Indian Banking Industry: The Evolution And The Growth Ahead

The Indian banking system consists of 27 public sector banks, 21 private sector banks, 49 foreign banks, 56 regional rural banks, 1,562 urban cooperative banks and 94,384 rural cooperative banks, in addition to cooperative credit institutions. As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalised and well- regulated and Indian banks are generally resilient and have withstood the global downturn well.

Moving ahead, the digital payments system in India has evolved the most among 25 countries with India’s Immediate Payment Service (IMPS) being the only system at level 5 in the Faster Payments Innovation Index (FPII).

With the Indian banking sector under-going revolution, the emergence of captive industry has been a true success story over the last decades. After witnessing more than 20 years of tenacious growth, it is evident that the attractiveness of captives springs from an array of benefits.

Captive Operations In BFSI

BFSI as a sector has seen the largest number of captive operations. Not only has the change in its regulatory environment facilitated growth in internal processes and technology, the changes have impacted the manner in which banks can generate revenues.

There is a paradigm shift in the way captive centres work. Moving beyond the role of service delivery, captives now take care of end-to-end sensitive processes at the upper end of the value chain, which includes credit and decision analytics, financial risk management and anti-money laundering.

“Most of the global financial giants are seeking opportunities for differentiation from competition through the use of powerful new technology areas such as mobile, cloud computing, social media and analytics. They would prefer to do such work within captive centres, than through third parties.”, says a report.

The number of captives levitating on pure technology services, especially on digital technologies like Artificial Intelligence and Blockchain, are thus growing. This has resulted in more and more banks and services to opt for cost-efficient locations to house their back-end operations, in line with efforts to contain costs, as part of their operating model.

Captive centres seem to be mushrooming all over India. Most captives of multinational banks are seeking to establish their presence in the country, owing to the fact that they benefit greatly from the ability to tap into skills from a vast talent pool of business graduates and ideas from across their organizations.

Indian Banking: Role Of Captive Centres

Today, many foreign banks have set up their global in-house centres (GIC) in cities such as Mumbai, Bengaluru, and Chennai, which are providing shared services in Operations, Analytics, Finance, accounting and HR processing.

Hiring Opportunities

Most of the multinational captives in India are moving up the value chain in terms of hiring for not just basic back-end work but also high-end processes, which includes hiring highly-skilled tech and analytics professionals from multiple fields.

Data Handling

The management of huge volumes of data can often by handled with more skill by back office and can minimize risk. Additionally, back office allows banks to manage transactional processes of a wide varying nature on a high frequency basis.

Leveraging Technology

Captives allow banks to keep pace with technological developments and meet evolving customer demands more effectively. It is interesting to note how most of the captives have incorporated automation for otherwise manually handled processes.

Often they have thousands of people processing customer requests which is both costly and slow, and can lead to inconsistent outcomes and a high error rate. With technologies like Artificial Intelligence, Robotics, Machine Learning and Blockchain, to name a few, automation offers solutions that can help cut down back-office processing times.

Regulatory and Security Compliance

The data security compliance and regulation challenges alone can be daunting for Indian banking and financial services firms. The tougher regulatory environment being applied in the banking and finance sectors has called for more ring-fencing of individual departments and strict separation of certain processes and services. Captives can offer strength and resilience in this area of operational exposure. They also offer improved compliance with quality as well as security standards.

Managing Risks

Risk of data error is extremely expensive in banks. By applying specialist expertise or automation in more recent times, back office teams can provide increased data quality and accuracy.

Improved Bottom Line

Captives provide for empowerment and enhanced business efficiency and an improved bottom line. With more and more captive centres rising on the block, various bank tasks are being executed meticulously, thereby delivering exponential growth for the banks.

In Conclusion

Technology has not only transformed banking, it has also changed the perception of customers and their expectations towards this industry as a whole. The global banking industry is going through a period of rapid transformation, heralded by disruption and driven by emerging digital technologies. The unbelievable pace of change in technological advancements is making possible what was not feasible earlier.

There is a lot of opportunity for banks in digitalization, namely opportunities to improve overall profitability, volume growth and efficiency in service. A recent survey carried out by Accenture Research found that 77 per cent of leading banking institutions will deploy artificial intelligence (AI) to automate tasks over the next three years.

Today, most banks in the UAE already use AI as a primary method to interact with customers. It’s not just customer service that is being revolutionized thanks to AI — the technology also offers valuable applications in cybersecurity, fraud prevention and anti-money laundering.

AI is a huge game-changer as there is increasing evidence to show the ability of machines to learn and adapt to their environments.Banking customers in the UAE are already interacting with AI-powered services on daily basis. These range from chat-bots, virtual personal assistants to bilingual humanoid robots, which are being rolled out with the goal of streamlining customer service processes and meeting the evolving needs of today’s tech-savvy consumers.

As demand continues to rise for more digital solutions in the GCC banking sector, a greater number of banks in the region say they are looking to invest in financial technology (FinTech) solutions in the coming years. As long as banks are technology lead and are technologically innovative, it will keep reinventing its capabilities and will always be relevant both to our partners and to our customers.