Financial sector contributes approximately 6% of the GDP in India. It is dominated majorly by banking services which is one of the prominent and rapidly growing sectors in India. It contributes and about two million people.
Let us have a look on how this sector has evolved over time and the current trends shaping it.
Major events in the banking history
Post-independence of India, 2 major events shaped the banking sector: nationalization of banks and liberalisation of economy.
Nationalisation of banks in 1960s, during which 14 banks were nationalized (In 1980, again 6 banks were nationalized). The stated objective behind taking the ownership of banks was to facilitate expansion of banking services and make credit available to priority sectors.
Liberalisation in early 1990s, opened the door of a new era in Indian banking sector, with licensing of private banks. They brought technology based customer centric approach to the banking sector.
The banking sector undergone massive changes in operation and offered services in past two decades. Along with scheduled and non-schedule commercial banks, currently we are seeing an advent of differentiated banking. Payment banks and small finance banks are the latest examples of differentiated banking as they offer with customized products for their specified target customers.
Digitalization of services has also continuously improvising, making banking easier and accessible for everyone. Currently artificial intelligence is also being introduced with some banks offering chatbot services to enrich customer experience. It also helps in decreasing operating costs for the banks.
To sustain and grow in a competitive environment, banks are consolidating their operations and preferring a leaner structure. The current merger of SBI and its associate banks was a major step towards it.
In November 2016, government of India announced demonetization of Rs. 500 and Rs. 1000 currency notes which had a prominent impact of banking sector.
Initiatives to boost the sector
The government has time and again taken initiatives to strengthen the banking sector in India, which is a pre-requisite of a stable and growing economy. Some of the prominent initiatives are listed below:
Challenges faced by the Industry
The major challenge faced by Banking sector currently is the deterioration in asset quality with an Non Performing Assets increasing continuously. Also, along with digitalization customer data security is a constant challenge, in view of constant threats of information security breaches.
The Banking Sector has undergone a lot of changes in terms of technology, regulation, focus and offered products. However, the industry needs to overcome its challenges in order increase its reach and accessibility for the benefit of a larger population base