Evolution of Banking Since Independence

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“It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change”

-????????? Charles Darwin

If we look at the above quote by Charles Darwin, who coined the famous Theory of Evolution in a broader perspective, it suits human and organizations alike. Evolution is a reality for human species and organizations. Those who fail to adapt are destined to doom. Banking sector is no exception to this norm. History is replete with instances wherein Banking organizations who failed to look into future and change, met with a sorry fate. Not only organizations but Banking traditions and practices too have undergone a lot of change to meet the demand of generations. In short they evolved with time.

The earliest known trading practice was Barter system which slowly and slowly delved into deposit and lending infrastructures. Today’s Banks are much more sophisticated, tech savvy and have a plethora of products for each segment of customer ranging from “Have and Have Nots”, corporate, non –corporate, individuals etc. The Banking has evolved so much that they are no longer just feeding the market demand but are also creating it. But we have not achieved this level all at once. This change has taken centuries to come. From first known Modern Bank (Banca Monte dei Paschi di Siena) in the world which opened in 1492, it is estimated that world has over 25000 Banks now.

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Back home in India the first modern bank was “Bank of Hindustan” established in 1770. Now there are close to 21 major Banks in India and multiple other small & co-operative Banks which are vying for share of customers in the Indian financial market. The majority of the changes in banking sector though came through merger, consolidation and of course Nationalization. Let’s look at the brief timeline of our banking history.

Source:- goniyo.com

If we look at the the year 1969, it could be called the watershed moment of Indian banking industry where 14 Banks were nationalised. The main reason behind the decision was to improve credit delivery to the unbanked and not to restrict it to few rich. It was also instrumental in success of lending to priority sectors. If the year 1969 was watershed moment the year 1991 was definitely a game changer. The liberalisation pioneered by Dr. Manmohan singh revolutionised the banking sector in many ways. It not only opened doors for foreign Banks to set up branches in India but also set up the field for subsequent digitalisation of Banks and banking operations. It also paved path for opening of many small finance banks, Micro finance institutions. Nationalisation of banks took a pause, instead, the Indian banking sector witnessed several mergers in the public sector banks in the years to follow.

SBI the largest lender of India also merged its associates in the year 2017 with itself to join the league of top 50 Banks of the world in terms of assets. Earlier also SBI had merged its few associates like State Bank of Suarashtra and State Bank of Indore.? There were similar mergers and consolidations in other public and private banks as well.? But it is not that only banks have undergone changes, a sea change has also come into banking practices and how it is served to its customer. Let’s took at these changes, which we have seen in the banking sector since the Independence.

v? Adoption of Technology :- Bank’s had no option but to adopt technology in their operations. The banking which was done via registers was transitioned into Bank servers and all banks started serving computerised based service to the customers.

v? Seller to Customer centric:- Earlier customers were dependant upon Bank that too mostly public sector banks. With the advent of private banks coupled with liberalisation of Indian markets, there were options galore for customers. Customer became king and every Bank wanted to attract customers with best customer service.

v? Specialised Banks:- The government established several specialised banking institutions with specific requirements of sectors like agriculture, foreign trade, housing, and small scale industries in the eighties decade. And the evolution of financial services in India began with noteworthy financial institutions like NABARD, Exim Bank, SIDBI, National Housing Bank etc.

v? Small Finance Banks :- The objective of small finance Banks was to provide assistance to those segments of society which other Banks did not serve.

v? Payment Banks:- These type of Banks had a major role to play in the evolution of e- Banking in India. These banks can accept restricted deposits but are not authorised to issue loans or credit cards.

The above were few examples of the evolution of Banking since independence but the buck of constant evolution in Banking sector has not stopped. Infact it has just started.

“The best way to predict future is to create it” said Abraham lincoln. Let’s take a peek at some of the advancements which are bound to disrupt the Banking sector in coming future.

v? Neo Banks:-? This type of Bank does not have any physical branches. Their entire functioning is online and they primarily target tech savyy customers.

v? Digital Banking:- Digital banking can be defined as usage of banking services like fund transfer, payment, balance enquiry via smart devices like smartphones, laptop, computers etc. UPI and BHIM launched by the National Payments Corporation of India (NPCI) has already set off the digital payments revolution in India and its model is being implemented by many countries such as Nepal ,Bhutan and Singapore.

v? BaaS :- The acronym stands for Banking as a service. It allows non-banks to offer core financial services to their customers by integrating with banks via APIs.

v? Artificial Intelligence & Machine learning :- AI & ML has completely changed the way Banking products are served to the customer. The extensive usage of both technologies in the finance sector has ensured that credit delivery has now become more customized and less riskier. It has also helped Banks to minimize potential threats in terms of fraud and have improved efficiency.

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Conclusion

It has taken banking in India 75 years to reach to a situation where it can provide banking facilities to everyone. But there are still many challenges to conquer. Affordable and accessible banking still has not reached hinterlands. In India despite the growth in tech savvy banking products, people still prefer reaching out to Brick and Mortar version of the banks i.e Branches. With the mushrooming of Fintech companies and digital wallets, cases of cyber fraud and unethical lending at exorbitant rates too has surfaced. But it is a definite certainty that Bank’s will rise up to the occasion to meet these challenges. As a leader in Banking sector, we should be pioneer of this evolutionary wave which is bound to come, rather than play catching up.? How to do that is very simple. “Upskill--- Change—Implement—repeat”.

Let it be our mantra going forth.

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