Digital Banking all set to change the face of banking in India!

Mobile wallets seem to be reshaping the future of digital banking. These products are becoming increasingly popular with customers who enjoy their ready accessibility as well as ease of usage. Digital Banking includes mobile banking, online banking, as well as the newly launched social media banking.

According to a report by RBI, mobile wallet banking has been on a steep rise from 8.58 million transactions in December 2013 to 23.19 million transactions in December 2014 which marks an increase of 170 per cent. The value of mobile wallet transactions increased by about 233.8 percent from the year 2013 to 2014. Similarly, NEFT and IMPS transaction also been on the rise as also has banking through digital media like Twitter and Facebook.

Pockets, launched by ICICI Bank; takes banking to another level

Recently, ICICI bank launched Pockets, which can be called a digital bank with a mobile interface. Pockets is a virtual place to store money and carry out transactions. The usage consists of downloading the App and getting your KYC details registered to create a username and password. An option of getting a no minimum balance account is also available. Pockets is powered by Visa and allows monetary transactions as well as ticket bookings, bill payment mobile recharge and expense splitting. Pockets is an extremely high-end digital banking platform that allows you to transfer and receive money through channels like bank accounts, mobile numbers, e-mail accounts, Google+, Facebook, Twitter. Chat features too are in-built so as to provide customer support. The pockets account can be used to shop online across all Indian digital shopping platforms. Also, the physical pockets card can be used to pay for your food and other related expenses.

Digital Banking is becoming a preferred option among customers

Digital Banking is becoming increasingly popular among customers. Firstly, due to the extreme convenience that it offers in today’s fast-paced life and secondly because of the host of options that are available to customers. Mobile Wallets have less security issues too since the amount stored in the wallet is the only amount that is at risk as against bank accounts which carry customers’ total account balance. Technological advancements in the banking industry are paving way for a better and more convenient banking experience. Competition among banking players ensures that private as well as public sector banks pick up in terms of technical upgrade and provide users with the best possible financial solutions. Rural Banking too is set to benefit from this since technological advancements will ensure that even customers from rural areas are included in this chain of growth and innovation.

With a huge percentage of Indian population being the youth, connect with them is the primary goal for all banking institutions. This is where Mobile banking and internet banking play a crucial role. Digital Banking requires continuous and steady innovations in technology architecture, user interface as well as security. IT spends for almost all banks has been on the rise and mobile phones are supposed to be the primary banking channel in the coming years.

RBI advises banks to review base rate quarterly

Rakesh is a salaried individual who is looking forward to a personal loan. Though he has his documents ready, he is waiting for a rate cut so that he can borrow at a cheaper rate of interest. He keeps on checking the bank’s website to see if the interest rates have been revised after RBI announced a rate cut. But two weeks after, he is still waiting to see any change in the bank’s rates.

For many borrowers like Rakesh, life got a little easier with RBI directing quarterly review of rate cuts at banks’ end.

The Reserve Bank of India (RBI) on January 19 said banks must review their base rate, or the minimum rate at which they lend, every quarter.

The Central Bank cut the repo rate by 0.25 percentage basis points, the first reduction in one and half years, to boost credit and economic growth. The new base rate norms come into effect from February 19.

This is supposed to benefit borrowers as banks would now have to pass on lower rates from RBI in shortest possible time. Earlier, banks reviewed their base rates from time to time but there was no set guideline for quarterly review of base rate.

Analysts feel that RBI could further reduce repo rate by 100 bps this year and banks could lower interest rates as the credit demand remains weak. Only two banks have announced rate cuts since the RBI announcement.

In another move, the RBI has allowed the banks flexibility to revise their methodology for calculating their base rate. The methodology may be revised every three years now instead of five years earlier. While allowing flexibility, the Central Bank has also said their methodology must be transparent and available for scrutiny.

The RBI circular also said the "banks’ change in tenor premium should not be loan class or borrower specific." Anything banks levy over the base rate is known as tenor premium. For example, if the base rate of a bank is 9 per cent and premium is 0.50 per cent for a 15-year borrowing period, then the applicable rate for customers would be 9.50 per cent.

The rate at which banks source their funds must be taken into account, but RBI said deposits which form the majority of their funds should form the rate at which they lend. It also directed that while banks are free to choose whatever method they adhere to, proper disclosure and scrutiny procedures must be followed.

The bank’s internal policy must justify the rationale behind and range for the spread in any particular category of borrower, the RBI advisory said.

These changes are supposed to reduce the lag between RBI policy and its implementation and ease the supply of funds to eligible borrowers. Banks would now have to declare cuts in base rate soon after the RBI announcement. This would promote transparency.

RBI’s move has brought cheer among small borrowers and SMBs who are dependent on bank credit to grow their business.