The Islamic banking system, where neither the borrowers nor depositors are paid or pay any interest, is set to launch in India. It will completely function under the tenets of sharia law, where the bank doesn’t charge interest but the customers share a part of profit or loss of the bank. The idea is to encourage the economic and social development of the region the bank is based in.
As the 'India stack' becomes mainstream, what will banking look like in the future?
Even with over 40 Acts directly or indirectly pertaining to pertaining to insolvency and bankruptcy, banks in India are still under tremendous pressure due to rising non-performing assets (NPAs). Multiple agencies are involved in handling these situations, with overlapping jurisdictions that creates complexities and delays.
For nearly 30 years, India’s double taxation avoidance agreement (DTAA) with Mauritius came in handy for investors to route money through ‘shell’ companies based out of the island nation. These investors saved on capital gains tax liabilities in Mauritius which does not impose these taxes on off-shore entities. A similar treaty exists with Singapore. As a consequence, India receives half of its FDI from just two countries: Mauritius (34%) and Singapore (16%).
Blockchain is a distributed, immutable ledger that records transactions using digital tokens. Its distributed architecture is much like P2P services such as Skype and bittorrent and it uses public key cryptography to ensure complete security for users. The immutability of entries on the blockchain is a key design feature that makes it particularly attractive to industries that lean heavily on trustworthy records, such as banks. But is India ready?
India’s banking regulator, the Reserve Bank of India (RBI), recently released a consultation paper on P2P lending in India. This paper aims at regulating India’s fledgling P2P ecosystem, demonstrating that the RBI is positively besieged with the concerns and realities of this nascent industry.
For several years the Indian Government has been pushing larger Public Sector Banks (PSBs) to consolidate the market by acquiring smaller and weaker banks. After failing several times in the past, it seems at least the merger of India's largest bank with its five associate banks will be finalised during this fiscal year.
Capital Small Finance Bank (SFB) was launched this Sunday (April 24, 2016) with much fanfare. This is the first of the ten small finance banks to become operational. The SFBs had received in principle approval from RBI last fiscal to start operations.
And these are not Fintech startups alone. The banking sector is trying to woo this very important and growing ecosystem in the country. Some banks have resorted to novel ways of doing so. RBL (Ratnakar Bank Limited) has announced opening of a branch in Bengaluru dedicated exclusively to cater to the growing startup ecosystem in that city. This comes close on the heels of SBI recently announcing the establishment of its branch called InCube in Bengaluru recently. RBL bank plans to launch several such branches across the country in the future.
It is well understood that India continues to have acute challenges around financial inclusion. Only 40 per cent of the adults in the country have formal bank accounts, despite the country having 150 domestic commercial banks and over 2,700 co-operative sector banks operating in the country.
Recently DCB Bank became the first bank in India to introduce Aadhar based authentication at its ATMs, starting with its branch in India’s commercial hub- Mumbai. Aadhar provides a 12 digit number to every Indian resident that serves as a proof of identity as well as proof of residence, with biometric scanners being used for authentication.
NPAs (non-performing assets) as a percentage of total banking credit in the Indian banking industry has increased to nearly 5% in 2015. This has essentially come from the public sector (state owned) banks (PSBs). 90% of the NPAs in the Indian banking industry are attributable to these banks.
Finance Minister Arun Jaitley presented the Union Budget for 2016-17 and while India’s high economic growth rate of 7.6% was a bright spot, banking related allocations grabbed the most attention.