State Bank of India (SBI) plans to spend ₹4,000 crores on enhancing its digital services by March 2016, focusing on upgrading its IT infrastructure, expanding self-service branches, and training customers in digital transactions. In contrast, private banks like HDFC and ICICI are leading in mobile banking adoption, indicating a significant gap in digital transaction shares compared to peers. Additionally, RBI is introducing prepaid payment instruments for mass transit to promote a cashless economy, reflecting the ongoing digital transformation in Indian banking.

1. Trends in banking
(Part-2)

2. SBI to spend 4,000
Crores on Digital
Services Upgrade

3. The country’s largest
lender State Bank of
India(SBI) has raised its
Information Technology
budget by a third this
Financial Year as part of its
strategy to improve its
digital offerings
SBI will spend nearly
Rs.4000 Crores before
March 2016 & significantly
upgrade its IT back-end
while also investing in new
equipment for the “250 In
Touch Lite Branches”
SBI In Touch Lite branches
will have devices for
customers to help
themselves while opening a
new account, getting a new
Debit Card,
transferring/depositing
money, planning for savings
& applying for new loans
SBI’s part of the Bank’s
expenditure is going into
setting-up the 385 Tech
Learning Centers across
the country which train
customers in Mobile &
Internet Txns every month
According to Sunil
Srivastava, Deputy
MD(Corporate Strategy &
New Business),about 69% of
SBI’s Txns are done via, the
Bank’s Alternative Channels
like ATM, Internet & Mobile
Banking
While Mobile Banking
operations are currently
focused on retail customers,
SBI intends to go a step
further & launch Corporate
Banking facilities through a
Mobile Application called
“Saral”
SBI to go ‘Digital’

4. Digital as a Service
According to Boston Consulting
Group’s(BCG) September 2014 report,
the IT spends of Indian Banks have
been rising to touch nearly 4% of their
revenue. However, most of this
spending has been to buy self-service
machines which is hardly enough for
Public Sector Banks to hold their
position
A financial service institution will always incur a very
high cost in its technology spend because for 2 main
reasons;
•To adhere to the IT Security requirements as
prescribed by the regulators(RBI/IDBRT)
•To differentiate itself from its peers in terms of txn
being given effect to accurately & instantaneously
The share of txns through alternative
channels at SBI is lower than private
sector peers such as HDFC Bank
where about 85% of the txns happen
through Non-branch channels with
Mobile & Internet banking
contributing about 55% of total txns
according to June 10th 2015 report by
Citi Research
SBI has clarified that the emergence of alternative
channels does not mean that the bank will reduce
focus on traditional branches .The Bank will
continue to manage & expand its 16,000 strong
branch network to offer Banking Services to
customers who may prefer face-to-face
interaction in dealing with a Bank. As of 31
March 2015,SBI had 16,333 branches across
India(an increase of 464 branches since the same
period a year ago).The rate of expansion has
slowed down considerably .For the year ended
March 2014,SBI had added 1,053 new branches

5. Digital as a Service
In an interview last month,
Aditya Puri, MD & CEO of
HDFC Bank had noted that more
than half the bank’s customer
acquisition is likely to move to
the digital side even as the other
half may continue to prefer
brick-and-mortar branches to
open their accounts
To capture the increased preference for Mobile
Txns private sector banks such as HDFC Bank,
ICICI Bank, Axis Bank & Kotak Mahindra
Bank have all launched Multiple Digital
Payment Solutions including Mobile
Applications & Payments through Social Media
Applications
SBI is also expanding its network of
Point-of-Sale(PoS)terminals to
1 million within next 3 years
from about 2,20,000 such terminals
currently as a way to encourage the use of
Debit & Credit Card Txns
SBI might have been slow in
adopting technology when
compared to other small
organization but its ability to fund
innovation in future is far higher
than competition

6. Union Bank to open
100 Digital branches
in 2015

7. Arun Tiwari,CMD(Union Bank of India) believes
that digital will be among the top 3 differentiators
with for the bank. He says transformation to a
digital bank began with him when the bank had
done away with the piles of files on his desk &
replaced it with a tablet. Now worth a single click,
he can keep tab of what is happening in a bank
branch thousands of kilometers away. Union Bank
of India is planning to launch 100 digital branches
in 2015.The bank has a strong technology back-
end to take this project forward
Apart from Digital Branches, the bank will soon
be launching NFC(Near Field
Communication)enabled contactless Debit Cards.
This facility allows customers to just tap their
Debit Card on Pont-of-Sale terminals instead of
swiping them. Other banks like ICICI,SBI &
Axis Bank have already launched NFC Cards.
The Bank also plans to launch Mobile Wallets
that will allow customers to view their accounts
online, transfer funds based on e-mail ID/Mobile
Number, open SB Accounts online etc
The Bank has already launched M-Passbook as
initiative to go digital
On the wallet front, Bank is looking at tying
up with mobile wallet player-PayTm to
allow its user to top-up their wallet from
any Union Bank of India ATM’s. Currently,
these top-up facilities are only available on
Bank’s net banking & Debit/Credit Card
gateways. Along with increasing offerings
for customers on the digital front, bank is
also looking at tying up with online retailer
Flipkart to roll-out its M-POS solution for
customers ordering their product through
Cash on Delivery(CoD)
Union Bank of India is looking at the digital
medium not only to provide more
convenience to customers & reduce its cost
but lso to provide additional security while
transacting.
Ex: The bank will soon be allowing
customers to block/unblock their
Debit/Credit Card on their own.Also
customers can also set limits for Cash
Withdrawals, POS & E-Commerce
transactions on their own

8. Digital Effect
Currently,59% of the Union bank of India’s txns
take place on digital platform. Till last year the
number was around 63% but has come down due
to increase in the total number of accounts
opened under Pradhan Mantri Jan Dhan Yojana
Scheme. According to RBI data for Union Bank-
At the end of April 2015 Rs.118 Crores were
carried out on the mobile platform. In 2014 the
number stood at Rs.26 Crores
Digital medium brings cost-
effectiveness for a bank .A
transaction at the brick-and-mortar
branch costs anywhere between
Rs.55-60 whereas transaction through
online costs about Rs.15-17 & on
mobile it is very less with just Rs.2-3
SBI has tied-up with the following online
retailers;
Snapdeal to roll out a capital assistance
programme for sellers using the online retailers
platform
PayPal to help international trade
Amazon.com-SBI has signed a memorandum
of understanding to develop a payment solution
for customers & sellers
MakeMyTrip
ICICI Bank has tie-up with Alibaba.com
With this Indian entrepreneurs who are a
part of the online portal will get a whole
host of Banking facility from ICICI Bank
According to PwC report, the e-commerce market
in India will touch $22 billion by the end of
2015.With this in view banks are clearly seeing
lending to small & medium enterprises in the
online space as a growing opportunity

9. RBI introduces New Category of Prepaid
Payment Instruments for Mobility Cards

10. The Prepaid Payment
Instruments(PPI’s)will be
issued by the mass transit
operators(such as
Metro/Road Transport)
The main idea to launch
these type of Cards is to
gradually move towards a
Cashless Economy. One
such area where a large
number of small value cash
payments take place relate
to mass transit system
These prepaid Cards can also be
used at other merchants as long as
the activity is limited to transit. The
cards have a minimum validity of 6
months from the date of issue. The
maximum amount that can be
loaded onto this card is
Rs.2000.This is a re-loadable Card
The user of this card will not
be allowed any cash-out
facility or refund on the
cards.RBI has not laid down
any mandatory KYC norms
for issuing such cards but has
suggested that issuer can
conduct KYC procedure on
their own
RBI has issued
Draft guidelines on
Mobility Cards that
will allow people to
travel without Cash
in metros, buses &
taxis

11. HDFC Bank has the highest Mobile Banking share
(Report by BNP Paribas Securities India Pvt Ltd)

12. HDFC Bank Ltd has emerged as
the leader in mobile banking with
38.2% market share
in FY15 followed by ICICI Bank
Ltd(according to data compiled by
BNP Paribas Securities India Pvt
Ltd)
Most of the state-run banks
which account for more than
70% of the banking assets in
the country are clear laggards
in this segment with just 17%
share in total mobile
transaction value
With urban customers &
those below 35 years of
age clearly preferring
mobile banking –market
leaders like
HDFC,ICICI stand a
better chance of
becoming their primary
bank. Lenders who win
the battle in this space
will be able to bolster
their low-cost base (like
Savings Account &
Current Account )& fees
BNP Paribas analyst points out a
significant mismatch
between the market share of
savings account & mobile
banking. For instance in FY15
even as SBI beats HDFC Bank
with the savings account market
share of 39.3% compared with the
latter’s 9.5% but the mobile
banking market share of
HDFC Bank at 38.2% is much
higher than SBI’s 12.9%
Given the clear preference
towards mobile banking the
mismatch could result in
potential loss in the
market share of savings
accounts for these banks
sooner rather than later-
according to the report.
Also all government –run
banks except SBI & Union
Bank of India are yet to
catch-up on the digital
banking side –BNP Paribas
said in its Digital Banking
report

13. Tamil Nadu, Kerala States
lead surge in Financial
Inclusion

14. Five States/Union Territories drove a surge in India’s Financial Inclusion index
which improved to 50.1(of a possible 100)at the end of 2013
As many as 45 of India’s top 50
districts that offer affordable, formal
financial services are in 4 south
Indian States with 30 in Tamil
Nadu & Kerala-according to
CRISIL Inclusix, a measure of financial
inclusion
The top 5 States/Union Territories
are;
(1)Puducherry
(2)Kerala
(3)Tamil Nadu
(4)Goa
(5)Chandigarh
These States drove a surge in India’s Financial
Inclusion index which improved to 50.1(of a possible
100)at the end of 2013 from 42.8 at the end of 2012
The index does not take into account the Prime
Minister’s Jan Dhan Yojana (People’s Wealth
Scheme).With over 149 million new bank accounts
opened since August 2014-the index will likely be
boosted further in 2015
Financial Inclusion is defined as “the extent of access
by all sections of society to formal financial services
such as credit, deposit, insurance & pension services
(as defined by CRISIL-Mumbai based ratings agency)
CRISIL’s Inclusix is a relative index that combines
three parameters of basic financial services;
-Branch Penetration
-Deposit Penetration
-Credit Penetration
A score of 100 indicates the ideal state for each of the
three parameters
CRISIL has included District-Wise data from
microfinance institutions(MFI’s)to calculate the index
for the first time covering 653 districts in 35 States &
Union Territories

15. •As many as 117 million Savings Bank accounts were opened in the financial year
2013(almost 50% more than the 79 million that opened in the previous year).The total operative bank
accounts in India at the end of 2013 were 820 million as against 703 million in 2012(an increase of
17%-the fastest growth in four years
•Growth in credit accounts declined due to a reduction in small-borrower accounts to 102 million in 2013
from 109 million in 2012.The decline was primarily observed in 5 metro districts;
Delhi
Kolkata
Mumbai
Suburban
Bangalore Urban

16. With an increase of 40% in bank credit accounts, the northern state of
Jammu & Kashmir saw its Inclusix score improve to
45.2.The State also saw High Deposit & Branch scores of 61.6 &
56.3
Micro-Finance Institutions(MFI’s)
The presence of a large number
of MFI’s including the largest
Micro-finance Institution in India
‘Bandhan Financial Services’
(that has already obtained
Banking license & soon be
operational from October 2015)
saw West Bengal improve its
Inclusix score to 46.6
The presence of MFI’s also saw
the North-East improve its
Inclusix score to 39.7
Of the 107 districts in South
India,104 have an Inclusix score
more than the all-India average
9 districts hit the
maximum Inclusix score
of 100.All are from the
South.
-Six districts are from Kerala
State(Pathanamthitta,Alappuzha,
Ernakulam,Kottayam,Thiruvanan
thapuram,Thrissur)
-Two are from Puducherry
State(Karaikal & Mahe)
-One district from Tamil
Nadu(Coimbatore)
The limited presence of MFI’s in
States like Uttar Pardesh, Bihar &
Manipur leads to a low level of credit
availability for small borrowers
The inclusix score of 50.1 shows that a
large part of India’s population does
not have access to formal Financial
Services but this is before taking into
account the boost from ‘Jan Dhan
Yojana’
Financial Inclusion will improve from
various policy steps taken by the govt,
one being ‘Pradhan Mantri Jan Dhan
Yojana’ which has not been factored in
this edition of Inclusix.Under ‘Jan
Dhan Yojana’ more than 140
million new Savings Bank
Accounts have been opened .
South Leads; North-East at bottom but moves ahead

17. Parameters & Measures used by CRISIL to Measure Financial Inclusion
Parameters Measure Significance
Branch
Penetration
No. Of. branches per lakh of
population in a district
Measures the ease with which people in
a particular territory can access
Financial Services
Credit
Penetration
No. Of loan accounts per lakh of
a population in a district
Measures the extent of access to ‘loan
products’ offered in a particular territory
No. Of small-borrower loan
accounts as defined by RBI per
lakh of population in a district
(small borrowers are borrowers
with a sanctioned credit limit of
up to Rs.2 lakhs)
Measures access to credit for small
borrowers who typically face Financial
Non –Inclusion
No. Of agricultural advances per
lakh of population in a district
Measures farmer’s access to credit
Deposit
Penetration
No. Of Savings Bank Accounts
per lakh of population in a
district
Measures the extent of access to
Savings products offered by banks in a
particular territory
CRISIL Method of measurement

18. Anup George Rebello
Asst.Manager
The Catholic Syrian Bank Ltd
anuprebello.6@gmail.com
http://www.slideshare.net/anuppresentations