The annual FIBAC productivity report on the Indian Banking Industry 2018, released by the Boston Consulting Group, FICCI and Indian Banks’ Association, sheds light on interesting trends in the banking sector. It reveals that the southern states are outperforming the rest in terms of mobile banking adoption in savings accounts.
Mobile Banking Trends
While Manipur and Telangana have shown a strong affinity for internet banking, mobile banking is gaining popularity among users who are active digitally. Other states high on internet banking usage include Mizoram, Andhra Pradesh, and Puducherry. The surge in smartphone and internet penetration along with a rise in ‘e-literacy’ has ushered in a shift from branch banking to electronic banking channels such as mobile and internet banking. The transactions through these digital channels nearly doubled in 2016-17, while branch-based and ATM transactions recorded a slight decline.
Preference Shift in Digital Banking
There’s been a noticeable shift in preference from internet banking to mobile banking across various bank categories. This trend supports the wider shift in the industry towards digitization and away from traditional branch-based banking.
Untapped Potential in MSME Segment
The MSME segment offers substantial potential for credit and digital lending. Over the next five years, this sector could generate a Rs 15-lakh crore opportunity for lenders. Currently, digital lending constitutes only 4% of total MSME lending. Nevertheless, this figure is projected to surge to 21% in the next five years. This anticipated jump will help bridge the gap with digital retail lending which is expected to account for about 48% of total retail lending in five years.
Growth in Money Lending and Credit Facilities
In 2018, there was a 9% growth in credit compared to 2017. With financial institutions providing easy credit facilities, consumers are getting more exposed to money lending and credit facilities. Metro cities are fuelling growth in current account balances while rural areas are contributing to the growth of savings account balances. Furthermore, there is a steady shift in investment preferences from term deposits to mutual funds.
Financial Inclusion in India
Financial inclusion refers to the widespread availability of affordable financial services. These services extend beyond banking products to insurance, equity products, and more. Financial education, inclusion, and stability form an integral part of a strategy aiming at the sustainable economic growth of society. Financial Stability Development Council (FSDC) maintains an explicit mandate to concentrate on financial inclusion and literacy simultaneously.
Government Initiatives for Financial Inclusion
The government has opened more than 30 crore bank accounts under its Jan Dhan Yojana, with around 60% of them being in rural areas. The decline in zero balance accounts indicate the government’s success in encouraging unbanked individuals to actively use these accounts. This effort has been facilitated by linking Aadhaar and carrying out Direct Benefit Transfer (DBT) to these Jan Dhan accounts. Additionally, a range of solutions such as UPI, BHIM, NeSL, and BBPS have been developed as infrastructure that can manage servicing this large population segment.