The financial market in India is under major transformation with several policy initiatives to bring more transparency in financial transaction and also efforts to offer the banking services to people in far flung areas. This would help creating positive business sentiments and improved consumer confidence to prop-up the country's economic growth wherein the India's banking sector is likely to play a key role in meeting credit needs of various sectors of the economy.
In this context, the advancements in technology is going to play a major role such as banking services through mobile and interest modes. Encouraged by the Prime Minister vision of Digital India, the banking sector is laying greater emphasis on providing improved services to their clients and also upgrading their technology infrastructure, in order to enhance the customer's overall experience as well as give banks a competitive edge. The rise of the digital assistant in 2017 will have a significant impact on the POS and retail industries. In 2017, digital assistants will interact with users on a more personal level, connecting all the data, and providing them with helpful information based on online habits and behaviors.
It is also a fact that Reserve Bank of India (RBI) has rolled out certain innovative banking models like small finance banks. The central bank granted in-principle approval to 10 small finance banks in FY 2015-16. With many more in FY17, RBI's new measure may go a long way in helping the restructuring of the domestic banking industry. The new entrants will intensify competition, particularly in the hinterland of India with new products, technology and higher rates to woo depositors and lower rates to sell loans. Small finance banks will help in bringing the unbanked population under banking gamut, thereby supporting and encouraging the financial inclusion agenda of the Government. These banks will be less dependent on cash and more on digital technology, enabling them to cover people from the hinterland areas deprived from banking services till now. It would not be wrong to say that the initiative to set up small payment banks by the RBI is the biggest reform to drive financial inclusion in the country. Further, allowing the small finance banks to use digital banking to open bank accounts - open accounts without a wet signature, relying on the digital signatures and electronic verification, will be significant as this makes the process of onboarding a customer from distant locations easier.
The Government initiatives to priorities the JAM Trinity - Jan Dhan, Aadhaar and mobile - holds the key to one of the biggest reforms aimed at transforming India. To accelerate financial inclusion in India, the JAM Trinity works across different sectors and will be the backbone for this government initiative. It will provide a boost both to traditional banks and telecom companies as well as new entrants such as payments banks and fin-tech start-ups. Large-scale enrolments under the Jan Dhan Yojana and Pradhan Mantri Suraksha Bima Yojana have been an enabler.
The forthcoming budget would like to focus on inclusive growth, smooth financial transaction on digital platforms, lowering IT rates to encourage additional savings, greater investment in infrastructure, agriculture and affordable housing sector. With a vision to move towards a cashless economy, the government may announce further measures to encourage digital payments.
By all indications, the budget may see the relentless push by the government for a cashless economy and its implementation by the banking system. There is a need to position the financial institutions like small banks to meet the future challenges with innovative ways and survive.
The writer is Managing Director of Au Financiers (India) Limited