Page 56 - Banking Finance April 2025

ARTICLE

rupted global trade flows. Further, re-election of Donald Consumer Behaviour Shifts
Trump at White House has created uncertainty in interna-
Digital payments across India saw a 12.6% YoY rise as of
tional banking and currency markets.
March 31, 2024, according to the Reserve Bank of India's
(RBI) index measuring online transaction adoption. The RBI's
The reduced tolerance of the U.S. in global trade and sanc-
Digital Payments Index (RBI-DPI) was at 445.5 as on 31st
tions policies also poses risks for Indian banks operating in-
Mar 2024, compared to 418.77 as on 30th Sep 2023 and
ternationally. Simultaneously, the emergence of BRICS as a
counterweight to Western-dominated financial systems 395.57 as on 31st Mar 2023. Indian consumers increasingly
could redefine international banking norms. India, being a prefer digital-first banking solutions in this digital age. In
significant member, faces opportunities and risks in align- 2024, over 75% of retail banking customers used mobile apps
and digital platforms for transactions, driven by convenience
ing its banking systems with BRICS-led initiatives like alter-
native payment mechanisms and reserve currencies. and government-led initiatives like Digital India. However,
meeting these expectations requires banks to balance inno-
India's Economic Survey 2023-24 tabled in Parliament, also, vation with data security and regulatory compliance.
has highlighted concerns over potential global recessionary
trends, with reduced export growth and volatility in com- Indian banks should prioritize the development of user-
modity prices posing challenges for the Indian economy. friendly and light-weight low bandwidth utilizing mobile ap-
These factors indirectly strain the banking sector through plications, AI-powered chatbots, and personalized financial
increased credit risks and reduced liquidity. services. Ensuring robust cybersecurity measures to protect
customer data is equally vital to retain trust and loyalty.
Regulatory Challenges
Cybersecurity Concerns
The banking sector is highly regulated all over world and in
India, it is the RBI which holds the baton. The regulatory With fast adoption of digital payment systems such as UPI
environment in India has become increasingly stringent, (Unified Payments Interface), UPI-Lite, Aadhaar-enabled
with new rules aimed at capital adequacy, asset quality, payment systems, QR based payments, Credit Card on QR,
corporate governance, ensuring data privacy, combating 3rd party banking apps, Account Aggregators, cybersecurity
has become a critical concern. The amount of money lost
money laundering, and promoting sustainable banking prac-
tices. Just few years back, the banking sector witnessed due to cyber fraud in India has more than doubled from Rs
draconian actions by RBI in the form of PCA (Prompt Cor- 69.68 crore in FY23 to Rs 177.05 crore in FY24. In a writ-
ten reply to the Lok Sabha, Minister of State for Finance
rective Actions) due to bad asset quality, negative RoA &
Pankaj Chaudhary said as much as Rs 177 crore was lost on
RoI etc. Further, in year 2024 itself, RBI imposed penalties account of credit, debit card and internet banking frauds
totalling Rs. 250 crore on various banks for non-compliance in the 2023-24 fiscal. Further, in a filling by the government
with anti-money laundering (AML) norms. The banking sec-
in parliament informed that the Indian banking system ex-
tor must balance its business aspirations with the compli-
ances and both should go hand in hand with no partiality
on one's part.

To navigate these challenges, Indian banks must integrate
regulatory technology (RegTech) solutions to automate
compliance and reporting processes. RegTech adoption can
streamline workflows and reduce the risk of non-compli-
ance, which could otherwise result in financial losses and
reputational damage. Frequent staff trainings in compli-
ance areas must be conducted by the banks and other stake-
holders to overcome compliance issues. Corporate Gover-
nance must be focused by the bank boards and must be
given utmost priority to settle the idea of sound governance
to the roots of the banks through top-down approach.

50 | 2025 | APRIL | BANKING FINANCE