ANTARIKSHA GANGULY

PGP/20/263
CBM ASSIGNMENT II

1. Challenges and Opportunities to payment banks and small finance banks:

RBI allowed 11 payment banks licenses with the idea of financial inclusion by providing small savings
account and enabling high volume low value transactions in deposits and payments. The idea of
payment banks is being touted as the game changer akin to Narsimha Raos governments decision
to issue licenses to private banks two decades ago.

Active Payment Banks:

Sr No Bank Name Interest on deposits Maximum Deposit

1 Airtel Payments Bank 7.25% 100000
2 Paytm Payments Bank 4% 100000
3 India Post Payments Bank 5.5% 100000
4 FINO Payments Bank 4% 100000

The payment market in India is estimated at $15.5 trillion. As estimated by Bank of America Merrill
Lynch, the mobile banking share may rise to as high as 10% in 7 years from the current 0.1%.

Opportunities

Bridging the demand supply gap using last mile connectivity to your advantage
With more than 1 bn mobile phone users, digital transactions are to skyrocket
Complements Jan Dhan and Aadhar linking for greater reach
Greater efficiency and transparency as compared to cash transaction
Savings due to lower transaction costs
Increase in velocity of money
75% SLR requirement will lead to freeing up of money for economic lending
Revival of dormant accounts

Challenges

Restrictions on lending will need high volume of transactions to be profitable(3-5 years payback)
UPI, a new initiative by GoI is believed to change the way money market functions
Spreading awareness about financial literacy is a challenge and at least 25% physical access point are
required
As per 2014 FII survey, 82% adults prefer cash for small to medium transactions, indicating the psychological
inertia about cashless payments

SFBs on the other hand primarily undertake basic banking activities including acceptance of deposits
and lending credit to unserved and underserved sections.
Opportunities Challenges

Relationship banking and small capital of High cost of transformation

SFBs promote the lending to small
borrowers
Diversification to create whole range of
products
Lower operational expenses and cost
structure and high productivity
Market is hugely under penetrated and
opportunity is up to 40% of bank market
Cost of bulk deposits is margin dilutive,
sticky asset pricing will help to offset margin
High cost of deposit mobilization due to low deposit
sizes
Geographically concentrated so vulnerable to systemic
risk(weather, crop prices, etc)
Governing problems with awaiting regulatory clarity
on branches
SFBs to extend 75% of ANBCs to PSL 15% CAR, 15%
CRR and 22% SLR are added capital presssures
Restructuring of a nonbanking entity(lending) into a
banking firm(push products) will be challenging on HR
and technology front
 ANTARIKSHA GANGULY
PGP/20/263
CBM ASSIGNMENT II

2. The banks of the futurein terms of workplace, complexity in the future, project
management, security, technology, external service provider, external employee, employees,
clients, added values:

Banking is a rapidly changing industry and one of the most recent shifts has been the rise of digital
only banks. Digitization promises to automate and improve many banking processes. It has the
capability to turn the customer journey into a highly personalized one.

The major drivers of the change

in banking, some have likened it
to the fourth industrial
revolution, will include the rise
of millennials with their
different habits with the rise of
mobile internet, tighter
regulations in light of newer
crises and increased
competition due to
democratisation of finance
sector.

According to Taavet Hinrikus for

World economic forum,
consumers expect a major shift
in their own behaviour as per
YouGov research and industry would look very different (See illustration above).

The most significant result will be the democratisation of finance from its currently bundled form of
banking model. To achieve a digital business transformation, the bank of the future will abandon its
traditional focus on siloed products and services and completely refocus on the customer experience
with a next-generation technology
foundation.

Systems of Engagement

Automated and digitized processes for

lower turnaround and costs
Agile development to deliver capabilities
previously unthought-of
Highly secure systems with strong
biometric and encryption tech
Customer centric data with huge role
played by analytics
Employee less banks(started by BoA in
Charlotte N.C.) will be commonplace
More customer friendly models like Bank
Cafes will proliferate
Tech firms will dominate platform layer

KPMG Report Oct 2016 Meet EVA