Banks will continue to be the primary drivers of India’s growth story, but the trajectory that the banks would adopt during this transition will determine how the banking landscape will look in the next decade, according to Rajeshwar Rao, Deputy Governor, Reserve Bank of India. He noted further in a speech that while we laud the fact that next-gen banking is fast becoming a reality, aided by innovations in the fintech space, we also need to continuously work to redefine the regulations and the regulatory frameworks to support these innovations and deliver on our mandate of financial stability while protecting the customers. At the same time, the innovations and collaborations need to be well thought out, risks properly analysed, and mitigation plans put in place before offering them to customers.
Rao highlighted that the recent crisis episodes in the US and Europe have brought back the question of robust and sustainable business models again to the fore. The business models of the banks have evolved depending on the roles they have played throughout the history, with the current focus being on the intermediation paradigm i.e., acceptance of deposits and credit creation. However, this approach needs to change with newer players entering the financial service space and disrupting the traditional rules of the game. In the newer paradigm, markets are likely to become the central point for intermediation where banks may become but one amongst the host of other entities interacting in the marketplace. The traditional banking business model needs to pivot to address this evolving paradigm.
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