support, delivering an Omni-channel experience has become a key
to success in this competitive market place.

Espousal of Omni-channel is indispensable to ensure that customer experience is unified, incorporated and
supports customer at the right time, in the right place as the right way. It must be as per their mobile and digital
life style. Staying germane in current banking revolution entails deep acquaintance of customers’ needs, wants
and demands. It also requires the precise mixture of IT infrastructure and innovative new technologies to certify
that one remains ahead in current market space to drive top, as well as bottom lines upwards.
PwC India’s leader banking and capital markets, Shinjini Kumar said, “Many Indian banks, like their Asian
counterparts, are geared to use the advantage of local talent and leapfrogging technology to create forward
looking digital strategies.

III. LITERATURE REVIEW

Garg (1994) studied that Indian scheduled commercial banks have achieved remarkable progress in last two
decades under study, particularly in branch expansion in rural areas, deposits mobilization and credit
deployment to priority sector and small borrowers. Banking sector reforms is an integral part of the economic
reform package. The reform involved the liberalization of interest rates, promotion of market-based system of
credit allocation, enhancing competition, and efficiency of the regulatory and supervisory framework (Jegede et
al. 2004). Financial reforms were designed to enable the banking industry develop the required resilience to
support the economic development of a nation by proficiently performing its function of financial
intermediation (Lemo, 2005). Biresh et al. (2011) examined the performance of banks in India in post transition
period and concluded that the positive trend of the reform process is visible through the increase in technical
efficiency over the years of the post transition period.

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Objectives of the study: The main Objective of this research paper is to review the Process of Digitalization in
Banking Industry in India. Technological innovations have enabled the industry to open up new delivery
channels, seeking the help of IT to deal with the challenges that a new economy should poses now. The
Objectives of the present study are:
1) To analyse the efficiency of technological based products offered by the banks in India and the effect
of Digitization on economic development.
2) To study the rapid advancement occurring in the banking sector.

IV. RESEARCH METHODOLOGY

The present research study uses the most recent available published secondary data. To achieve the above stated
objectives, the secondary data was used. The secondary data that are mainly used are published in annual reports
of various banks and survey reports of leading business magazines. The secondary data was also used from
various reference books related to E-Banking, Banking Service Quality, E-Commerce, M-Commerce,
Information Technology, Marketing, Banking, Finance, Commerce, Management etc. For the said research
study the secondary data is also collected from the various National and International Research Journals which
are related to Commerce, Management, Marketing and Finance.
For the said research study the data pertaining to the above objectives was collected and reviewed the literature
on the topic concerned. The literature was thus collected by visiting various libraries. The Secondary data is also
collected from various websites.

V. RECENT TRENDS IN BANKING

1) Automatic Teller Machine (ATM):- Automatic Teller Machine is the most popular devise in India, which
enables the customers to withdraw their money 24 hours a day 7 days a week. It is a devise that allows
customer who has an ATM card to perform routine banking transactions without interacting with ahuman
teller. In addition to cash
withdrawal, ATMs can be used for
payment of utility bills, funds
transfer between accounts, deposit
of cheques and cash into accounts,
balance enquiry etc.
2) Tele Banking: - Tele Banking
facilitates the customer to do entire
non-cash related banking on
telephone. Under this devise Automatic Voice Recorder is used for simpler queries and transactions. For
complicated queries and transactions, manned phone terminals are used.
3) Electronic Clearing Service (ECS):- Electronic Clearing Service is retail payment systems that can be
used to make bulk payments/receipts of a similar nature especially where each individual payment is of

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 arepetitive nature and of relatively smaller amount. This facility is meant for companies and government
departments to make/receive large volumes of payments rather than for funds transfers by individuals.
4) Electronic Funds Transfer (EFT) :- Electronic Funds Transfer (EFT) is a system where by anyone who
wants to make payment to another person/company etc. can approach his bank and make cash payment or
give instructions/authorization to transfer funds directly from his own account to the bank account of the
receiver/beneficiary. Complete details such as the receiver's name, bank account number, account type
(savings or current account), bank name, city, branch name etc. should be furnished to the bank at the time
of requesting for such transfers so that the amount reaches the beneficiaries' account correctly and faster.
RBI is the service provider of EFT.
5) Real Time Gross Settlement (RTGS) :- Real Time Gross Settlement system, introduced in India since
March 2004, is a system through which electronics instructions can be given by banks to transfer funds
from their account to the account of another bank. The RTGS system is maintained and operated by the RBI
and provides a means of efficient and faster funds transfer among banks facilitating their financial
operations. As the name suggests, funds transfer between banks takes place on a 'Real Time' basis.
Therefore, money can reach the beneficiary instantaneously and the beneficiary's bank has the responsibility
to credit the beneficiary's account within two hours.
6) Point of Sale Terminal: - Point of Sale Terminal is a computer terminal that is linked online to the
computerized customer information files in a bank and magnetically encoded plastic transaction card that
identifies the customer to the computer. During a transaction, the customer's account is debited and the
retailer's account is credited by the computer for the amount of purchase.

We have highlighted above some of the new emerging trends. Now I highlight the opportunities that new trends
bring in the growth and development of banking sector in our country.

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VI. OPPORTUNITIES
1) Internet Banking: - It is clear that online finance will pick up and there will be increasing convergence
interms of product offerings banking services, share trading, insurance, loans, based on the data
warehousing and data mining technologies. Anytime any where banking will become common and will
have to upscale, such up scaling could include banks launching separate internet banking services apart
from traditional banking services.
2) Retail Lending: - Recently banks have adopted customer segmentation which has helped in customizing
their product folios well. Thus retail lending has become a focus area particularly in respect of financing
ofconsumer durables, housing, automobiles etc., Retail lending has also helped in risks dispersal and in
enhancing the earnings of banks with better recovery rates.
3) Rural area customers: - Contributing to 70% of the total population in India is a largely untapped market
for banking sector. In all urban areas banking services has entered but only few big villages have the banks
entered. So the banks must reach in remaining all villages because majority of Indian still live in rural areas.
4) Offering various Channels: - Banks can offer so many channels to access their banking and other services
such as ATM, Local branches, Telephone/mobile banking, video banking etc to increase the banking
business.
5) Good Customer Services: - Good customer services are the best brand ambassador for any bank for
growing its business. Every engagement with customer is an opportunity to develop a customer faith in the
bank. While increasing competition customer services has become the backbone for judging the
performance of banks.
6) Indian Customers: - The biggest opportunity for the Indian banking sector today is the Indian customer’s.
The Indian customers now seek to fulfill his lifestyle aspirations at a younger age with an optimal
combination of equity and debt to finance consumption and asset creation. He represents across socities,
towns and villages i.e. in rural areas. Consumer goods companies are already tapping this potential it is for
the banks to make the most of the opportunity to deliver solutions to this market.
7) Other Opportunities: - There are many other opportunities in future in the field of Indian banking sector
e.g. to enter new business and new markets, to develop new ways of working, to improve efficiency, to
deliver high level of customer services.

VIII. CHALLENGES
1) Customer Satisfaction / Loyalty:-Today, customers are more value oriented in their services because they
have alternative choices in it. Hence, each and every bank has to take care about fulfillment of
customers’satisfaction.
2) To Provide several personnel services:-The present times demanded that banks are to provide several
services for which they have to expanse in service, social banking with financial possibilities, selective up
gradation, computerization and innovative mechanization, better customer services, effective managerial
culture, internal supervision and control, adequate profitability, strong organization culture etc. Therefore
banks must be able to provide complete personal service to the customers who come with expectations.

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3) Non-Performing Assets (N.P.A):-Non-performing assets are another challenge to the banking sector.
Vehicle loans and unsecured loans increases N.P.A. which terms 50% of banks retail portfolio was also hit
due to upward movement in interest rates, restrictions on collection practices and soaring real estate
prices.Therefore, every bank has to take care about regular repayment of loans.
4) Competition:-The nationalize banks and commercial banks have the competition from foreign and new
private sector banks. Competition in banking sector brings various challenges before the banks such as
product positioning, innovative ideas and channels, new market trends, cross selling etc. Banks are
restricting their administrative folio by converting manpower into machine power i.e. banks are decreasing
manual powers and getting maximum work done through machine power. Skilled and specialized man
power is to be utilized and result oriented targeted staff will be appointed.
5) Managing Technology:-Developing or acquiring the right technology, deploying it optimally and then
leveraging it to the maximum extent is essential to achieve and maintain high service and efficiency
standards while remaining cost effective and delivering sustainable return to shareholders. Early adopters’
of technology acquire significant competitive advances Managing technology is therefore, a key challenge
for the Indian banking sector.
6) Deteriorating Asset Quality of PSU banks: - The major issue for PSU banks is deteriorating asset quality
as reflected in burgeoning NPA and restructured advances. Also, employee expenses, one of the key cost
elements, has been going updue to periodic wage negotiations and increasing retirement benefits. Top
management continuity has been another key challenge as most of the chairmen and executive directors
retire less than 2-3 years into the role. Competitive intensity from private banks has increased even more as
they aretrying to grow in the semi-urban and rural areas, a home turf for PSU banks till recently. PSU
Banks fee income is poorer than private banks and also is largely linked to balance sheet (loans
andguarantee related) whereas private banks have a stronger fee income business coming fromdiversified
sources. (BNPP IP report).
7) Government Ownership: At present, the Government is the owner of about three-fourths of the total
assets in the banking system. On the ownership issues, proponents of private sector banks advocate that
Government should reduce its ownership stake in the public sector banks as private sector banks score
overpublic sector banks in profitability and efficiency. However, broadly over the years, the performance of
public sector banks has converged with that of new private sector banks and foreign banks. On one hand,
the predominance of government owned banks in India has contributed to financial stability, on the other,
meeting their growing capital needs casts a very heavy burden on the Government. What is, therefore,
needed is an optimal ownership mix to promote a balance between efficiency, equity and financial stability
(RBI Paper).
8) Gaps in the Flow of Credit: A high proportion of socially and economically underprivileged sections of
society in India is concentrated in the informal economic activities since more than 60 per cent of India’s
population lives in rural areas. This sector holds importance due to growing inter linkages between informal
and formal economic activities. Available data indicate that the cooperatives, commercial banks, and other
formal financial sector programs in rural areas have not displaced informal sources of credit altogether as

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 43 per cent of rural households continue to rely on informal finance in 2002, when thelast All India Debt
and Investment Survey was undertaken. (RBI Discussion paper 2013).
9) Other Challenges:-
a) Coping with regulatory reforms
b) Development of skill of bank personnel
c) Customer awareness and satisfaction
d) Corporate governance
e) Changing needs of customers
f) Keeping space with technology up gradation
g) Lack of common technology standards for mobile banking
h) Sustaining healthy bottom lines and increasing shareholders value
i) Man power planning

IX. CONCLUSION
The Banking sector is now witnessing a new waave of evolution with innovations in the fintech space, espically
with the proliferation of prepaid wallets.Indian Banking Industry has shown considerable resilience during the
return period. The second generation returns will play a crucial role in further strengthening the system. Indian
banking system will further grow in size and complexity while acting as an important agent of economic growth
and intermingling different segments of the financial sector. It is sure that the future of banking will offer more
sophisticated services to the customers with the continuous product and process innovations. Adoption of
stringent prudential norms and higher capital standards, better risk management systems, adoption of
internationally accepted accounting practices and increased disclosures and transparency will ensure the Indian
Banking industry keeps pace with other developed banking systems. Finally the banking sector will need to
master a new business model by building management and customer services. Banks should contribute intensive
efforts to render better services to their customer. Nationalized and commercial banks should follow the Recent
trends and to get advantage of opportunities in changing banking scenario.

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