Banking Industry 2024-2025 PDF

Banking Industry Banking Industry 2024 1  Index Page No. Table Of Content 03 Introduction 04 Advantage India 06 Market Size 10 Banking Industry Analysis 12 Market Overview 18 Trends and Strategies 24...

Banking Industry Banking Industry 2024 1  Index Page No. Table Of Content 03 Introduction 04 Advantage India 06 Market Size 10 Banking Industry Analysis 12 Market Overview 18 Trends and Strategies 24 Growth Drivers and Opportunities 31 Banking Sector Future 38 Road Ahead Banking Industry 2024 2 Introduction The Indian banking industry is a key pillar of the country’s financial system and plays a critical role in its economic development. With roots dating back to the 18th century, the industry has evolved significantly, now comprising a mix of public sector banks, private sector banks, foreign banks, and regional rural banks. The Reserve Bank of India (RBI), established in 1935, acts as the central bank and regulatory authority, ensuring financial stability, supervising banks, and guiding monetary policy. Over the years, the sector has witnessed several reforms, including the nationalization of major banks in 1969, liberalization in the 1990s, and the introduction of digital banking in the 21st century. In recent years, digital transformation, fintech innovation, and government initiatives such as the Pradhan Mantri Jan Dhan Yojana have increased financial inclusion, extending banking services to the unbanked population. Despite facing challenges such as non-performing assets (NPAs), evolving regulations, and competition from new-age financial technologies, the Indian banking sector remains resilient and continues to expand its role in supporting economic growth. As the sector adapts to emerging technologies like blockchain, artificial intelligence, and mobile banking, it is expected to become more efficient, customer-centric, and accessible, positioning India as a leading player in the global banking landscape. India's banking sector, as per recent reports from the Reserve Bank of India (RBI), remains robust and well-regulated. Indian banks have demonstrated resilience, maintaining a strong growth trajectory even in the face of global economic uncertainties. During 2023-24, the banking sector witnessed a significant year-on-year credit growth of 16.2%, with Public Sector Banks (PSBs) playing a vital role in this expansion. PSBs accounted for 46.5% of incremental credit by the end of 2023(Reserve Bank of India)(Insights on India). Innovative models, such as payments banks and small finance banks, continue to expand financial inclusion. Additionally, India has seen significant growth in the fintech sector, which is projected to reach $150 billion by 2025. The Unified Payments Interface (UPI) has revolutionized real-time payments, with the Immediate Payment Service (IMPS) ranked among the top globally (Reserve Bank of India). Overall, the Indian banking industry has a strong foundation, aided by technological advancements, and is well-positioned to support the nation's economic growth. Different Types of Banks in India Currently, there are four types of banks in India: Commercial Banks | Cooperative Banks Regional Rural Banks (RRBs) | Small Finance Banks Payments Banks| Development Banks Non-Banking Financial Companies (NBFCs) Banking Industry 2024 3 Advantage India Robust Demand BCG predicts that the proportion of digital payments in India will grow to 65% by 2026. Demand seems particularly strong when it comes to the critical need of protecting consumer data, where incumbent banks have a trust advantage. Some super apps may also turn to banks for access to banking licenses and to meet other regulatory requirements. Indian Fintech industry is estimated to be at US$ 150 billion by 2025. India has the 3rd largest FinTech ecosystem globally. Business fundamentals Digital modes of payments have grown by leaps and bounds over the last few years. As a result, conventional paper-based instruments such as cheques and demand drafts now constitute a negligible share in both volume and value of payments. As on April 2024, there were 581 banks actively using UPI. The total number of digital transactions during December amounted to 15.08 billion, with a total value of Rs. 2.1 trillion (US$ 25.27 billion). Policy support In Union Budget 2023, a national financial information registry would be constructed to serve as the central repository for financial and ancillary data. In November 2022, RBI launched a pilot project on central bank digital currency (CBDC). In March 2023, India Post Payments Bank (IPPB), in collaboration with Airtel, announced the launch of WhatsApp Banking Services for IPPB customers in Delhi. Innovation in services In the recent period, technological innovations have led to marked improvements in efficiency, productivity, quality, inclusion and competitiveness in extension of financial services, especially in the area of digital lending. In Union Budget 2023, the KYC process will be streamlined by using a 'risk-based' strategy rather than a 'one size fits all' approach. In September 2023, Hitachi Payment Services launched India's first-ever UPI- ATM with NPCI. Digitalization of Agri-finance was conceptualized jointly by the Reserve Bank and the Reserve Bank Innovation Hub (RBIH). Banking Industry 2024 4  Growing digital Transaction Digital payments have significantly increased in recent years, because of coordinated efforts of the Government and RBI with all the stakeholders, UPI volume for FY24 (until May) recorded to 27,338. According to the Boston Consulting Group, PhonePe has 47% of UPI market share followed by Google Pay (at 34%) in FY23 (April-December). Financial transactions via digital channels accounted for 92% of the overall transactions. Out of which, the total share of UPI transactions was 42% in 9M FY23. In November 2022, RBI launched a pilot project on central bank digital currency (CBDC). The platform is called NDS- OM CBDC. The Central Bank stated that the use case for the wholesale digital rupee is for the "settlement of secondary market transactions in government securities” as it would reduce transaction costs. According to data released by the National Payments Corporation of India (NPCI), UPI transactions volume reached 83.76 billion in 2023, up 82.2% YoY. Higher ATM penetration The Indian Managed Services and Outsourcing industry has been playing a key role in faster expansion of ATM network to achieve the last mile financial inclusion. As of April 2024, the total number of micro-ATMs in India reached 17,36,972. Moreover, there are 1,26,593 on-site ATMs and Cash Recycling Machines (CRMs) and 91,826 off-site ATMs and CRMs. With the increased penetration of ATMs through outsourcing model, customers also find it more convenient to transact at ATMs deployed closer to their work or residential areas rather than going to distantly located bank branches. Rising rural penetration In October 2022, Prime Minister Mr. Narendra Modi inaugurated 75 Digital Banking Units (DBUs) across 75 districts in India. The RBI has launched a pilot to digitalize KCC lending in a bid for efficiency, higher cost savings, and reduction of TAT. This is expected to transform the flow of credit in the rural economy. 100% of new bank account openings in rural India are being done digitally. Banking Industry 2024 5 Market Size Market Size The Indian banking system consists of 12 public sector banks, 21 private sector banks, 44 foreign banks, 12 Small finance banks. As of April 2024, the total number of micro-ATMs in India reached 17,36,972. Moreover, there are 1,26,593 on-site ATMs and Cash Recycling Machines (CRMs) and 91,826 off-site ATMs and CRMs. Banks added 2,796 ATMs in the first four months of FY23, against 1,486 in FY22 and 2,815 in FY21. 100% of new bank account openings in rural India are being done digitally. BCG predicts that the proportion of digital payments will grow to 65% by 2026. In 2023, total assets in the public and private banking sectors were US$ 1686.70 billion and US$ 1016.39 billion, respectively. In 2023, assets of public sector banks accounted for 58.31% of the total banking assets (including public, private sector and foreign banks). The interest income of public banks reached US$ 102.4 billion in 2023. In 2023, interest income in the private banking sector reached US$ 70 billion. India's digital lending market witnessed a growth of CAGR 39.5% over a span of 10 years. The Indian digital consumer lending market is projected to surpass US$ 720 billion by 2030, representing nearly 55% of the total US$ 1.3 trillion digital lending market opportunity in the country. According to RBI’s Scheduled Banks’ Statement, deposits of all scheduled banks collectively surged by a whopping Rs 2.04 lakh crore (US$ 2,452 billion) as of FY24. According to the RBI, bank deposits stood at Rs. 209.36 trillion (US$ 2507.62 billion) as of May 3, 2024. Investments/Developments Key investments and developments in India’s banking industry include: Digital payments have significantly increased in recent years, because of coordinated efforts of the Government and RBI with all the stakeholders, UPI volume for FY24 (until May) recorded to 27,338. Google India Digital Services (P) Limited and NPCI International Payments Ltd (NIPL), have signed a Memorandum of Understanding (MoU) to expand the transformative impact of UPI to countries beyond India. Warehousing Development Regulatory Authority and Punjab & Sind Bank signed Memorandum of Understanding to facilitate low interest rate loans to farmers. Fincare Small Finance Bank Limited (Fincare) and AU Small Finance Bank Limited (AU) has merged, with AU being the surviving entity (merged entity). In December 2023, ICICI Prudential Life Insurance and Ujjivan Small Finance Bank forged the Bancassurance Partnership. In October 2023, AU Small Finance Bank announced the acquisition of Fincare Small Finance Bank in an all-share deal and to merge it with itself. Banking Industry 2024 6  According to data released by the National Payments Corporation of India (NPCI), UPI transactions reached 10.241 billion until August 30th, 2023. In September 2023, Hitachi Payment Services launched India's first-ever UPI-ATM with NPCI. In September 2023, the Reserve Bank of India is likely to bring in CBDC in the call money market. In July 2023, Mahindra and Mahindra acquires minority stake in RBL Bank. In July 2023, State Bank of India to acquire 100% stake of SBI Capital in SBICAP Ventures for US$ 85.25 million (Rs. 708 crore). In June 2023, State Bank of India to acquire entire 20% stake of SBI Capital Markets in SBI Pension Funds. In April 2023, HDFC Bank to acquire 20% or more in Griha Pte subsidiary of HDFC Investments. M&A activity with an India angle hit a record US$ 171 billion in 2022. In April 2022, IDFC to sell Mutual Fund Business to Bandhan-Financial Holdings led Consortium for US$ 550.23 million (Rs. 4,500 crore). In March 2022, aggressive Axis Bank acquired Citi's India consumer business for US$ 1.6 billion. In December 2022, HDFC Bank to buy 7.75% stake in fintech start-up Mintoak. As per report by Refinitiv, Domestic M&A activity saw record levels of activity in 2022 at US$ 119.2 billion, up 156.3% from 2021. Companies like HDFC Bank, HDFC, Ambuja Cements, ACC, Adani Group Biocon, Mindtree, L&T Infotech, AM/NS, Essar Ports were involved in M&A deals in 2022. On June 2022, the number of bank accounts—opened under the government’s flagship financial inclusion drive ‘Pradhan Mantri Jan Dhan Yojana (PMJDY)’—reached 45.60 crore and deposits in the Jan Dhan bank accounts totalled Rs. 1.68 trillion (US$ 21.56 billion). In April 2022, India’s largest private bank HDFC Bank announced a transformational merger with HDFC Limited. On November 09, 2021, RBI announced the launch of its first global hackathon 'HARBINGER 2021 – Innovation for Transformation' with the theme ‘Smarter Digital Payments’. In November 2021, Kotak Mahindra Bank announced that it has completed the acquisition of a 9.98% stake in KFin Technologies for Rs. 310 crore (US$ 41.62 million). In October 2021, Indian Bank announced that it has acquired a 13.27% stake in the proposed National Asset Reconstruction Company Ltd. (NARCL). In July 2021, Google Pay for Business has enabled small merchants to access credit through tie-up with the digital lending platform for MSMEs—FlexiLoans. In February 2021, Axis Bank acquired a 9.9% share in the Max Bupa Health Insurance Company for Rs. 90.8 crore (US$ 12.32 million). In December 2020, in response to the RBI’s cautionary message, the Digital Lenders’ Association issued a revised code of conduct for digital lending. On November 6, 2020, WhatsApp started UPI payments service in India on receiving the National Payments Corporation of India (NPCI) approval to ‘Go Live’ on UPI in a graded manner. Banking Industry 2024 7  In October 2020, HDFC Bank and Apollo Hospitals partnered to launch the ‘HealthyLife Programme’, a holistic healthcare solution that makes healthy living accessible and affordable on Apollo’s digital platform. In 2019, banking and financial services witnessed 32 M&A (merger and acquisition) activities worth US$ 1.72 billion. In April 2020, Axis Bank acquired additional 29% stake in Max Life Insurance. In March 2020, State Bank of India (SBI), India’s largest lender, raised US$ 100 million in green bonds through private placement. In February 2020, the Cabinet Committee on Economic Affairs gave its approval for continuation of the process of recapitalization of Regional Rural Banks (RRBs) by providing minimum regulatory capital to RRBs for another year beyond 2019-20 - till 2020-21 to those RRBs which are unable to maintain minimum Capital to Risk weighted Assets Ratio (CRAR) of 9% as per the regulatory norms prescribed by RBI. Government Initiatives There are 50.18 crore beneficiaries banked till August 2023, under PMJDY. As of May 2024, the Jan Dhan Yojana scheme has banked 52.30 crore beneficiaries, with a total amount of Rs. 2,28,057 crore (US$ 27.32 billion). Bank accounts opened under GoI Pradhan Mantri Jan Dhan Yojana have deposits of over ~US$ 25.13 billion in beneficiary accounts. 51.11 crore beneficiaries banked till December 15th, 2023. In September 2023, IREDA partners with banks to boost renewable energy projects in India. In March 2023, India Post Payments Bank (IPPB), in collaboration with Airtel, announced the launch of WhatsApp Banking Services for IPPB customers in Delhi. In October 2022, Prime Minister Mr. Narendra Modi inaugurated 75 Digital Banking Units (DBUs) across 75 districts in India. In Union Budget 2023, a national financial information registry would be constructed to serve as the central repository for financial and ancillary data. In Union Budget 2023, the KYC process will be streamlined by using a 'risk-based' strategy rather than a 'one size fits all' approach. National Asset reconstruction company (NARCL) will take over, 15 non-performing loans (NPLs) worth Rs. 50,000 crore (US$ 6.70 billion) from the banks. National payments corporation India (NPCI) has plans to launch UPI lite which will provide offline UPI services for digital payments. Payments of up to Rs. 200 (US$ 2.67) can be made using this. In the Union budget of 2022-23 India has announced plans for a central bank digital currency (CBDC) which will be possibly known as Digital Rupee. National Asset reconstruction company (NARCL) will take over, 15 non-performing loans (NPLs) worth Rs. 50,000 crore (US$ 6.70 billion) from the banks. In November 2021, RBI launched the ‘RBI Retail Direct Scheme’ for retail investors to increase retail participation in government securities. Banking Industry 2024 8  The RBI introduced new auto debit rules with a mandatory additional factor of authentication (AFA), effective from October 01, 2021, to improve the safety and security of card transactions, as part of its risk mitigation measures. Government smoothly carried out consolidation, reducing the number of Public Sector Banks by eight. In May 2022, Unified Payments Interface (UPI) recorded 5.95 billion transactions worth Rs. 10.41 trillion (US$ 133.46 billion). According to the RBI, India’s foreign exchange reserves reached US$ 630.19 billion as of February 18, 2022. The number of transactions through immediate payment service (IMPS) reached 430.67 million and amounted to Rs. 3.70 trillion (US$ 49.75 billion) in October 2021. The RBI has launched a pilot to digitalize KCC lending in a bid for efficiency, higher cost savings, and reduction of TAT. This is expected to transform the flow of credit in the rural economy. The RBI has launched a pilot to digitalize KCC lending in a bid for efficiency, higher cost savings, and reduction of TAT. This is expected to transform the flow of credit in the rural economy. As per the Union Budget 2023-24, the RBI has launched a pilot to digitalize Kisan Credit Card (KCC) lending in a bid for efficiency, higher cost savings, and reduction of TAT. This is expected to transform the flow of credit in the rural economy. As per the Union Budget 2023-24, digital banking, digital payments and fintech innovations have grown at a rapid pace in the country. Taking forward this agenda, and to mark 75 years of our independence, it is proposed to set up 75 Digital Banking Units in 75 districts of the country by Scheduled Commercial Banks. Additionally, the government proposed to introduce a digital rupee or a Central Bank Digital Currency (CBDC) which would be issued by the RBI using blockchain and other technologies. The government also proposed to bring all the 150,000 post offices under the digital banking core business to enable financial inclusion. As per the economic survey 2022-23, the permission by RBI to lending institutions to grant a total moratorium of 6 (3+3) months in case of payment failure due between 1st March 2020 to 31st August 2020, infusion of US$ 9.1 billion (Rs. 75,000 crore) for Non- Banking Financial Corporations (NBFCs), Housing Finance Companies (HFCs) and Micro Finance Institutions (MFIs), among others, have also contributed to the revival of the real estate sector. The permission by RBI to lending institutions to grant a total moratorium of 6 (3+3) months in case of payment failure due between 1st March 2020 to 31st August 2020, infusion of US$ 9.1 billion (Rs. 75,000 crore) for Non-Banking Financial Corporations (NBFCs), Housing Finance Companies (HFCs) and Micro Finance Institutions (MFIs), among others, have also contributed to the revival of the real estate sector. According to the Economic Survey 2022-23, Over the last few years, the number of neo banking platforms and global investments in the neo-banking segment has also risen consistently. Neo-banks operate under mainstream finance's umbrella but empower specific services long associated with traditional institutions such as banks, payment providers, etc. Banking Industry 2024 9 Banking Industry Analysis Industry The Banking industry in India has historically been one of the most stable systems globally, despite global upheavals. The government has consistently strived to promote financial inclusion through various initiatives targeted to bring the country’s underbanked population under the banking gamut. Indian Fintech industry is estimated to be at US$ 150 billion by 2025. India has the 3rd largest FinTech ecosystem globally. India is one of the fastest-growing Fintech markets in the world. There are currently more than 2,000 DPIIT-recognized Financial Technology (FinTech) businesses in India, and this number is rapidly increasing. The Indian banking system consists of 12 public sector banks, 21 private sector banks, 44 foreign banks, 12 Small finance banks. As of December 2023, the total number of micro-ATMs in India reached 16,88,558. Moreover, there are 1,26,205 on-site ATMs and Cash Recycling Machines (CRMs) and 93,671 off-site ATMs and CRMs. Banks added 2,796 ATMs in the first four months of FY23, against 1,486 in FY22 and 2,815 in FY21. 100% of new bank account openings in rural India are being done digitally. India's digital lending market witnessed a growth of CAGR 39.5% over a span of 10 years. The Indian digital consumer lending market is projected to surpass US$ 720 billion by 2030, representing nearly 55% of the total US$ 1.3 trillion digital lending market opportunity in the country. In 2023, total assets in the public and private banking sectors were US$ 1686.70 billion and US$ 1016.39 billion, respectively. In 2023, assets of public sector banks accounted for 58.31% of the total banking assets (including public, private sector and foreign banks). The interest income of public banks reached US$ 102.4 billion in 2023. In 2023, interest income in the private banking sector reached US$ 70 billion. According to the BCG Banking Sector Roundup Report of 9M FY23, credit growth is expected to hit 18.1% in 2022-23. BCG predicts that the proportion of digital payments will grow to 65% by 2026. According to RBI’s Scheduled Banks’ Statement, deposits of all scheduled banks collectively surged by a whopping Rs. 200.6 trillion (US$ 2,414.15 billion) as of January 26th, 2024. According to data released by the National Payments Corporation of India (NPCI), UPI transactions volume reached 83.76 billion in 2023, up 82.2% YoY. Google India Digital Services (P) Limited and NPCI International Payments Ltd (NIPL), have signed a Memorandum of Understanding (MoU) on 17th January 2024 to expand the transformative impact of UPI to countries beyond India. Warehousing Development Regulatory Authority and Punjab & Sind Bank signed Memorandum of Understanding to facilitate low-interest rate loans to farmers on 5th February 2024. Banking Industry 2024 10 Fincare Small Finance Bank Limited (Fincare) and AU Small Finance Bank Limited (AU) has merged, with AU being the surviving entity (merged entity). In December 2023, ICICI Prudential Life Insurance and Ujjivan Small Finance Bank forged the Bancassurance Partnership. In October 2023, AU Small Finance Bank announced the acquisition of Fincare Small Finance Bank in an all-share deal and to merge it with itself. In September 2023, Hitachi Payment Services launched India's first-ever UPI-ATM with NPCI. In September 2023, the Reserve Bank of India is likely to bring in CBDC in the call money market. In July 2023, Mahindra and Mahindra acquires minority stake in RBL Bank. In July 2023, State Bank of India to acquire 100% stake of SBI Capital in SBICAP Ventures for US$ 85.25 million (Rs. 708 crore). In June 2023, State Bank of India to acquire entire 20% stake of SBI Capital Markets in SBI Pension Funds. In April 2023, HDFC Bank to acquire 20% or more in Griha Pte subsidiary of HDFC Investments. According to SBI Chairman, credit demand remains robust, to clock about 14% growth. The Government of India has been supportive of the banking sector in the country, especially on the financial inclusion agenda. A flagship program, the Pradhan Mantri Jan Dhan Yojana (PMJDY), was launched in August 2014 which aims to provide universal banking services to the unbanked by setting up bank accounts for them and issuing payment cards to all. As of 2023-24, the number of bank accounts—opened under the government’s flagship financial inclusion drive ‘Pradhan Mantri Jan Dhan Yojana (PMJDY)’—reached over 51.11 crore beneficiaries and deposits in the Jan Dhan bank accounts totaled over US$ 25.13 billion till December 15th, 2023. In September 2023, IREDA partners with banks to boost renewable energy projects in India. In March 2023, India Post Payments Bank (IPPB), in collaboration with Airtel, announced the launch of WhatsApp Banking Services for IPPB customers in Delhi. In October 2022, Prime Minister Mr. Narendra Modi inaugurated 75 Digital Banking Units (DBUs) across 75 districts in India. In Union Budget 2023, a national financial information registry would be constructed to serve as the central repository for financial and ancillary data. In the Union Budget 2023, the KYC process will be streamlined by using a 'risk-based' strategy rather than a 'one size fits all' approach. Digitalization of Agri-finance was conceptualized jointly by the Reserve Bank and the Reserve Bank Innovation Hub (RBIH). This will enable delivery of Kisan Credit Card (KCC) loans in a fully digital and hassle-free manner. Banking Industry 2024 11  Market Overview Reserve Bank of India Banks Financial institutions Scheduled commercial Cooperative credit banks (SCBs) (2022) institutions Public sector banks (12) All-India financial institutions Private sector banks (21) State-level institutions Foreign banks (46) Other institutions Regional rural banks (RRB) (43) Urban cooperative banks (1,534) Rural cooperative banks (March 2021) (96,508) Banking Industry 2024 12 Indian Banking Sector Has Grown at A Healthy Pace… (1/2) The Indian banking industry has been on an upward trajectory aided by strong economic growth, rising disposable incomes, increasing consumerism and easier access to credit. Bank accounts opened under GoI Pradhan Mantri Jan Dhan Yojana have deposits of over ~US$ 25.13 billion in beneficiary accounts. 51.11 crore beneficiaries banked till December 15th, 2023. Demand has grown for both corporate and retail loans. Services, real estate, consumer durables and agriculture allied sectors have led the growth in credit. India is one of the fastest-growing Fintech markets in the world. There are currently more than 2,000 DPIIT-recognized Financial Technology (FinTech) businesses in India, and this number is rapidly increasing. Being the largest consumption market, India will become the 3rd largest consumer economy by 2030, driven by a young population comprising 65% population below the age of 35 years. India already has the 2nd highest number of smartphone users globally and is the 2nd largest Internet user market India is set to become the third-largest domestic banking sector by 2050. As of March 22, 2024, bank credit stood at Rs. 164.34 lakh crore (US$ 1,968 billion). As of March 22, 2024, credit to non-food industries stood at Rs. 164.11 lakh crore (US$ 1,965 billion). Banking Industry 2024 13 Indian Banking Sector Has Grown at A Healthy Pace… (2/2) Access to the banking system has also gotten better over time as a result of the continuous endeavors by the Government to boost banking technology and facilitate growth in underbanked and non- metropolitan areas. Banks added 2,796 ATMs in the first four months of FY23, against 1,486 in FY22 and 2,815 in FY21. At the same time, India’s banking sector has remained stable despite global upheavals, thereby retaining public confidence over the years. Indian banking has benefited from high savings rates and growth in savings as well as disposable income growth. Currently, there are 52.08 crore beneficiaries holding an amount of US$ 27.56 billion (Rs. 2.29 trillion) in their accounts. According to the RBI, bank deposits stood at Rs. 209.36 trillion (US$ 2507.62 billion) as of May 3, 2024. According to RBI’s Scheduled Banks’ Statement, deposits of all scheduled banks collectively surged by a whopping Rs 2.04 lakh crore (US$ 2,452 billion) as on FY24. Banking Industry 2024 14 Key Banking Statistics In 2023, total assets in the public and private banking sectors were US$ Public sector banks accounted for over 1686.70 billion and US$ 1016.39 billion, 57.48% of interest income in 2023. respectively. In 2023, assets of public The interest income of public banks sector banks accounted for 58.31% of reached US$ 102.4 billion in 2023. the total banking assets (including public, private sector and foreign In 2023, interest income in the private banks). banking sector reached US$ 70 billion. In 2023, public sector banks accounted for about 51.35% of other income. ‘Other income’ for public sector banks stood at US$ 14.48 billion in 2023. In 2023, ‘other income’ in the private banking sector was US$ 13.10 billion. Banking Industry 2024 15 Trend in investment deposit ratio and loan-to-deposit ratio Credit growth has been broad-based: all the population groups (i.e., rural, semi-urban, urban and metropolitan), all the bank groups (i.e., public/private sector banks, foreign banks, RRBs and SFBs) and all the regions of the country (i.e., central, eastern, north- eastern, northern, southern and western). Under Reserve Bank of India rules, banks must set aside 4.50% of deposits as cash reserve ratio (CRR) and another 18% in statutory liquidity ratio (SLR) compliant holdings. Banking Industry 2024 16 Notable trends in the banking industry sector … (1/3) Improved risk management practices In Union Budget 2023, the KYC process have been streamlined by using a 'risk-based' strategy rather than a 'one size fits all' approach Indian banks are increasingly focused on adopting integrated approach to risk management. A draft MD providing a consolidated and updated IT governance and risk management framework for regulated entities (REs) has been placed on the Reserve Bank’s website in October 2022 for public comments. As of August 2022, Notably, public sector banks (PSBs) stumbled in achieving greater compliance with the dimensions of board effectiveness, risk management, and audit functions. Technological innovations On August 10, 2023, as part of the Statement on Developmental and Regulatory Policies, the Reserve Bank of India (RBI) announced the creation of a Public Tech Platform for seamless credit. This Platform is being developed by the Reserve Bank Innovation Hub (RBIH), a fully-owned subsidiary of RBI, the platform facilitates smooth credit delivery by sharing digital information. Digitalization of Agri-finance was conceptualized jointly by the Reserve Bank and the Reserve Bank Innovation Hub (RBIH). This will enable the delivery of Kisan Credit Card (KCC) loans in a fully digital and hassle-free manner. In November 2022, RBI launched a pilot project on central bank digital currency (CBDC). As on April 2024, there were 581 banks actively using UPI. The total number of Digital transactions as on December 2023, amounted to 15.08 billion, with a total value of Rs. 2.1 trillion (US$ 25.27 billion). Focus on financial inclusion Technological innovations have led to marked improvements in efficiency, productivity, quality, inclusion and competitiveness in extension of financial services, especially in the area of digital lending. The National Strategy for Financial Inclusion (NSFI) 2019-24 sets forth the vision and key objectives of financial inclusion policies in India, with an emphasis on enhancing digital financial inclusion, promoting financial literacy and strengthening the grievance redressal mechanism in the country. Banking Industry 2024 17 Trends and Strategies Notable trends in the banking industry sector … (2/3) Consolidation Banks increasingly consolidation to derive greater benefits such as enhanced synergy, cost take-outs from economies of scale, organizational efficiency and diversification of risks. After consolidating for the last two years, Indian banks took off this year, lifted by falling NPAs, higher credit growth and rising digitalization. Focus on Jan Dhan Yojana PMJDY account holders receive direct benefit transfer (DBT) from the Government under various schemes Amounting to Rs. 2,28,057 crore (US$ 27.32 billion) 52.30 crore number of total beneficiaries banked till May 2024. Within 10 days of the nationwide lockdown due to Covid-19, more than about 20 crore women PMJDY accounts were credited with ex- gratia. It provides an avenue for the poor to bring their savings into the formal financial system, an avenue to remit money to their families in villages besides taking them out of the clutches of the usurious money lenders. Wide usability of RTGS, NEFT and IMPS NEFT & RTGS payment system has been included by Securities Exchange Board of India (SEBI) to the existing methods list that a company to their shareholders & investors can use for payment of dividend or other cash benefits. Round-the-clock availability The number of transactions through IMPS has further increased. The number of transactions through Real Time Gross Settlement (RTGS) increased by 13.1% YoY and National Electronic Funds Transfer (NEFT) increased by 43.4% YoY in January 2024. Know Your Client RBI mandated the Know Your Customer (KYC) Standards, wherein, all banks are required to put in place a comprehensive policy framework in order to avoid money laundering activities. The KYC policy is now compulsory for opening an account or making any investment such as mutual funds. Banking Industry 2024 18 Notable trends in the banking industry sector … (3/3) RBI Retail Direct Scheme RBI Retail Direct. Retail Direct scheme is a one-stop solution to facilitate investment in Government Securities by Individual Investors. Retail investors (individuals) will have the facility to open and maintain the ‘Retail Direct Gilt Account’ (RDG Account) with RBI. Under this scheme, the individual can also access Secondary market through “NDS OM” - RBI’s trading system. The investor will automatically receive any interest paid/maturity proceeds into his linked bank account on due dates. Following additional services are proposed to be made available to the Retail Direct Investor on the RBI Retail Direct Portal: Nomination Gifting Pledge/Lien/Transfer Global Hackathon In November 2023, ICode Foundation marks the conclusion of the 7th Global Hackathon, bringing together over 3 million students from 70+ countries. This year's event witnessed an exceptional turnout with over 3 million students from 70+ countries and 10,000+ schools worldwide taking part. Banking Industry 2024 19 Digital Lending Market Scenario India is the world's largest market for Android-based mobile lending apps, accounting for ~82% of all online lenders worldwide. The Indian digital consumer lending market is projected to surpass US$ 720 billion by 2030, representing nearly 55% of the total US$ 1.3 trillion digital lending market opportunity in the country. The value of the digital lending market in India was US$ 270 billion in 2022. By 2023, the digital lending market reached worth around ~ US$ 350 billion. Most of the market was served by fintech firms and NBFCs. India's digital lending market witnessed a growth of CAGR 39.5% over a span of 10 years. Digital lending is set to account for 60% of the total Indian fintech market by 2030. Data analysis indicates that digital lending is set to account for 60% of the total Indian fintech market by 2030. The increase in the proliferation of formal finance, growing per capita income and greater internet penetration, among others, will drive the growth in digital lending. Digi Dhan Mela: Under the vision of Digital India, Government of Uttar Pradesh is promoting Digital payment through awareness campaign being organized in the State as a Digi Dhan Mela. The core objective of this event is to increase the awareness among the citizen w.r.t to Digital Payment. Banking Industry 2024 20 Mobile banking to provide a cost-effective solution … (1/2) Banking Industry 2024 21 Mobile Banking to Provide a Cost-Effective Solution … (2/2) Mobile rémittence Mobile recharge Mobile banking (fund transfers, Mobile etc.) commerce Payment of bills Banking Industry 2024 22 Strategies Adopted 1. Increased use of technology Central Bank Digital Currency (CBDC) pilot launched by RBI in retail segment has components based on blockchain technology. In April 2024, there were 581 banks actively using UPI. The total number of digital transactions as on December 2023 amounted to 15.08 billion, with a 1 total value of Rs. 2.1 trillion (US$ 25.27 billion). Secured loans via end-to-end digital journeys would become possible as asset records are digitized and integrated to India Stack. 2. Cross-selling The popular strategy in banking scenario is Cross-selling which has 2 been nearly adopted by all Indian banks. The Banks have started to use Cross Selling to retail insurance products. Major banks tend to increase income by cross-selling products to their existing customers. 3 3. Capture latent demand ONDC potentially offers a 1.2 million seller base in the form of MSME merchants and an equally large buyer base to lend. Green financing provides credit to the growing base of green customers who are buying environment-friendly products. 4. Privatize Public Sector Banks (PSU) As Privatization of public sector banks (PSBs) has been widely viewed as a key area of pending reforms in India. 4 The Centre had proposed privatization of two public sector banks along with one general insurance company in the 2021-22 budget. 5. Merger Execution HDFC Bank, India's top private sector bank, was merged with of HDFC 5 Ltd., India's foremost housing finance company, into HDFC Bank from July 2023. The increased competition in the global market has prompted the Indian companies to go for mergers and acquisitions as an important strategic choice. 6 6. Overseas expansion Indian banks expanded their global footprint by utilizing subsidiaries, leading to a 0.5% growth in employee numbers for foreign branches and a 6.2% increase for subsidiaries. Banking Industry 2024 23 Growth Drivers and Opportunities Growth drivers of Indian banking sector Economic and demographic drivers Favourable demographics and rising income levels. India ranks among the top 7 economies with a GDP of US$ 3.73 trillion in 2023. The sector will benefit from structural economic stability and continued credibility of Monetary Policy. Rural lending strives to reach the 60% of the rural population that is underbanked. 100% of new bank account openings in rural India are being done digitally. Policy support Pradhan Mantri Jan Dhan Yojana (PMJDY) - Under this, a person not having a savings account can open an account without the requirement of any minimum balance and, in case they self-certify that they do not have any of the officially valid documents required for opening a savings account, they may open a small account. Infrastructure financing Government of India has set a target of about Rs. 1 trillion for the government- backed National Bank for Financial Infrastructure and Development (NaBFID) for sanctioning loans to the infrastructure sector in the next financial year. Open banking eco-system Open banking can enhance the reach of financial services as its key principles (tenets) are: Scalability, Resilience, Monitoring and Frictionless service. Cross-border payments New RBI rules favor the NRIs, through which they can pay bills for telephone, electricity, and others directly in India, with the help of the new payment portal opened by the Government. This payment portal is a joint initiative of IBA or Indian Banks Association and RBI or the Reserve bank of India. It belongs to the NPCI or the National Payment Corporation of India. Government initiatives With a view to improve the Governance of Public Sector Banks (PSBs), the Government had decided to set up an autonomous Banks Board Bureau. The Bureau will recommend for selection of heads of Public Sector Banks and help Banks in developing strategies and capital raising plans. The Banks Board Bureau has three ex-officio members and three expert members in addition to Chairman. Except ex-officio members, all the Members and Chairman are part time. In September 2023, IREDA partners with banks to boost renewable energy projects in India. Banking Industry 2024 24 Strong Economic Growth to Propel Banking Sector Expansion The IMF World economic outlook (April 2024) projects India's nominal GDP per capita for 2024 to be US$ 2,731 at current prices. Rise in per capita income will lead to increase in the fraction of the Indian population that uses banking services. The GDP per capita increased from US$ 1,958 in 2017 to US$ 2,613 in 2023, showing a compound annual growth rate (CAGR) of 4.92%. Population in 15-64 age group is expected to grow strongly going ahead, giving further push to the number of customers in the banking sector. As per Economic Survey 2018-19, working age population will grow by 9.7 million per year in between 2021 and 2031 and 4.2 million per year from 2031 to 2041. Industries that are transforming to gig such as textile, banking and financial services, electricity, gas and water; real estate, IT and ITeS, education, personal services. IBEF reports that MNCs are now turning to flexible hiring options. According to SBI Chairman, credit demand remains robust, to clock about 14% growth. Banking Industry 2024 25 Housing and personal finance have been key drivers … (1/2) According to a report published by the Associated Chambers of Commerce and Industry of India, in terms of development and maturity, the Indian financial sector has recently exhibited an encouraging trend. The amount of outstanding mortgage loans has increased by a healthy 16% over the past 5 fiscal years. Credit under the housing segment from US$ 114 billion in FY16 to at US$ 320.18 billion in FY24* (till January 2024) *. By 2040, it is predicted that the real estate market will reach Rs. 65,000 crore (US$ 7.9 billion). This represents a considerable increase over the 2019 real estate market value, which was pegged at Rs. 12,000 crore (US$ 1.4 billion). 13% of India’s GDP is projected to be generated by the housing industry by 2025. Players in the housing finance sector include public and private sector banks and home finance companies. Public Sector Banks (PSBs) and Housing Finance Companies (HFCs) had around 40% and 39% of the market share, respectively, in the 2019 fiscal year. According to BCG analysis, banks like Bank of Baroda and Induslnd Bank sourced 85% and 77% personal loans digitally. RBI’s adoption of the Colending Model has paved the way for a model in which non-banking finance companies (NBFCs), housing finance companies (HFCs), and banks can collaborate and enter into an agreement to perform joint origination and lending in the market. Banking Industry 2024 26 Housing and personal finance have been key drivers … (2/2) Growth in disposable income has been encouraging households to raise their standard of living and boost demand for personal credit. Credit under the personal finance segment (excluding housing) rose at a CAGR of 14.57% from FY16 to FY24* (till January 2024) and stood at US$ 307.81 billion in FY24*. Unlike some other emerging markets, credit-induced consumption is still less in India. The various policy intervention by the government, including ‘Housing for All’, Aatmanirbhar Bharat, etc., provided an impetus to the Housing Finance sector. The permission by RBI to lending institutions to grant a total moratorium of 6 (3+3) months in case of payment failure due between 1st March 2020 to 31st August 2020, infusion of Rs. 75,000 crore (US$ 9.1 billion) for Non-Banking Financial Corporations (NBFCs), Housing Finance Companies (HFCs) and Micro Finance Institutions (MFIs), among others, have also contributed to the revival of the real estate sector. The permission by RBI to lending institutions to grant a total moratorium of 6 (3+3) months in case of payment failure due between 1st March 2020 to 31st August 2020, infusion of Rs. 75,000 crore (US$ 9.1 billion) for Non-Banking Financial Corporations (NBFCs), Housing Finance Companies (HFCs) and Micro Finance Institutions (MFIs), among others, have also contributed to the revival of the real estate sector. Banking Industry 2024 27 Schemes by government Pradhan Mantri Jan Dhan Yojana (PMJDY) Currently, there are 52.08 crore beneficiaries holding an amount of Rs. 2.29 trillion (US$ 27.56 billion) in their accounts. This scheme aims to ensure comprehensive financial inclusion of all the households in the country by providing universal access to banking facilities. Under this, a person not having a savings account can open an account without the requirement of any minimum balance and, in case they self-certify that they do not have any of the officially valid documents required for opening a savings account, they may open a small account. Pradhan Mantri Suraksha Bima Yojana (PMSBY) The Scheme is available to people in the age group 18 to 70 years with a bank account who give their consent to join / enable auto-debit on or before 31st May for the coverage period 1st June to 31st May on an annual renewal basis. Stand Up India Scheme The Scheme facilitates bank loans between Rs.10 lakh (US$ 12,164) and Rs.1 crore (US$ 121,642) to at least one Scheduled Caste/ Scheduled Tribe borrower and at least one- woman borrower per bank branch for setting up greenfield enterprises. Atal Pension Yojana (APY) APY is open to all saving bank/post office saving bank account holders in the age group of 18 to 40 years and the contributions differ, based on pension amount chosen. Subscribers would receive the guaranteed minimum monthly pension of Rs. 1,000 or Rs. 2,000 or Rs. 3,000 or Rs. 4,000 or Rs. 5,000 at the age of 60 years. As on March 31, 2023, total enrolment under Atal Pension Yojana crossed the 5.20 crore milestone. Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) The PMJJBY is available to people in the age group of 18 to 50 years having a bank account who give their consent to join / enable auto-debit. Aadhar is the primary KYC for the bank account. The life cover of Rs. 2 lakh is for the one-year period stretching from 1st June to 31st May and is renewable. Banking Industry 2024 28 Increasing M&A and investment activities (1/2) Banking Industry 2024 29 Increasing M&A and investment activities (2/2) Banking Industry 2024 30 Banking Sector Future Scope and Opportunities The banking sector in India is on the cusp of a significant transformation, driven by technological advancements, regulatory reforms, and an evolving financial landscape. As the economy grows, so does the demand for innovative banking solutions, presenting a wealth of opportunities for professionals in the field. Expanding Fintech Landscape - The rise of fintech is reshaping traditional banking. With an estimated value of $150 billion by 2025, India boasts the third-largest fintech ecosystem globally (Reserve Bank of India). This expansion is creating roles in areas such as digital payments, blockchain technology, and cybersecurity. Professionals equipped with skills in data analysis and programming are particularly in demand, as banks seek to leverage technology for enhanced customer experiences and operational efficiency. Regulatory Reforms - Recent regulatory changes aimed at increasing financial inclusion are opening new avenues for banking professionals. Initiatives like the Pradhan Mantri Jan Dhan Yojana and the introduction of Payments Banks and Small Finance Banks are helping to reach underserved populations (Reserve Bank of India). This shift not only requires more personnel to manage new accounts and services but also fosters a need for professionals who can navigate the complexities of compliance and risk management. Sustainable Banking - With a growing emphasis on sustainability, the banking sector is increasingly focusing on green finance and responsible lending practices. This trend opens up opportunities in sectors like renewable energy financing, where banks look for professionals who can assess environmental impacts and integrate sustainability into their business models. Future of Intelligent Banking The Intelligent Future of Indian Banking The banking industry in India is poised for a significant shift, propelled by sophisticated technologies that have the potential to completely alter the way financial services are provided and utilized. Future developments in artificial intelligence (AI), machine learning (ML), blockchain, and other cutting-edge technologies have the potential to completely transform Indian banking. This change will improve client experiences, increase security, assure regulatory compliance, and improve operational efficiency. Embracing Artificial Intelligence and Machine Learning AI and ML are at the forefront of this transformation. With the use of these technologies, banks can now analyze enormous volumes of data to produce insightful analysis that can be used to forecast consumer behavior, spot fraud, and optimize operations. Personalised Customer Experiences: In Indian banking, chatbots and virtual assistants powered by artificial intelligence are proliferating. These technologies give clients immediate assistance, respond to questions, and provide personalized financial Banking Industry 2024 31  guidance based on each user’s spending habits and interests. Banks may use AI to predict client demands and provide goods and services that help them reach their financial objectives. Fraud Prevention and Detection: Real-time transaction pattern analysis using AI and ML systems can spot anomalous activity that could point to fraud. By taking a proactive stance, banks can quickly reduce risks and guarantee the security of consumer accounts. Furthermore, biometric authentication, which is fueled by AI improves security by utilizing distinctive physical traits like fingerprints or facial recognition. The Rise of Blockchain Blockchain technology has enormous potential for the financial industry because of its decentralized and unchangeable nature. It can boost transparency, lower expenses, and streamline a variety of procedures. Safe and Open Transactions: Blockchain makes sure that every transaction is documented on an unchangeable ledger, increasing confidence and transparency. This is especially helpful for cross-border payments, which have historically been expensive and time-consuming. Banks can speed up these transactions and save associated costs by utilizing blockchain. Smart Contracts: These self-executing agreements that have the terms encoded directly into the code can automate a number of banking processes, including loan repayment and payout. By eliminating the need for middlemen, smart contracts lower operating expenses and the possibility of human error. Fintech Collaboration An additional crucial component of Indian banking’s intelligent future is cooperation between fintech firms and traditional banks. Innovative ideas from fintech businesses can be incorporated into the financial ecosystem to improve service delivery. Open Banking: This idea enables outside developers to create services and apps cantered around financial institutions. These linkages are made possible by APIs (Application Programming Interfaces), which promote cooperation and give clients access to a greater array of financial services and products. Improved consumer experiences, more competitive pricing, and creative financial solutions can all result from open banking. Digital Lending Platforms: With digital platforms that provide easy and speedy loan approval procedures, fintech companies have completely changed the lending landscape. Enhancing Regulatory Compliance The significance of regulatory compliance is also emphasized by the intelligent future of Indian banking. Modern technology can help banks more effectively comply with regulatory obligations. RegTech Solutions: RegTech, or regulatory technology, automates compliance procedures through the use of AI and ML. These programmes can guarantee compliance Banking Industry 2024 32  with anti-money laundering (AML) laws, keep an eye on transactions for questionable activity, and improve risk management. Banks can focus on strategic goals and lessen the workload associated with human compliance checks by automating these procedures. Using Data Analytics to Manage Risk: Banks can more properly analyze and manage risk thanks to advanced data analytics techniques. Through the examination of past data and present market patterns, banks are able to anticipate possible hazards and proactively address them. The banking system is more resilient and stable as a result of this strategy. Modern Age Digital Banking 1. The Emergence of Mobile Banking - Mobile banking has emerged as the foundation of digital banking in India. With the widespread use of smartphones and cost-effective data plans, customers now have unparalleled access to their financial information and services right at their fingertips. 2. The Significance of Fintech - Fintech companies are playing a major role in transforming the banking sector. By introducing innovative solutions like peer-to-peer lending, digital wallets, and robo-advisors, fintech firms are challenging traditional banking models and encouraging banks to embrace new technologies. How Blockchain Technology Changing Banking Sector The implementation of blockchain technology is set to revolutionize the banking industry. By offering a secure and transparent method for recording transactions, blockchain has the potential to minimize fraud, simplify processes, and improve the overall efficiency of banking operations. Artificial Intelligence and Machine Learning 1. Advanced Customer Engagement - Artificial intelligence and machine learning technologies are changing the way banks engage with their clients. Whether it's through chatbot assistance or customized financial recommendations, AI is enabling banks to offer a more personalized and effective customer experience. 2. Risk mitigation and detection of fraudulent activities - Machine learning algorithms have the capability to examine large volumes of data in order to identify irregularities and patterns, allowing financial institutions to effectively manage risks and detect potential fraud. This not only safeguards customers but also assists banks in upholding their reputation and credibility. Implications of Regulatory Reforms The Indian government and regulatory authorities are advocating for increased financial inclusion. Programs like the Pradhan Mantri Jan Dhan Yojana are designed to offer banking services to those without access, guaranteeing a wider reach of financial resources. Banking Industry 2024 33 The Challenges Ahead 1. Overcoming Cybersecurity Challenges - As digital banking continues to grow, the issues of cybersecurity threats have increased. It is important for banks to allocate resources towards implementing strong security measures in order to safeguard customer data and build trust. 2. Managing Innovation and Regulation - As banks adopting new technologies and drive innovation, they are also faced with the challenge of navigating through intricate regulatory frameworks. Finding the right balance between innovation and adherence to regulations is essential for the long-term prosperity of the banking industry. The banking sector in India has a promising future, driven by the influence of technology. Through the adoption of digital transformation, promoting financial inclusion, and implementing sustainable practices, Indian banks can excel in the global market. Nevertheless, they must also stay alert to cybersecurity risks and regulatory obstacles in order to secure lasting prosperity. Mobile Wallet Payments in India Fintech has evolved in India, changing how financial services work by using technology. India has witnessed exponential increase in adoption of digital payments, driven by a large proportion of youth in its population. While cash is still important, large number of people have already migrated to digital ways to do their transactions. The introduction of systems like UPI, e-wallets, and mobile banking have made online payments simpler. UPI started in 2016, lets people instantly send money between bank accounts and has become popular due to its unique features. In February 2024, UPI also expanded to Sri Lanka, Mauritius, and the UAE. India also plans to introduce it in countries like Singapore and France soon. Digital payments in India increased to reach 13,462 crore transactions in 2023 from 2,071 crore transactions in 2018. Additionally, the value of Digital Payments in India increased with CAGR of 11.2%, reaching US$ 40.1 trillion (Rs. 3,344 lakh crore) in 2023. Banking Industry 2024 34 Digital transactions include: Credit/Debit Cards Mobile Wallets (e.g. Amazon Pay) Internet Banking Payment Apps (e.g., BHIM) Point of sale (PoS) Terminals The Evolution of Mobile Wallets: A Significant Mode of Digital Transactions Similar to a traditional wallet, a mobile wallet (also known as an e-wallet) operates entirely online. Users can keep money in it to make purchases, exactly like they would with cash in a physical wallet. Since it does not require user to carry cash or credit cards, transactions are safer and easier when using mobile apps, which are the main method of access. In financial terms, digital wallets are a type of prepaid payment method. It let an Individual to buy things and send money which is stored in the wallet. This value can be loaded through various means such as cash, bank accounts, credit cards, or other Prepaid Payment Infrastructure (PPIs). Although options for PPI-based digital payments have been available in India since 2002, their usage was initially limited to gift cards, forex cards, and meal reimbursements. However, the introduction of digital wallets has significantly boosted the country's adoption of digital payments through prepaid instruments in the country. Exploring the surging trend of Mobile wallet payments in India Mobile wallet payments in India increased at a CAGR of 72.1% to US$ 2.5 trillion (Rs. 202.8 lakh crore) between 2019 to 2023, as per data published in Business standard. The exponential increase can be attributed to the government’s constant efforts for promoting digital payments in our day-to-day life like online shopping and physical purchase from supermarkets, grocery stores, and street vendors. RBI’s regulation further aided the increasing adoption of mobile wallets as a medium of digital payments. In March 2022, the Reserve Bank of India (RBI) mandated that all prepaid payment methods, including wallets, be compliant with UPI. Recently, on 5th April 2024, RBI further stated that Mobile wallet can be used by UPI to spend the money on third party applications. For example, if you have money in your PhonePe wallet, you can use it on another UPI app like Paytm, which added more convenience for customers to adopt Mobile wallets. Banking Industry 2024 35 The surge in mobile payments is driven by the following factors The Surge of Smartphone Usage The surge in smartphone usage has significantly fueled the growth of mobile payments, especially mobile wallet adoption. The widespread availability and convenience of smartphones have empowered consumers to effortlessly conduct transactions by simply tapping their devices. As of September 2023, India has over 931 million smartphone users, with projections indicating a surge to over 1.1 billion by 2025. Contactless and Convenience Payments Mobile payments offer a convenient and hygienic way to make transactions anytime, anywhere, eliminating the need to carry physical cash or cards. This has been particularly accelerated by the COVID-19 pandemic, as contactless payment methods, facilitated by mobile wallets, provide a safe and touch-free way to pay. Biometric Authentication for Enhanced Security As mobile transactions rise, so security concern arises. Biometric authentication methods like fingerprint scanning and facial recognition have emerged to address these concerns, providing a safer and more user-friendly option compared to passwords and PINs. These technologies streamline the authentication process and bolster security for mobile payments, driving growth in mobile wallet usage. Mobile Wallets Becoming Multi-Functional Mobile wallets like Apple Pay, Google Pay, and Samsung Pay are expanding their capabilities beyond basic payment functions. They now include extra features like loyalty programs, tickets, and boarding passes, making them essential tools for everyday transactions. The Rise of Mobile Point-of-Sale (mPOS) Systems Mobile Point-of-Sale (mPOS) systems are becoming increasingly popular, particularly among small and medium-sized businesses. These systems turn smartphones and tablets into portable cash registers, enabling merchants to accept payments anywhere. This enhances the flexibility and convenience of sales transactions. Gen Z Leading the Mobile Payment Revolution Younger generation are particularly drawn to the convenience of mobile payments. They are known for their comfort with technology, readily adopts mobile peer-to-peer (P2P) transfers. eMarketer predicts that 80.4% of new users embracing mobile P2P transfers from 2023 to 2027 will be from this generation. This suggests a notable change in how future generations manage money, with mobile payments becoming a more integral part of their daily life. financial routines. Banking Industry 2024 36 How UPI Lite is driving faster Mobile Wallet adoption UPI LITE is the largest wallet payment solution launched in March 2022, that utilizes the reliable National Payments Corporation of India (NPCI) Common Library (CL) app to handle small transactions under Rs. 500 (US$ 5.99). It operates within the existing UPI framework on mobile phones to ensure consistency, compliance, and system acceptance. It aims to offer a user- friendly experience for low-value transactions without relying on Remitter bank's core banking systems in real-time, while also ensuring sufficient risk management measures. Many mobile wallet apps, including Paytm, PhonePe, Amazon Pay, and Google Pay, now offer UPI functionality, allowing users to make payment directly from online wallet. Initiatives to tackle existing challenges Increasing risk of cyber-attacks: Cyber-attacks are becoming more frequent and sophisticated in line with the growing popularity of mobile wallets. Mobile payment apps are regularly targeted by hackers and scammers, which discloses critical data and causes financial losses. Secure and reliable mobile wallet solutions are becoming more and more necessary because of the expanding threat landscape, which highlights the significance of strong security protocols and user knowledge. There was a significant increase in the number of complaints concerning cybercrime from 9.7 lakh in 2022 to 11.5 lakh in 2023. Of these allegations, financial fraud accounted for nearly 60%. From January to October 2023, financial scams of US$ 668 million (about Rs. 5,574 crore) were reported. Government is planning to implement several measures to tackle the increasing problem of cyber fraud in the financial sector. These measures include blocking the unique mobile device identifier (IMEI) and imposing limits on withdrawals from suspicious accounts. Accessibility issues in rural areas: In numerous rural parts of India, there's a shortage of dependable internet connection and access to electricity, making it tough for individuals to use digital payment services. Without a stable network, completing online transactions becomes a challenge. Adding to this difficulty they rely on feature phones instead of smartphones to access bank accounts. These devices are often old and may fail or run out of battery power when needed the most. Government launched a new 24-hour TV channel called 'DigiShala' to educate millions of citizens about digital payments. The aim is to encourage people to incorporate digital payment methods into their daily lives. Low digital literacy: In some communities, especially among the older generation or those with fewer resources, people might not know how to use digital payment platforms well. This lack of know-how can make it hard for them to start using digital transactions. They might feel nervous or unsure about using these new technologies. Government is helping with various schemes such as Pradhan Mantri Gramin Digital Saksharta Abhiyan (PMGDISHA). Government Initiatives Demonetization - Demonetization in India led to an accelerated adoption of digital payments as people turned to electronic transactions due to cash shortages. This helped in the growth of digital wallets, mobile banking, and online payment platforms, fostering a more cashless economy and promoting financial inclusion. Banking Industry 2024 37 Digital India mission - The Digital India initiative was launched which aims to transform the country by promoting digital infrastructure and connectivity. This has led to the rise of mobile wallets, UPI-based transactions, and online banking, empowering citizens with convenient, secure, and efficient digital payment options, thus fostering financial inclusion and economic growth. BHIM App - The government introduced the Bharat Interface for Money (BHIM) app, a mobile payment app based on UPI. BHIM makes it easy and safe to do digital transactions, letting users send and get money using their phones. Financial Inclusion -The government is working to include more people in the financial system through digital transactions. Programs like the Pradhan Mantri Jan Dhan Yojana (PMJDY) are helping everyone get access to banking services, so they can join in digital transactions. The transition from cash to clicks, fuelled by the growing popularity of mobile wallet payments in the country, illustrates India’s revolutionary path towards a digital economy. With a few taps on their smartphones, consumers may transact anytime, anywhere, with mobile wallets, which have become a popular, efficient, safe, and secure substitute for traditional payment methods. The value of mobile wallet transactions in India expanded at a strong compound annual growth rate (CAGR) of 72.1% to reach US$ 2.5 trillion from 2019 to 2023. Furthermore, mobile wallet payments in India are expected to expand at a CAGR of 18.3% to more than US$ 6.3 trillion (Rs. 531 lakh crore) between 2024 and 2028. Road Ahead Enhanced spending on infrastructure, speedy implementation of projects and continuation of reforms are expected to provide further impetus to growth in the banking sector. All these factors suggest that India’s banking sector is poised for robust growth as rapidly growing businesses will turn to banks for their credit needs. The advancement in technology has brought mobile and internet banking services to the fore. AI and automation are demonstrating unprecedented value while Blockchain has sparked innovation throughout the business landscape and is poised to continue in doing so. The banking sector is laying greater emphasis on providing improved services to their clients and upgrading their technology infrastructure to enhance customer’s overall experience as well as give banks a competitive edge. In recent years India has experienced a rise in fintech and microfinancing. India’s digital lending stood at US$ 75 billion in FY18 and is estimated to reach US$ 1 trillion by FY23 driven by the five-fold increase in digital disbursements. The Indian fintech market has attracted US$ 29 billion in funding over 2,084 deals so far (January 2017-July 2022), accounting for 14% of global funding and ranking second in terms of deal volume. Banking Industry 2024 38