I just returned from my annual trip to visit partners and customers in India. In one year I could see quite a difference in the infrastructure developments, but also how the pace has picked up in developing new banking services. The economy is expanding rapidly on an annual basis (8.9% in 2010), and growth is exceeded only by the economic powerhouse of China. Much of India’s banking system has been through a recent automation spree, but the pace of growth and demand for new banking services has been stretching the country’s banks, especially the state banks that currently cover large percentages of the existing banked population. But some estimates indicate that up to 60% of India’s population remains unbanked.
A prevalent theme in all the emerging banking markets is “financial inclusion;” providing low cost, accessible banking services to low income groups, typically at or below the poverty line in each country. In India, financial inclusion has been a pressing national policy issue of the central bank, the Reserve Bank of India. A 2006 report exhorted the nation’s banks to offer such banking services, but many of these people groups are in rural areas where a lack of infrastructure and the cost of service provision make development of physical banking centers an unrealistic proposition. But that might be about to change.
For the first time in years the Reserve Bank of India seems set to grant some new banking licenses to commercial enterprises. In addition to more mainstream banking services, organizations applying for a license must submit plans for addressing financial inclusion. Clearly, efficient and innovative use of technology will be a cornerstone of any strategy to overcome the cost issues of rural banking, including the cloud and mobile phone technologies to deliver ‘branchless banking.’ With up to seven new banks being created, the existing commercial and state banks have a small window of opportunity to accelerate solution development before the newly licensed banks enter the space with the advantage of deploying state of the art banking infrastructure.
The race to financial inclusion will be a significant challenge for all the banks, but at the same time an incredible opportunity to change the future of banking. As someone focused on innovative banking and payments solutions, it’s an exciting time for the industry.