The document provides an overview of the banking, financial services and insurance (BFSI) sector in India. It discusses that BFSI comprises commercial banks, insurance companies, banking financial companies, cooperatives, pensions funds and other smaller financial entities. It also notes that the banking part of BFSI includes core banking, retail, corporate, investment and cards services, while financial services include broking, payment gateways and mutual funds. Insurance covers life and general insurance. The term BFSI is commonly used by IT and BPO companies that manage data processing and software development for the banking and financial sector.

2. OVERVIEW AND STRUCTURE OF SECTOR
Banking, financial services and insurance (BFSI) is an industry
term for companies that provide a range of such financial
services. This includes universal banks that provide a range of
services or companies that operate in one or more of these
sectors. BFSI comprises commercial banks, insurance
banking financial companies, cooperatives, pensions
funds and other smaller financial entities.
The Banking part of BFSI may include core banking, retail,
corporate, investment and cards. Financial services may include
broking, payment gateways, mutual funds. Insurance covers
insurance and general insurance.
This term is commonly used by information technology (IT),
information technology enabled services (ITES), business process
outsourcing (BPO) companies and technical/professional services
that manage data processing, application testing and software

3. Structure of the Indian Financial System

4. Porter’s 5 Forces Model
Competition in the Industry
Banking industry is a highly competitive one. Most of the people who need banking services already have
accounts in not one, but multiple banks. Banks try to lure existing or new customers by giving better
facilities in terms of more interest rate when depositing, less interest rate when taking a loan, better
customer services and experience. As is the norm in the banking industry of mergers and acquisitions,
recently the Government of India merged many different PSBs (Public Sector Bank), in order to increase
their financial capabilities and to have a global presence in terms of business.
Potential of new entrants into the industry
As per the latest list of RBI, there are 155 banks operating on Indian soil. Of these some are private sector,
local area banks, small finance banks, public sector banks, financial institutions, regional rural banks,
foreign banks having presence in India and the latest category of Payments Bank. Many of these public
sector banks were merged and their number were reduced from 20 to 12. The major bottleneck for new
banks is the trust the customers have in their existing banks, as they deal with the hard earned money and
people are generally apprehensive in experimenting with a new bank. The banking industry has also
recently evolved from money lending or depositing facility to managing the mutual funds, fixed deposits
etc.

5. Power of Supplier
Capital is the primary resource of any bank and there are four major suppliers (various other suppliers [like fees]
contribute to a lesser degree) of capital in the industry. 1. Customer deposits. 2. Mortgages and loans. 3.
Mortgage-based securities. 4. Loans from other financial institutions. While utilizing these four major suppliers,
the bank needs to ensure that they have the necessary resources required to service their customers' borrowing
needs while maintaining enough capital to meet withdrawal expectations. The power of the supplier is largely
market dependent and can vary from medium to high.
Power of Customer
The end customer can be an individual or a firm. They don’t directly pose as a threat to the whole banking
industry, but a low switching cost between banks can be a major concern to the banking players. Different banks
will try to persuade customers to shift business with their banks and in this scenario, the cost of switching can
become one major factor for their decision. A relatively low cost of changing with better options might force the
individual to switch banks, similarly a high cost of changing can act as a deterrent. The recent internet oriented
banking facilities has reduced this barrier to a large extent and it is very convenient both cost and time wise to
switch between banks.
Threat of Substitute Products
There is major competition between Public sector and Private sector banks. While usually private banks provide
better facility and customer experience, the public sector banks help in enforcing the trust with which they keep
their money in the banks, by providing more stability because of their backing by government. The industry does
not suffer any real threat of substitutes as far as deposits or withdrawals, however insurances, mutual funds, and
fixed income securities are some of the many banking services that are also offered by non-banking companies.

6. PESTEL ANALYSIS
• Political Factors Affecting the Banking Sector
• Political influence has a great role in the banking and financial services. Banks used to have great
influence and power. But the government has launched a high level of regulations to scrutinize the financial
institutions. It is because they acquire a great amount of savings of the public. Therefore, banks should obey
the laws of the state.
• Critics and the financial analysts say that unnecessary government involvement is not good for the
performance of banks. On the other hand, local and federal government has always been involved in the
affairs of the banks like forever.

7. Economic Factors Affecting the Banking Industry
• Banks and economy of the country have interrelated relations with each other. A healthy
economy of the country is good for the financial and banking industry, vice versa. Local or
foreign investments are also good for the economy because it would create many job
opportunities.
• In the case of a mixed economy; where the governments and corporations collaborate to
raise funds. But in the 21st century, banks play a very important role in providing loans to
businesses and companies.

8. Social Factors Affecting the Banking Sector
• As we know the socio-cultural factors have a great impact on the financial industry. The
Changing preferences and choices of the people would make businesses and banks to
change their planning and brand strategies. If we look at the attitude and behavior of the
people in a certain demographic, then you would see that it has changed a lot in recent
times. For instance, millennials (people from the 80s and 90s) tend to use debit/credit
cards for transactions. Their businesses would prefer to contact for financial assistance and
guidance.
Many things have changed and transformed in the 21st century. Like the millennials prefer
convenience and customer service. That’s why you’d see that banks offer a variety of packages
and offers to their customers. That’s how the whole picture of the banking sector is changed in
the 21st century, where customer satisfaction and orientation have become a major focus.

9. Technological Factors Affecting the Banking Industry
The technological revolution of the 21st century has brought online banking. Now, almost all
financial transactions are carried out through online banking. Not only transactions, but customers
can also choose and avail various banking services like insurance, cards, and loans through
online. Technology and online banking has made the services much easier for the customers’
reach. Every bank has a mobile application, which you can use it either to transfer funds or pay
your bills.
Online banking and technological development have raised some serious issues like privacy,
security, trust, and confidentiality. Personal data has become more fragile than ever before in
history. If you know the user name and password of someone, then you can transfer all of their
money. Double security and checking systems have reduced the risks to a great extent.

10. Environmental Factors Affecting the Banking Industry
Factors like eco-friendly and sustainability have become a matter of great
significance for the business industry as well. Some banks are also investing a great
capital in the development of renewable energy sources. Many banks have taken
the step of going without paper transaction, and solar ATMs with rechargeable
lithium-polymer battery.
The purpose is to clean the environment, and more efficient use of energy. Some of
the banks now publish their annual report in the soft form. It also conveys a good
brand images, because it reduces the population in many areas.

11. Legal Factors Affecting the Banking Industry
Different countries have different laws and regulations for the banking industry, and
they impact the financial industry differently. Even though banks contribute a lot
towards employment, and they have to face the labor laws.
The US economy has many laws to control and regulate the banking sector like the
Dodd-Frank act, Glass Steagall act, Federal Reserve act of 1913, and many other
laws. The government has also introduced many other laws for the safety and
protection of customers.

12. SUB
SECTORS

13. KEY TRENDS OF BFSI SECTORS
Digitization
With the rapid growth of technology, digital services became an indispensable part of banking
operations as these institutions needed to keep up with the changes and introduce
innovations that made services convenient. In India, the initial phase of digitization began in the
1980s when information technology was used to perform basic functions like customer service,
bookkeeping, etc.
Mobile Banking
Almost a decade back, even though digital services came into the picture, it was only done
through desktop computers which means the customer must be at home or at a place with a
computer and internet connection. But the vast penetration of smartphones created a need
among customers to avail banking services on their mobile phones. Cheap data charges also
contributed towards the increase in usage of mobile banking.

14. Unified Payment Interface (UPI)
UPI is a trend that emerged in the last couple of years and it is revolutionizing the way we pay and receive
money. Transactions can be done within seconds using this interface. Goggle Pay and BHIM (Government
of India) are two major interfaces among numerous other services that enable easy payment even if you
are out of physical cash.
Artificial Intelligence (AI) Robots
Many private and nationalized banks have started to make use of chatbots or Artificial Intelligence (AI)
robots for assistance in customer support. The practice is still in its initial stage but will definitely evolve
and make the entrance to the general public in the near future. Chatbots are one of the emerging trends
that are estimated to grow.
Fintech Companies
Fintech or financial technology is indeed a disrupting force in the sector. Due to the changing landscapes
in the Indian financial sector, many companies have emerged to be a significant part of this ecosystem.
Fintech companies specialise in developing technology solutions that help companies to manage the
financial aspects of their business, like new softwares, applications, processes as well as business
models.

15. REGULATORY
BODY
The Indian banking sector is regulated by the Reserve Bank of
India Act 1934 (RBI Act) and the Banking Regulation Act 1949
(BR Act). The Reserve Bank of India (RBI), India’s central bank,
issues various guidelines, notifications and policies from time
to time to regulate the banking sector. In addition, the
Foreign Exchange Management Act 1999 (FEMA) regulates
cross-border exchange transactions by Indian entities,
including banks.
The RBI supervises and is responsible for managing the
operation of the Indian financial system. In addition to issuing
regulations and guidelines for banking operations, it also
administers the provisions of the RBI Act, the BR Act and
FEMA. It has wide discretionary powers and is authorised to
inspect and investigate the affairs of banks and to impose
penalties in the event of non-compliance.

16. GOVERNMENT INITIATIVES
NON-TAX RELATED
1. The constitution of asset reconstruction company / asset management company in the banking sector to
transfer bad and stressed loans is a thoughtful reform and would enable reduction in stress caused in banking on
account of NPAs and bad loans.
2. To further restore the confidence of retail depositors in the banking industry, an effective implementation
framework would be in place, whereby the depositors would be able to withdraw amounts up to Rs 5 lakh against
their deposits, which now stand insured under the Deposit Linked Insurance Scheme.
3. Increase in FDI limit to 74% in the insurance industry is a welcome change, where control and significant
ownership can rest with foreign JV partner/s with specific safeguards, such as the majority directors to be Indian
Residents and where 50% of the Board to comprise Independent Directors.
4. An outlay of Rs 20,000 crore has been proposed to further capitalize the public sector banks (PSBs), which would
continue to ensure improvement in the financial health of the PSBs and provide easy capital to them during the
difficult times they have been going through on the capital adequacy front.
5. Life Insurance Corporation of India to come out with an IPO is a major disinvestment decision within the BFSI
sector and a very small percentage of such a disinvestment would enable a significant cash inflow for the
government and could constitute a major portion of the modest number of Rs 1,75,000 crore of disinvestment
income budgeted.

17. TAX-RELATED
1. Investment made in Unit Linked Insurance Plans (ULIP) would now be taxable on maturity where the annual
premium or aggregate of all premiums paid by a person in respect of ULIP policies exceed Rs 250,000 in a fiscal
year. This would be applicable on policies taken on or after February 1, 2021 and further, non-concessional ULIP
policies shall be treated as ‘capital assets’ and liable to capital gains tax on maturity as ‘equity oriented funds’.
2. Royalty income received by a non-resident on account of lease of aircraft, paid by an unit in IFSC, would be exempt
from Income-tax in India.
3. Tax holiday for a period of 10 years on transfer of assets being an Aircraft or an Aircraft engine, leased by a Unit in
IFSC to a domestic company engaged in Aircraft operations.
4. Tax exemption to the investment division of a Banking Unit of a non-resident located in an IFSC. As well, tax
exemption for income earned by a non-resident on transfer of non-deliverable forward contracts entered into with
an offshore banking unit of IFSC. Plus tax neutral relocation of existing Offshore Fund to IFSC was a welcome move.
5. For FPIs, tax to be withheld at source on dividend income received from Indian companies, either at a rate as per
the DTAA or the Act, whichever is lower. Advance tax liability on dividend income to arise only after declaration of
dividend. No tax would be withheld on dividend income paid to a REIT/ InvIT by a special purpose vehicle. This
amendment is proposed to be effective retrospectively from 1 April 2020. These are again positive moves.

18. CONTRIBUTION OF BFSI SECTOR
IN ECONOMY
The banking sector is nothing less than the backbone of any economy. The Indian banking sector has
proved its true worth back home as well. This can be inferred from the valuable contribution of our banks,
both nationalised and private, for boosting up the national economy. Currently, the banking industry holds
pride in contributing nearly 7.7% to the national GDP.
IN EMPLOYEMENT
Commercial banks and more specifically public sector banks are playing an important role in employment
generation in the country. Government of India has been implementing some of its important policies for
employment generation, both in rural and urban population, with the help of banks.
For example, Prime Minister's Employment Generation Programme (PMEGP), a credit linked subsidy
program is being implemented by Ministry of Micro, Small and Medium Enterprises through Khadi and
Village Industries Commission (KVIC) at the national level and by KVIC directorates, Khadi and Village
Industries Board and District Industries Centers at the State level. It aims at generating self-employment
opportunities through establishment of micro enterprises by organizing traditional artisans and
unemployed youth. The Government subsidy under the scheme is being distri-buted to the beneficiaries/
entrepreneurs through identified banks.

19. POST COVID-19 SCENARIO
Redefined retail and corporate banking experiences
The elimination of physical banking at a branch has prompted the retail customer to seek
alternative, contactless platforms. As new touch points emerge, a close integration of all
systems would ensure customers enjoy a seamless experience with their bank.
Building an intelligent workspace and workforce
As a consequence of the pandemic, it is common for banks to reduce branches since most
customers transact remotely. This requires employees to be equally agile and drive the digital
vision of their bank. That is where the future of banking lies.
Easy access to customer data on mobiles
Before every conversation with a customer, employees would be able to access their profiles
and drive meaningful conversations.
Go paperless, integrate systems
From account opening, to servicing, adopt a paperless mechanism which automatically
requires laptops, tablets, mobiles internally. This will enable banks to create integrated
networks.

20. Smart banking
Although social distancing is a norm now, customers do prefer multiple touchpoints. This places emphasis
on the efficient use of branches, and offering smart banking as a viable option for customers who prefer a
DIY approach through smart ATMs and kiosks, rather than wait in long queues at a branch.
Leveraging external expertise
Stiff competition in financial services goes far beyond traditional competition. The ecosystem is made of
multiple stakeholders who bring unique capabilities to the table. Instead of investing resources in building
those capabilities in-house, I believe it is more efficient to engage and collaborate with third parties and
leverage their expertise. Right from working with leading companies to partnering with various start-ups,
banks can ideate and implement emerging technologies such as robotics, artificial intelligence, machine
learning, advanced analytics, cloud computing and mobility in a cost effective manner.
Developing next generation of smart governance
Succumbing to cybertheft results in major revenue and customer base loss for a bank. I believe protecting
customer information against cyberthreat is a bank’s primary duty towards its customers. A relationship is
built on trust that requires banks to have checks and balances in place to sustain credibility in the security
of information.
While cyber breaches have increased exponentially during COVID-19 as people work remotely, the work-
from-anywhere trend will be the new organisational model for many banks, making it extremely important
to raise the guard through implementation of smart governance practices. Moreover, while 50% of banks’
data is stored on cloud currently, the transition to 100% will happen over the next two years. These are
critical factors to safeguard against.

21. THANKYOU