From past till now the banking sector in India is primarily dominated by scheduled commercial banks and cooperatives banks whose primary role is to accept deposits and lend money. Even though we have numerous banks, the truth is that every 1 in 3 adults in India have no access to banking services. So the banking industry still has a lot of potential for growth in our country, if we imagine so many crores of people in the country without banking services it means that there is so much untapped business in the market.
But in today’s modern environment, banks face competition from technology companies and others who will use modern telephony to do payments. These companies are bringing in a new business strategy. And moreover for any economy the banking sector is a backbone and its success depends on it especially for country like India.
So with the prime motto of increasing financial inclusion and making Indian banking sector more advance the RBI has issued different banking licenses.These include payment banks and small finance bank. The RBI in past gave 11 entities status of payment bank and other 10 entities of small finance bank. Apart from this two universal banking licenses were issued last year i.e. in 2014 by RBI, namely IDFC and BANDHAN completing this list to the total of 23 banking licenses.
To support financial inclusion, the government of India has launched the “Pradhan Mantri Jan Dhan Yojana” (PMJDY) to ensure a bank account for every household which will offer accidental insurance cover of Rs.1 lakh as well as life insurance cover of Rs.30,000 . Along with this it will provide RuPay debit card and Rs 5000 overdraft.
All this will lead to competition among existing players and with the new ones resulting into better business models, product innovation, cost efficient structure, greater access to credit, more focus on customer service and reduced industry concentration. And for people especially in rural and semi-urban areas, this will bring them into digital economy i.e. send money, buy goods and services, through the internet etc. making people less dependent on cash, even for small sums.
This blog is written by Yash Gupta, MBA FP student, ICoFP Delhi Campus