The pandemic has ushered in structural changes in the operations of banks/financial institutions (FIs) regarding technology, and shift in the customer behavioural patterns. This is evident from the surge in Tech-enabled Digital (Retail) payments as per the annual report of Reserve Bank of India for the FY 2020-21.

Indian banking’s journey towards technology adoption began with the recommendations of C Rangarajan Committee on mechanisation in banks (1984).

Then came the introduction of machines for posting of ledgers (1990), total automation of branches (1995), and Core Banking Solutions (CBS) in early 2000s.

RBI issued licenses to new generation private sector banks in 1996 to provide fully-computerised, modern banking experience to customers, infusing competition, and enhancing productivity.

RBI also set up institutions such as the Institute for Development & Research in Banking Technology (IDRBT; 1996), Clearing Corporation of India Ltd (CCIL; 2001), National Payments Corporation of India (NPCI; 2008), etc. as part of developing payment market infrastructure and boosting technology use.

The IT Act, 2000 gave a further fillip to fintech operations by providing legal sanctity. The exponential growth in mobile phone users and increased penetration of internet gave a boost to banking and financial services during the last decade.

According to RBI, total retail payments through various digital channels stood at ₹3,58,85,325 crore in FY 2020-21 as against ₹2,80,25,238 crore in FY 2018-19. Out of these, National Electronic Funds Transfer (NEFT) had a lion’s share (70 per cent), followed by Unified Payments Interface and Immediate Payment Service in FY 2020-21.

As per the CACI Channel Impact survey (2021), mobile phone has been widely used for conducting retail banking operations (87 per cent), followed by internet (7 per cent). While over two-third of millennials (aged between 18-37 years) were comfortable with banks/FIs that use Artificial Intelligence (AI) to access personal data so as to improve customer service, in contrast to 55 per cent of generation X (aged between 38-53 years) and 42 per cent of people above 54 years.

Using AI, ICICI Bank introduced locker services to provide immersive and personalised banking experience in India.

Future banking

The Covid crisis can be converted into an opportunity if banks/FIs leverage the new age technologies like AI, Block-chain, Cloud Computing, Internet of Things (IoT), etc. Given the increasing preference for contactless banking and remote employee access, banks/FIs may look at digital on-boarding enabled by video Know Your Customer (KYC), virtual customer servicing, on-line authentication and payments to maintain healthcare of their personnel. Also, personal digital coaches may be deployed to assess performance of the employees to enhance productivity through visual and cognitive nudges.

Banks may face a shortage of trained personnel with skills related to data science. For this, banks need to focus on constant training and capacity building of their human resources.

Banks must invest in upgrading their technological platforms for their digital transformation and to provide high–end customer experience. They need to be customer-savvy to win the latter’s trust and also act as firewalls against possible cyber-attacks. Banks have to focus on consumer protection, and grievance redressal to prevent unscrupulous people from exploiting loopholes in the digital systems.

India recently joined the Global Partnership on Artificial Intelligence (GPAI) and set up a special task force to carve out a future path. The convergence among banks, telecom players, and technology companies may accelerate and boost digital financial inclusion. Concerted efforts should be made to impart financial and digital literacy for all the stakeholders through electronic/print media.

Further, Information Technology Act, 2000, KYC/Anti-Money Laundering Act, 2002, Bankers Book of Evidence Act, 1891 and Banking Regulations Act, 1949 etc. need to be amended to enable faster adoption of new age technologies in the post-Covid period. Creative adoption of hi-tech digital solutions for the next generation banking will separate the winners from the rest.

Srikanth is Associate Professor and Director (Finance), DDU-GKY, National Institute of Rural Development and Panchayati Raj, Hyderabad, and Prasad is former Assistant GM, SBI. Views are personal.

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