India: everything to play for

Opportunities for transaction banking in India evolve depend largely on two main factors; these being the country’s macroeconomic indicators and the changes in policy effected by the government of Narendra Modi since it took office in May 2014. Deutsche Bank and its global peers have observed positive trends and sentiments emerging from both aspects, which are likely to favour our business.

On the macroeconomic front, the opportunities for India as a destination for growth and investment are abundant. With national gross domestic product (GDP) expected to grow by 7% to 7.5% in 2016 and low consumer price index (CPI) inflation, India appears to be a ‘sweet-spot’ amongst emerging economies. The country’s central bank, the Reserve Bank of India (RBI) has also embarked on a journey to reduce interest rates, which is likely to enhance the take-up of credit and economic activity nationally.

On the policy front, while the promised ‘Big Bang’ reforms are still awaited and were mostly absent from the March 2015 budget, the new government has already taken positive steps to lift sentiments. Initiatives such as the announcement in August of 98 locations – including 24 state capitals – to be developed as ‘smart cities’; the national ‘Make in India’ programme that aims to develop the country as a major global manufacturing hub; and the so-called ‘single window clearances’ to reduce government red tape for businesses and investors, are expected to result in an increased spending in infrastructure projects by the via public and/or private funding.

If the socio-political environment allows for structural reforms to take shape in next six to 12 months, India can be expected to attract over US$1 trillion of investment over the next five years. Sectors including railways, insurance, defence, ports, housing and renewable energy should attract the largest share of capital inflow. The Indian government has already received investment commitments totalling more than US$100bn from a number of multinational companies.

A cashless society and financial inclusion

The measures outlined above, coupled with the RBI’s initiatives to make India’s banking systems more efficient and infrastructure investment more widespread, promise to lay the foundation for unhindered growth in the future. RBI is spearheading the project of electronification for payment systems, greater harmonisation of credit and lending practices, and improved financial inclusion for the general population.

Both the public and private sectors are working towards a ‘cashless’ economy. RBI has also issued 11 licences to non-banking entities in sectors such as telecoms and retail to set up payment banks, thereby further expanding the footprint of banking services in reaching the unbanked.

Financial inclusion addresses the broader objective of growth. In this area, the power of disruptive innovations is clear as it allows for banking services to cater to new client segments and markets. This is made possible by harnessing new technologies, primarily information and communication technology, more specifically mobile technology; and also by developing new business models such as the payment bank models.

India has one of the highest numbers of mobile handsets users, with extensive mobile coverage. Mobile banking products and services are at the tipping point for ushering in financial inclusion and inclusive growth. Payment systems have also proven to be an area where new ideas, products and services have been successfully introduced by RBI and the National Payments Corporation of India (NPCI). Starting with electronic transactions for real time gross settlements and national electronic funds transfer (RTGS/NEFT) – the two systems of inter-bank transfer maintained by RBI; pre-paid and post-paid Instruments; card not present (CNP) transactions; and different types of electronic wallets (e-wallets), India has been experiencing a true payment revolution.

The need for change

Today, a corporate treasurer’s dilemma is multifaceted. Treasurers are focused on security, liquidity and control. The anticipation of a high growth environment in India is highlighting a variety of issues related to the slow movement of funds, locked working capital, and the high cost of funds, reconciliation and manual processes. As a result, success in the transaction bank business hinges on the ability to provide a wide range of delivery channels to clients. Disruptive technology and innovative solutions have become the order of the day.

Cash management traditionally revolved around collections, payments and liquidity services. With the landscape changing at such a fast pace, the product-centric approach has shifted emphatically to a client-centric one. Clients are demanding sophisticated solutions from their cash management banks, which are not just based on banking technology, but an amalgamation of multiple solutions such as liquidity management, data mining and analytics tools. Banks must be nimble and able to offer integrated solutions addressing needs beyond just plain vanilla banking.

For banks to remain competitive in the ‘age of the customer’, they must accelerate the digitisation process across their business. Customers expect intuitive and personalised interfaces, as well as real-time fulfilment. Therefore, global consistency of user experiences and straight-through processing (STP) are becoming the differentiating factors, while the underlying products and services are being commoditised.

It is clear that the key to success for a bank today is to go beyond efficiency and towards intelligence by developing domain specialists using digitisation and new technology.


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