Page 40 - Banking Finance February 2024

ARTICLE

Workflow Optimization: AI can analyze and optimize capabilities on blockchain platforms, automating the
internal processes, identifying areas for improvement execution of predefined contractual conditions without
and streamlining operations. the need for intermediaries.
Fraud Prevention: AI algorithms can analyze blockchain
5. Data Analytics and Insights: transactions to identify suspicious activities and enhance

Big Data Analysis: Banks can leverage AI to analyze the security of cryptocurrency transactions.
vast amounts of structured and unstructured data,
gaining valuable insights into customer behavior, 8. Digital Transformation:
preferences, and market trends. Predictive Maintenance: AI assists in predicting and
preventing system failures, ensuring the smooth
Predictive Analytics: AI models can predict future
financial trends, helping banks make informed decisions operation of digital banking platforms.
about investments, product development, and Voice and Image Recognition: Banks are incorporating
marketing strategies. AI-driven voice and image recognition technologies for
secure and convenient customer authentication.
6. Regulatory Compliance:
In summary, AI is playing a pivotal role in reshaping the
Automated Compliance Monitoring: AI helps banks banking industry by improving customer experiences,
stay compliant with ever-changing regulations by enhancing security measures, optimizing operations, and
automating the monitoring of regulatory changes and providing valuable insights for informed decision-making.
ensuring adherence to compliance standards. This transformation is likely to continue as technology
advances and financial institutions increasingly adopt AI
7. Blockchain and Cryptocurrencies: solutions to stay competitive and meet evolving customer
Smart Contracts: AI can enhance smart contract expectations.

Banking system liquidity deficit at record high of Rs. 3.4 lakh crore
The liquidity in the banking system has turned deficit to a record high of Rs 3.4 lakh crore on Wednesday due to moderation
in government spending, higher tax outflows and slower bank deposit growth. Analysts expect the Reserve Bank of India
(RBI) to announce permanent liquidity measures such as open market operations (OMO) purchases to ease liquidity deficit
conditions in the banking system rather than variable repo rate auctions (VRR) to infuse temporary liquidity.
“The primary reason for this (liquidity deficit) is that the government is not spending much. Also, this week is when the
goods and services tax (GST) outflow happens,” said a treasury head of a private sector bank. Banking system liquidity, as
reflected by the amount of money injected by the RBI into the banking system, has been in deficit mode since last month
after advance tax and goods and services tax (GST) payments. On a net basis, the RBI has injected liquidity averaging Rs
1.8 trillion between December 16, 2023 and January 14, 2024.
Higher outflows from foreign portfolio investors (FPIs) have also led to the widening of banking system liquidity, analysts
said. So far in the current month, FPIs have pulled out Rs 19,308 crore of local shares on a net basis in January so far,
according to data from National Securities Depository Ltd (NSDL). According to Madan Sabnavis, Chief Economist, Bank
of Baroda, the liquidity tightness is a case of deposits rising at a slower pace compared to the growth in credit.
In the fortnight ended December 29, the bank deposits grew by 13 per cent on a year-on-year (y-o-y) basis, while credit
grew by 20 per cent, the latest RBI data showed. The growth includes the impact of the merger of HDFC with HDFC
Bank. A large amount of retail deposits migrating to mutual funds has also resulted in a slower growth in deposits, Sabnavis
said. The RBI has been conducting VRR auctions to infuse liquidity into the banking system. Between December 16 and
January 14, it conducted five variable rate repo (VRR) auctions of 2-7 days maturity and a main operation (13 days)
amounting to Rs 1.75 lakh crore. On January 24, the RBI announced a 15-day VRR worth Rs 2.5 lakh crore.

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