The Future of

Indian Banking

Vasant Chintaman Joshi

Lalitagauri Kulkarni
The Future of Indian Banking
 Vasant Chintaman Joshi
Lalitagauri Kulkarni

The Future of Indian

Banking
Vasant Chintaman Joshi Lalitagauri Kulkarni
Pune, India Gokhale Institute of Politics and
Economics
Pune, India

ISBN 978-981-16-9561-2    ISBN 978-981-16-9562-9 (eBook)

https://doi.org/10.1007/978-981-16-9562-9

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We would like to dedicate this book to Mr. Joshi’s wife Sulabha
and Dr. Kulkarni’s parents who have been the guiding spirits
behind this whole effort.
 Preface

Completing this assignment of writing a book on a rather complicated

subject is one of the most arduous works undertaken by the authors. No
doubt the earlier two books also had to be completed under the publish-
er’s exacting standards but the last in the list of our committed tasks
turned out to be extremely problematic and difficult.
We began the work with a plan for meeting and interviewing the offi-
cials (past and present) of the Ministry of Finance and even the retired
governors of the Reserve Bank of India. We had as per our plan a few
meetings at Delhi and at Hyderabad. Barely had we met a few dignitaries,
when all travelling was suspended and the senior member of the team was
advised not even to leave his home because of his advancing age. Even the
planned meetings had to be canceled. In fact, some of the meetings were
canceled by others for fear possibly causing trouble to the senior member!!
The other problems arose because of not being able to go to the librar-
ies, training colleges of banks, zonal offices of banks. We must particularly
mention that the editorial team at Palgrave Macmillan persisted with the
project and encouraged us on end to carry on with the work. We are fully
aware of the effects of all such limitations. We tried and succeeded because
of the immense efforts in overcoming the difficulties. Our family members
spared no efforts to overcome the difficulties once it was clear that we
were determined to carry on the work. True it is, that it was like fighting
with one hand tied at the back.
No efforts were spared by us to adhere to the academic standards in
preparing the manuscript. The book starts with the pandemic and evalu-
ates its impact on banking and finance.

vii
viii PREFACE

Consequent to the lockdown a number of changes followed. The cus-

tomers had to use their mobile phones for their routine banking opera-
tions. Banking at any time and from wherever you might have been,
became the new normal. The customers turned to online shopping and to
mobile apps for money transfer and other operations. Credit and debit
cards became the new normal.
The role of branches underwent a major change. The hands of the
clock would not (and could not) be reversed and a new beginning had to
be made with digital banking. Therefore, thinking of a new technology for
banking operations became the prime necessity. In fact, our approach to
human resource management had to take note of work from home, and
digitized HR or even marketing. True it is that during the transition we
had to think of branch operations. But rationalization of structures, busi-
ness models, regulations, and risk management had to take note of the
greater attention paid to cyber risk and hence two chapters get devoted to
this aspect of working model for banks. A basic change in operation modes
and we had to rethink even the business models currently in vogue.
Naturally, newer layouts for banks’ branches became necessary and we had
to think of the possibility of chat bots working alongside humans in sym-
biotic harmony.
In short, a new beginning had to be made. One cannot solve today’s
problems with yesterday’s solutions. We have to open the windows, look
out and allow fresh air to blow away the old and usher in the new. This
according to us is perhaps the only way to face the future. The book is our
contribution to move in that direction.
In this endeavor our families stood by us like rocks and supported us on
end. They undertook and even now are carrying out any number of chores
connected with book writing. The book would not have seen the light of
the day without their unique guidance and untiring zeal. Thanks, and
more thanks, we are grateful to my daughter Achala, my son-in-law
Kirtikumar and my grandson son Sameer, and would like to raise the
power of the word thanks to its nth degree to convey what we feel from
within. My son Vinay and daughter-in-law Neelima too deserve equal or
greater thanks for all they had to put up with and ensure that the book
writing did not stop. God knows what troubles they had to endure and
what lengths they had to go to ensure its smooth flow on a day-to-­
day basis.
 PREFACE ix

We also owe a sense of gratitude to Dr. Kulkarni’s family for all the
disturbances we caused to their otherwise even tenor and smooth flow of
existence.
We are forever thankful to Mr. P.B. Kulkarni for his most valuable
advice and guidance throughout the course of writing of the book. We
owe special thanks to Mr. D. Tapurkar for his innumerable suggestions
and a constant flow of relevant material on diverse topics dealt with in
the book.

Pune, Maharashtra, India Vasant Chintaman Joshi

 Lalitagauri Kulkarni
 Contents

1 The Impact of the Pandemic  1

Part I   2
The Global Scenario   3
Part II   6
Measures in India   6
Part III   7
Bibliography   9

2 State of the Financial System: Strengths and Weaknesses 11

Financial System Structure  12
State of Banks’ Finances  13
Government Infusion of Capital  14
Bank Frauds: A Broad Picture  15
Debt Restructuring and Recovery: The Legal Remedies  17
Regulatory Aspects, Use of Stress Test for Soundness  20
Suggestions and Recommendations for Immediate Response  21
Critical Evaluation of Bankers  22
Conclusion  22
Bibliography  23

3 Socio-Political and Technology Aspects 25

Big Data  26
Big Data Analytics  29
Big Data Implementation: Review of Best Practices  30

xi
xii Contents

Cloud Computing  32
Artificial Intelligence (AI) and Machine Learning (ML)  33
Rise of AI in Financial Services  34
Augmented and Virtual Reality  36
Bibliography  39

4 Reimagining Banking 41
The New Normal: New Business Model for Banks  41
Open Banking  46
Digital Banking  47
Bibliography  49

5 Banking: New Frontiers 51

E-Banking Facilities for Senior Citizens  52
Bibliography  58

6 Cyber Crimes and Laws 59

The Criminals  61
Motivation for Crime  62
Cyber Crimes  62
Precautions at the Scene of Crime  65
Data Protection  65
Data Diddling  66
Data Leakage  66
Data Spying  66
The Laws  68
Bibliography  68

7 Cyber Risk Management 71

Part I  71
State of Cyber Risk  71
Part II  75
Part III  76
Current Developments  76
Part IV  77
The Regulatory Guidance  77
Basel Committee on Banking Supervision  78
Bank of England: CBEST Testing Overview  80
 Contents  xiii

Conclusion  82
Bibliography  82

8 Digital Marketing 83
Interactive Teller Machines  91
Service Terminals  91
Interactive Digital Walls  91
Bibliography  95

9 HR Digitized 97
Part I  97
Keeping Innovation Engine Running  97
Forces Driving Digitization  97
HR Challenges in Banking  98
Making the Promise Come True  98
Digital HR  99
Innovation Culture in HR 103
Conclusion 106
Part II 106
Digitized HR 106
Unlocking the Potential 111
HR Planning and Development 111
Recruitment and Selection 112
Development of Required Manpower 112
Bibliography 117

10 Risk Management119
Inadequacy of Risk Estimation Models 121
Centralized Approach Towards Risk Management 123
Conclusion 124
Bibliography 124

11 Regulation125
Regulating the Financial Systems 125
Part I: Government Borrowing 127
Part II: Reconsidering the Role of Central Banks 128
Digitalization 131
International Adequacy Standards 133
xiv Contents

Foreign Branches of Indian Banks 133

Plan for Regulators 134
RBI Independence 134
Central Bank Autonomy 135
Politics of Monetary Policy 138
Bibliography 138

Index139
 List of Figures

Fig. 1.1 COVID-19 impact. (Source: Authors) 8

Fig. 2.1 Financial system in India. (Source: Author) 16
Fig. 7.1 Cyber security framework. (Source: Cyber Security
Framework CSF) 80
Fig. 8.1 Future digital bank. (Source: Authors) 90
Fig. 8.2 Marketing plan in corporate plans 94
Fig. 9.1 Role of HR. (Source: Authors) 115

xv
 List of Tables

Table 2.1 Non-performing assets in banks 14

Table 2.2 Source: RBI website and Lok Sabha questions and answers 15
Table 2.3 Bank frauds – a broad picture 16
Table 2.4 NPA recovery 17
Table 6.1 Impact of attacks of criminal activities 64
Table 6.2 Cyber offenses 64
Table 7.1 Cyber crimes and their effects 72
Table 7.2 Incidents reported to F.C.A. UK 73
Table 7.3 External threats 74
Table 7.4 Fraud prevention and awareness 76
Table 9.1 State of HR and challenges ahead 99
Table 9.2 Traditional HR vs. digital HR 101
Table 9.3 Changes imperative in corporate goals and management 114
Table 9.4 Changes in employee mindset 115
Table 9.5 Future of work 116

xvii
 CHAPTER 1

The Impact of the Pandemic

The COVID-19 pandemic has affected virtually all the facets of our exis-
tence. In addition to the immediate medical emergency, the pandemic has
exposed and deepened disparities in income level and the availability of
health and financial services. It has also brought to light the dire harshness
of the lives of migrant laborers at the bottom of the economic pyramid.
The resultant suffering and known/unknown tragedies have certainly left
a terrible scar behind. Therefore, we feel that any discussion about what
the future of banking may hold must begin with a careful assessment of
how the pandemic has affected the banking landscape.
For analytical convenience, the chapter is divided into three parts. In
Parts I and II, we chronicle the steps taken by government agencies, com-
mercial banks, and central banks to deal with the financial emergency
caused by the pandemic. In Part III, we attempt to show how banks can
help bring about a degree of post-pandemic stability.
One is aware that not all those who have lost a job would find another.
In fact, some labor-intensive jobs would be hard to come by. Further,
recouping the losses incurred by the industry would be a matter of great
concern. One can’t forget that the economy is fragile and less innova-
tive, and therefore it would not be easy to adapt to changing
circumstances.
Further, the behavior of the economy is somewhat unpredictable. No
one really knows how long a firm facing zero revenue would be able to

© The Author(s), under exclusive license to Springer Nature 1

Singapore Pte Ltd. 2022
V. C. Joshi, L. Kulkarni, The Future of Indian Banking,
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2 V. C. JOSHI AND L. KULKARNI

survive. A merely illiquid firm can become insolvent. The banks will have
to make a heroic effort in tilting the balance toward stability and under-
take their normal functions of saving and lending.
We now start with the discussion of the efforts made by financial insti-
tutions (FIs). Basically, they are responding to and accepting the situation
as it comes. At the same time, they have to ensure that they do not waver
from the stabilization effort that they have to undertake.

Part I
The chapter very broadly indicates the difficulties and travails experienced
by financial institutions and details the steps taken to alleviate the difficul-
ties. In the analysis of various aspects of banks’ working we had to stop at
the period ending March 2019 and cover with a broad-brush happening
till March 2020. We were considerably handicapped as required particu-
lars (mainly data) were not available. Many factories were closed. A large
number of workers had gone home (to UP, Bihar, etc.). Transport was not
available to send goods or to bring in raw materials.
Estimates about the extent of disruption and the amount of losses
would have to be mere approximations. The impact of all the disturbances
would be enormous but to quantify these was well-nigh impossible.
The relief measures initiated by the government and banks would no
doubt help a large number of units in the small and medium-sized enter-
prises (S&ME) sector. But how many of them have resumed their opera-
tion or to what extent have their operating cycle is working “normally” is
hard to get at. There is a possibility of certain amount of finances being
directed to “zombie” units too. We were told that banks did have commit-
tees to examine and prune such cases.
One had also to reckon with the fact that most of the banks (public
sector and some even in the private sector) had to deal with the problems
of non-performing assets (NPA).
Some banks were barely out of the prompt corrective action blues.
They could not possibly have borne the “reconstruction” burden on their
own. They too are in need of some props as the next chapter brings out.
In suggesting a broad-based plan for the future (say, digitization of
functions or introduction of AI) we had to assume that over a period the
banks would gain the necessary strength and acquire resources to bring
about the required changes.
 1 THE IMPACT OF THE PANDEMIC 3

We are aware that banks and financial institutions have to in all likeli-
hood face a huge additional burden of “out of order” accounts and to try
and to bring them “in order”. How soon this would happen is difficult
to guess.
We are per force required to assume the beginning of a “new normal”
and start considering the developments. These are no doubt major disrup-
tions and could lead to differing time lags in reaching the new normal.
There could therefore be “jerky” journeys ahead in the implementation of
the changes suggested by us. Even perceptions at operating levels may
have an impact on the implementation of proposed changes.
One was hoping that the lull in the COVID-19 surge experienced by us
during the last couple of months would be lasting, and that the process of
revival would be underway. However, the current resurgence in the num-
ber of COVID-19 cases belies that hope. Both in the USA and in Europe
the conflict has once again assumed severe proportions and that “lock-
down” has become a “must”.
The only ray of hope is that the preventive vaccine may perhaps be
available if not within the next month (December 2020) or at least in
January 2021 and may help in the prevention of vigorous resurgence of
the pandemic from February 2021.
We could, however, take a cursory review and try undertaking an assess-
ment to review the emerging situation. One undertakes such a study with
the hope that the resurgence may not exasperate the situation at the
“beyond repair” situations. This assumes that the stoppage would not be
long-lasting.
We begin with a review of the wider global picture and against that
background study the remedial steps taken by or proposed by various gov-
ernment regulators.

The Global Scenario

We start with the summary of the conclusion presented by the International
Monetary Fund (IMF) and the World Bank.

 he Pandemic Impact
T
The global economic crisis will not be quite as grim as was projected ear-
lier but the GDP growth will touch 4.4% and the damage inflicted would
be felt for years. We quote below a letter from the director of IMF and a
blog by the chief economist at IMF, outlining their concerns about the
4 V. C. JOSHI AND L. KULKARNI

likely impact. In a letter to the director of the London School of Economics,

the managing director of the IMF made the following observations:

There is now the risk of severe economic scarring from job losses, bankrupt-
cies and disruption of education…global output may remain well below our
pre-pandemic projections over the medium term. This calamity is far from
overall, the countries now face the long ascent. The path is clouded with
extra ordinary uncertainty. Risks remain very high. These could be from ris-
ing bankruptcies and stretched valuation in financial markets. Many coun-
tries have been extremely vulnerable. The debt levels have increased because
of their fiscal response to the crisis and the heavy output and revenue losses.
(Georgieva, 2020)

 he Path Ahead
T
Where the pandemic persists, it is critical to maintain life lines across the
economy. Tax deferrals, credit guarantees, and monetary accommodation
may be helpful to an extent. The whole matter could be put in a wider
perspective by quoting a blog by Ms. Gita Gopinath, chief economist,
IMF: “This is the worst crisis since the Great Depression and it will take
significant innovation on the policy front at both the national and interna-
tional levels to recover from the calamity” (Gopinath, 2020). The diver-
gence in income between advanced economies and developing economies
triggered by this pandemic is likely to worsen. We are upgrading our fore-
cast for advanced economies for 2020 to 5.8% followed by a rebound in
growth to 3.9% into 2021. For emerging markets and developing coun-
tries we have a downgrade with growth projected to −5.7% in 2020 and
then a 5% recovery in 2021. The crisis will leave a scar well into the
medium term as labor markets take time to heal, investment is held back
by uncertainty and balance sheet problems. Lost schooling will impair
human capital. The cumulative loss in output relative to the pre-pandemic
projected path is expected to grow from US $11 trillion in 2021 to $25
trillion in 2025.

World Bank
The COVID-19 pandemic would push 150 million people into extreme
poverty. Eighty-two percent of the extreme poor would be from middle-­
income countries where the poverty line includes income from US $3.25
to $5.50 a day. Urban dwellers would be particularly affected.
 1 THE IMPACT OF THE PANDEMIC 5

Amidst such widespread poverty, there are certain regions which suffer
more. This could be because of certain factors. A case in point is the
American Mid-West. A McKinsey study points out a particular case
as under.
Health and economic effects of COVID-19 are exacerbating inequali-
ties between people and places with low-income people either being in
high-contact essential jobs with greater health risks or are facing unem-
ployment. Low-wage earners (earning less than US $40,000 per year)
count for more than 80% of workers vulnerable to lay-offs, furloughs and
reduction in share of income. Equally worrisome is the share of women
and African Americans amongst the sufferers (Manyika et al., 2020).
In addition, we would also refer to the most likely economic conse-
quences that would follow. Such a list is somewhat hypothetical but rea-
sonably plausible.

• The permanence of losses will depend on how soon the losses are
brought under control. How deep will the scars be? In particular,
what will be the impact of unemployment, bad debts, increased pov-
erty and disruption of education?
• There is a likelihood of a vast number of businesses emerging heavily
burdened by debt and many would fail to emerge at all.
• Many economies could end up being smaller and their people poorer
than they otherwise would have been.
• Structural issues. Would we stop traveling for business or stop com-
muting to offices?
• How would we adjust to the virtual world?
• Would governments tend to be more interventionist? Would there
be a Build Back Better movement?
• Would the governments insist on low interest rates for its debts?
• When would fiscal deficits be reduced?

Before we look at the steps taken by central banks/governments we

would also like to draw on conclusions of highly respected observers/
journals like the London Economist about the immediate future and after-
math thereafter.

In 2020 (by the end of it) world economic outlook may be lower by about
8% – the biggest contraction since the World War. In the US, proportion of
Americans (25–54) in the work force fell below 70%, 1/6th of the young
6 V. C. JOSHI AND L. KULKARNI

people lost their job, 89% of the people are likely to be pushed into extreme
poverty. School closures may affect people for decades. In Europe 40 mil-
lion people were on government funded schemes. Public borrowing is
­soaring. It would be around 132% of GDP. Central Banks have created
debts amounting to trillions of dollars.
Supply chain panic has left a lasting impression. The matter has assumed
importance as never before. Healthcare systems, trade wars, supply chain are
all in a melting pot. (Economist, 2020)

The COVID-19 is a global shock like “no other” involving disruptions

to both supply and demand sides. On the supply side:

• Infections reduced labor supply

• Productivity is adversely affected
• Social distancing affects supplies

On the demand side:

• Lay-off and loss of income prospects

• Reduced household consumption and investment
• The extreme uncertainty about path duration posing a vicious cycle
of dampening business and consumer confidence

Part II
It is against this grim environment that we have to appreciate the various
steps taken by the governments. We briefly touch on the steps taken by the
Federal Reserve in the US and by the European Central Banks.
The Central Banks have adopted a policy of what could have been
described as utterly unconventional but now considered
“CONVENTIONAL”. “Do what it takes” is the new mantra. The Federal
Reserve has cut rates 164 times in 147 days!! The benchmark rate has
been slashed to zero. So has the European Central Bank. The EU has initi-
ated lending scheme for EU member countries.

Measures in India
In India, too there has been an action both by the government and the
Reserve Bank. The government extended guarantees for loans sanctioned
 1 THE IMPACT OF THE PANDEMIC 7

to SMEs and pumped in huge amounts for installment payments to MFIs.

It also extended guarantees and subsidies in specific cases.
A sum of Rs. 500 per month was paid into accounts of PMJDY account
holders. Mudra Loans were granted at a very reasonable rates and sanc-
tioned very promptly.
For the poor, food supplies were made available (25 kg per person)
free. The weekly free supply was to be extended till the end of
November 2020.
The Reserve Bank of India too could be described as being ultra-liberal
in extending loans to the Government of India and would be close to
“Helicopter Money”. They have also been closely monitoring implemen-
tation of state and central government schemes. The RBI support has
been unique and their work along with the Government of India could be
considered exemplary.

Part III
Many bank officials have been informally discussing with us some of their
management issues. They have suggested that we should briefly touch on
the role of bank branches in times to come, the reduction in ATMs, use of
cards and digital operations.
In the same breath they also felt a need to have a sort of composite view
on COVID-19 developments. They realized that the work setup which
was modeled on the factory work (opening and leaving time being fixed)
was becoming anachronistic and that there was a need to change such
rigid operation including “business hours”. New norms for meetings are
in the offing and should be introduced. These are, of course, operational
details and would be soon sorted out.
But their major worry was regarding their views being solicited on
COVID-19 developments. This is quite a done thing. Somehow branch
managers are looked up to and many customers would like to have
their views.
The most important requirement of an official, be it a branch manager,
regional manager or someone still higher in the hierarchy, was to keep a
“cool head”. We are biologically wired to have a “stress response” (flight,
fight or freeze) in the face of volatile environment.
The leaders in the first instance must strictly observe the required rule
in respect of masks and social distancing. More important is the need for
integrative awareness of the changing reality in the world outside. For the
8 V. C. JOSHI AND L. KULKARNI

Covid Impact on Financial Govt Response

Market &
& Govt Policies Recovery

Impact on Staff

+ Travel Industry
+ Advances
Work Force
Impact on Trade COVID-19 Cushioning
Impact

Constant Monitoring:
Staff
Impact on Customers
Industry Outsourced Acvies

Fig. 1.1 COVID-19 impact. (Source: Authors)

sake of easy reference, we have made a diagrammatic representation

(Fig. 1.1) and at the branch level the official may find it useful as a source
of reference. To live up to such a leadership role is extremely useful in
today’s troubled time.
A global perspective presented at the beginning is quite useful. A num-
ber of customers in urban/rural areas have children and relatives overseas
and customers here invariably seek information/guidance and more so if
they have banking relationship.
Lastly, there is a need to be informed about likely changes in the post-­
pandemic period. We conclude with a somewhat out-of-context authority
(the pope) to comment on the economic system and the environment.
These issues are of a global relevance. In his encyclical, citing aspects like
deregulation, weak labor laws, and privatization, the pope blames neolib-
eral doctrines for pushing people (especially in low-income countries) into
extreme poverty and creating vulnerable health systems. Moreover, the
pope lays the blame for surges in the coronavirus and its disproportionate
effect on poor communities squarely at the feet of neo-capitalism and neo-­
liberalism (Francis, 2020).
 1 THE IMPACT OF THE PANDEMIC 9

Bibliography
Francis, F. T. (2020, October 3). Encyclical Letter Fratelli Tutti of the Holy Father
Francis on Fraternity and Social Friendship. Retrieved from Vatican: http://
www.vatican.va/content/francesco/en/encyclicals/documents/papa-­
francesco_20201003_enciclica-­fratelli-­tutti.html
Georgieva, K. (2020, October 8). The Long Ascent: Overcoming the Crisis and
Building a More Resilient Economy. Retrieved from IMF: https://www.imf.
org/en/News/Articles/2020/10/06/sp100620-­the-­long-­ascent-­overcoming-
­the-­crisis-­and-­building-­a-­more-­resilient-­economy
Gopinath, G. (2020, October 13). A Long, Uneven and Uncertain Ascent.
Retrieved from blogs.imf.org: https://blogs.imf.org/2020/10/13/a-
­long-­uneven-­and-­uncertain-­ascent/
Manyika, J., Pinkus, G., & Tuin, M. (2020, November 12). Rethinking the Future
of American Capitalism. Retrieved from McKinsey Global Institute: https://
www.mckinsey.com/featured-­i nsights/long-­t erm-­c apitalism/rethinking-­
the-­future-­of-­american-­capitalism#
The Economist. (2020, October 8). Changing Places. The Economist,
Special Edition. https://www.economist.com/special-­report/2020/10/08/
changing-­places
 CHAPTER 2

State of the Financial System: Strengths

and Weaknesses

We have in the first chapter attempted a review of the havoc caused by the
pandemic and efforts made by the Indian authorities to stem the tide. The
financial system had to bear an unimaginable burden. On the one hand,
the banks had to take steps (implementing various government schemes)
to revive economic activities and to ensure that economic losses were min-
imized. Additionally, they were also required to ensure that the average
customers’ need for banking services was met. Even with a meager staff
present, the banks did provide the services to see that the customers’ needs
were met. In the case of small and medium-sized enterprises, banks had to
ensure that the supply chains were restored, staff salaries were being made,
and gradually the amounts of receivables got reduced. In fact, this was a
heroic effort to keep the wheels of commerce and industry churning.
The branches did carry out most of the tasks assigned to them. But
apart from the problems created, there were other weaknesses from which
the system was already suffering. Normally, we should have started our
review with an analysis of financial statements as at the end of 31st March
2020. However, in view of pandemic developments, many of the accounts
were revived though, in fact, they were in the defaulter category earlier.
We have therefore no option but to look at the balance sheets as of 31st
March 2019 to study the strengths and weaknesses of the system as it
existed then. The problems noticed then are still casting their long and
ominous shadows over the system.

© The Author(s), under exclusive license to Springer Nature 11

Singapore Pte Ltd. 2022
V. C. Joshi, L. Kulkarni, The Future of Indian Banking,
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12 V. C. JOSHI AND L. KULKARNI

Financial System Structure

At the highest level, financial institutes in India can be divided into two
main groups – banks and non-banks. There are three main types of banks –
commercial banks (these include regional rural banks), co-operative banks,
and payment or small finance banks. The payment or small finance banks
are recent additions.
The non-banks sector is made up of mutual funds, insurance compa-
nies, non-banking financial companies and other institutes like pension
funds, primary dealers.
We now proceed to review what a modern financial system is expected
to carry out. In their report on the future of finance published by the
London School of Economics, Turner, Haldane, and Wooley outline what
the financial system should do (Wooley, 2010). The standard text lists five
main functions:

1. Channeling savings into investments

2. Transferring risks
3. Maturity transformation (including life cycle consumption)
4. Effecting payment
5. Making markets

True it is that it is difficult to see how closely this corresponds to the

stated functions. We also have to critically examine why the system is prone
to boom and bust.
There is one more mechanism that needs to be mentioned. This is a
mechanism which provides contractual certainty and that generates and
verifies the information on which efficient financial intermediation
depends. These include credit rating, accounting and auditing, and finan-
cial analysis as well as the supervisory and regulatory frameworks.

The three components markets, intermediaries, and infrastructure are inex-

tricably intertwined. The various components are expected to work together
to improve the information available to guide the allocation of resources.
High quality information is the raw material for directing resources to their
most efficient use facilitating inter-temporal contract and thus strengthen-
ing growth potential. (Crockett, 2011)
 2 STATE OF THE FINANCIAL SYSTEM: STRENGTHS AND WEAKNESSES 13

State of Banks’ Finances

We would start with an examination of the financial strength/weakness of
the major constituent, viz. the banks.
For the last five years and more particularly since 2015, banks have
been plagued by the problem of non-performing assets (NPA). For
the sake of clarity, we would make a slight deviation, and explain the
term non-performing asset. These are known as non-performing
because the debtor is in default or is in arrears. A loan is in arrears
when interest or principal payments are missed or late. A loan is in
default when the lender considers the loan agreement to be broken
and the debtor is not able to meet the obligation. It must however
be added that generally accounts get recorded as NPAs after a pro-
longed period of non-payment by the borrower. NPAs, as would be
seen, are a great burden on the lender.
Dr. Raghuram Rajan during his tenure as governor, undertook very
thorough evaluation of the bank’s credit portfolios and came to some
astonishing conclusions. The position that survey brought out was that
the “portfolios” and consequently the banks’ financial strength had suf-
fered very badly.
In a note submitted to the Estimates Committee of Parliament, Dr.
Rajan comments on the state of financials as under:

A large number of bad loans were originated in the period 2006–2008 when
economic growth was strong and previous infrastructure projects such as
power plants etc. were completed on time and within the budget. It is at
such times that banks make mistakes. They extrapolate growth and perfor-
mance to the future. So, they are willing to accept a higher leverage in proj-
ects and less promoter equity. Indeed, sometimes banks signed up to lend
based on project reports by the promoters’ investment, without doing their
own due diligence.

This is the phenomenon of irrational exuberance common across coun-

tries at such a phase in the cycle. The matter should not be left here but a
more thorough analysis is required.
Strong demand projections for various projects were shown to
be increasingly unrealistic as domestic demand slowed down
(Rajan, 2018).
It would at this stage be useful to get a comprehensive picture with
quantitative dimensions so that not only the scale of the problem but the
14 V. C. JOSHI AND L. KULKARNI

Table 2.1 Non-performing assets in banks

Non-performing assets Gross NPA in Amounts provided for bad loans
as of 31st March crores of rupees Amounts transferred from operating profits as
Year provisions for bad loans in crores of rupees

2012 117,000 38,177

2013 164,461 43,102
2014 216,739 63,389
2015 278,877 76,837
2016 539,855 160,303
2017 684,733 168,469
2018 895,600 270,953
2019 73,954

Source: Federation

causal analysis by the select committee can be seen in the right context.
Table 2.1 gives details about the NPA in banks and equally important are
details of the “provisions” (funds allocated from profits to cover up these).

Government Infusion of Capital

Before looking at the debt recovery aspect, we would briefly touch on the
capital infused by the government during the years 2013–2020. The total
amount works out to Rs. 338,099. The breakup is as under (Table 2.2):
Balance sheets can be analyzed in a number of ways – mainly depending
on the purpose for which the user wants it. The user may want it for
investment purposes, the management may use it for their own analysis
while the regulators may subject it to stress test and analyze the soundness
or otherwise. The easiest way to appreciate the relationship among the
elements is the analysis of various ratios. A mere look at the ratios high-
lights the aspect which one is examining (capital to assets) and conformity
to the regulatory standards.
The ratio of non-performing loans to gross total loans was 2.4% in
2011 and went as high as 9.11%. The “provisions” ratio [provisions to
NPA] came down from 52.4% to 44%. For additional ratios, please see
Reserve Bank of India (2019) and India: Financial System Stability
Assessment – Press Release and Statement by the Executive Directory for
India (2017).
 2 STATE OF THE FINANCIAL SYSTEM: STRENGTHS AND WEAKNESSES 15

Table 2.2 Source: RBI website and Lok Sabha questions and answers
2013–2014 2014–2015 2015–2016 2016–2017 2017–2018 2018–2019 2019–2020

Rupees 15,000 6990 25,000 24,995 99,900 106,100 60,114

in crores

The deteriorating position of NPAs has obviously caused concern.

Briefly stated the causes for the weakening position can be summed up
as under:
The Parliamentary Estimates committee comments as under:

Dr. Rajan aptly and very succinctly describes the causes as under. “At a time
when the economy was booming and business outlook was very positive,
large corporations were granted loans based on their growth and recent
performance. The corporations grew highly leveraged implying that most
financing was through borrowing rather than promotes equity”.
(Rajan, 2018)

The Estimates Committee of Parliament summarized the causes as under:

• Over-optimism
• Slow growth
• Government permissions for certain work related to project and foot
dragging by authorities
• Loss of promoter and banks’ interest
• Frauds
• Malfeasance
• Diligence by bankers was poor
• RBI review of the credit portfolio left much to be desired

Bank Frauds: A Broad Picture

Top 10 frauds with amounts outstanding over Rs. 1000 crores (Table 2.3).
Further information shows that by 29th August 2019, bank frauds had
jumped 74% by value. Fraudulent transactions had risen to Rs.
71,543 crores.
Public sector banks accounted for 90%, i.e. Rs. 64,509 crores, private
banks Rs. 55.5 crores and foreign banks Rs. 955 crores (Answers, 2019).
16 V. C. JOSHI AND L. KULKARNI

Table 2.3 Bank frauds – a broad picture

Frauds Rs. 1 Frauds Rs. 50 Frauds Rs.
lakh and above crores and 100 crores
above and above

Year Number Amount Number Amount Number Amount

2014–2015 4639 19,455 77 14,998 1 1648
2015–2016 4693 18,699 82 14,791 1 1265
2016–2017 5076 23,934 104 19,110 3 3792
2017–2018 5916 41,167 121 34,714 4 16,395
2018–2019 6801 71,543 322 61,759 4 6505
2019–2020 4412 113,374 308 105,619 21 44,951

Source: Private circular from the Maharashtra State Bank Employees Federation

Commercial Banks
(including Regional Rural banks)

Banks Co-operave banks

Newer Banks like Payment Banks &

Small Finance Banks
Financial
Development Banks
Institutions (mostly wound up now)

Insurance Companies

Non-Banks Mutual Funds

Non-Banking Financial Companies

Others (e.g., Pension Funds, Primary

Dealers)

Fig. 2.1 Financial system in India. (Source: Author)

It is indeed a sad commentary on the working that 97% of the frauds

relate to the credit portfolio.
These figures speak volumes about the state of banking in particular
and the financial system in general. But a further probe reveals the other
financial weaknesses from which the system suffers (Fig. 2.1).
 2 STATE OF THE FINANCIAL SYSTEM: STRENGTHS AND WEAKNESSES 17

Table 2.4 NPA recovery

No. of cases Amt. involved Amt. recovered Percentage

Lok Adalat 4,080,987 53,506 2816 5.3

DRT 52,175 306,499 10,574 8.5
SARFAESI 284,312 289,073 41,876 14.5
IBC 1135 166,600 70,819 42.5
Total 126,084

Source: Authors

Debt Restructuring and Recovery: The Legal Remedies

We briefly review the efforts made for recovery through legal channels.
The Debt Recovery Tribunals (DRT) and Securities and Reconstruction
of Financial Assets and Enforcement of Security Interest Act (SARFAESI
Act) in 2002 was passed with the sole object of expediting the recovery
process. The following table shows the recoveries made through various
channels.
NPA recovery through various channels (Table 2.4).
One fails to understand why efforts were not made through the law
ministry to expedite these matters. The negligible response by the bankers
is absolutely unacceptable. The public sector banks should have clamored
to expedite decisions on these matters. A totally wrong message was given
to the borrowers. Dr. Rajan has pointed out that during 2013–2014,
amount recovered from cases in 2013–2014 under DRT was Rs. 30,590
crores while amount involved was Rs. 236,600 crores (Rajan, Speech,
Issues in banking today, 2016).
The recovery was only 13% of the total amount involved. DRT had to
dispose of cases within 6 months. However, the delays had resulted in
cases being disposed of in about 3–4 years. The backlog continued to
grow and did not come down. In India as would be seen from the earlier
analysis, the recovery is through legal proceedings. These proceedings are
dilatory and the delays are totally counter-productive. As a banker one
knows that the documentation, computerized accounting and limitation
statutes etc. are not at all in question. It is indeed difficult to see why such
delays should occur or even allowed by courts.
Such slow recovery meant that defaulters got advantage over lenders.
They use these borrowed moneys without any interest payments. Further
they had a chance to try and see if they could persuade the bank[s] for a
18 V. C. JOSHI AND L. KULKARNI

one-time settlement. Dr. Rajan rightly says that “Bank loans in such a
system became equity, with a tough promoter enjoying the upside in good
times and forcing the banks to absorb losses in bad times, even while he
holds onto his equity” (Rajan, Speech, Issues in banking today, 2016).
The system had to be made far more effective. The steps taken were:

1. Collect all the required information on who had lent to borrowers –

Load database was created (CRILC) for all those who had borrowed
more than Rs. 5 crores.
2. Stop “Ever Greening” of Projects (facilitating by not showing these
accounts as NPAs and treating them as fully operative!). Banks’ ability
to restructure was stopped. They had to describe the project as NPA.
3. A scheme was put in place to replace promoters. The scheme was called
strategic debt restructuring. Under the scheme weak borrowers could
be replaced.

 he Insolvency and Bankruptcy Code

T
The measures listed above were of some help. Equally important was the
empowerment of banks to refer errant and large borrowers to the process
of insolvency and bankruptcy. Additionally, banks also were empowered to
deal with large errant borrowers through Insolvency and Bankruptcy
Code (IBC).The IBC was aimed at quickly getting NPAs off the books of
banks. The idea was to empower the banks to initiate the IBC process
early. After all, large defaulters were the ones who accounted for a domi-
nant share of NPAs.
Basically, one has to look at three important questions:

• Can the NPAs be recovered in full? Or in a large measure by expro-

priating the assets serving as explicit or implicit collateral for the debt
in question?
• Who would bear the cost of restructuring the cost of unpaid
bank debt?
• Is there a way to ensure that IBC would deter or bring about major
changes so that borrowers exercise greater care and diligence?

So far, we have information on 12 major cases. One is led to conclude

that IBC record is not good enough to make the process, one that which
is particularly useful for recovery from the perspective of the banks and
savings and tax payers.
 2 STATE OF THE FINANCIAL SYSTEM: STRENGTHS AND WEAKNESSES 19

What actually has emerged is that some large corporates while had
assets were liquidated with adverse effect on workers and/or a few white-­
collar employees. True it is that full evidence is not made available in the
public domain. One is not in a position to evaluate the costs and/or the
benefits in that context.
The first case that was decided on by the National Company Law
Tribunal (NCLT), the lenders had to take a haircut of 94%. The number
of cases that have come to light is around 40.

1. One would like to see the reforms for “Debtor in Possession” to

“Creditor in Control” model.
2. The World Bank estimates that it would take about four years for the
process to be completed.

One cannot but help remarking that IBC cannot be a cure for faulty
lending practices of banks and other financial institutions which have
resorted to reckless lending without due diligence and risk mapping to
tackle the situation when corporate borrowers default on the loans. One
has sadly to concur with the observation that IBC may be useful in curing
the symptoms but not the causes.
IBC can never be a panacea for solving all the NPA problems
(Nishank, 2019).
A slight deviation is called for. One would notice that during 2020
most of the PSBs have turned the corner and are showing profits in their
balance sheets. The Government of India has undertaken a massive sup-
port program to revive the economy. Many stressed accounts have now
been regularized and “provisions” made earlier have been reversed. The
result is that most of the banks are no longer in “red”.
The Reserve Bank has advised banks to flag such accounts and to ensure
that under the new dispensation these accounts may be shown to be in
order. They are stressed accounts and have to be treated as such. Additional
“limits” sanctioned are of no consequence. These are the accounts which
could be described as “zombie”. In a slightly different category are
accounts which broadly be described as stand still, i.e. neither active nor
non-performing. (The operations temporarily discontinued.)
Leaving aside the “pandemic” special arrangements, we would turn to
some urgent measures proposed in the “Financial Stability Report –
2019”. The Financial Stability Board (FSB) Report has made a number of
suggestions and also referred to EU Banking Authority Standards. These
20 V. C. JOSHI AND L. KULKARNI

guidelines clarify how “default” is to be treated. We would draw attention

to the stress test and sensitivity analysis methods and also suggest adoption
of the EU technical standards in RBI supervisory checks and Banks’ work-
ing. We briefly touch on some of the requirements “The Ought Element”.

• It should cover all the segments of the financial market. Rigor of

regulation must be uniform amongst all segments to avoid regula-
tory arbitrage.
• Special attention will have to be given to systematically impor-
tant segments.
• Large organizations may require coordinated oversight.
• Institutions may be required to set up buffers in good times. These
could then be used in bad times.
• Excessive leverage has in any case to be avoided.

Under any circumstances, the effort should be to avoid emergence of

vulnerable and volatile institutions. Needless to add that the sector must
move in a manner that excessive risk-taking is avoided at all costs.

Regulatory Aspects, Use of Stress Test

for Soundness

We draw mainly on the analysis undertaken in the Financial Stability

Report (Reserve Bank of India, 2019). Of course, simplified ratio analysis
suggested by the IMF would no doubt be of limited use.
The analysis below examines the soundness from two points of view.

1. Performance – Basically, note is taken of deposit and credit growth and

the share of net income. The “required” provisions are also looked at.
2. In addition, the two analytical tools, viz. the “stress test” and “sensitiv-
ity analysis”, are undertaken to analyze the “resilience”.

Macro Stress Test – They start with a baseline scenario and compare it
with assumed deterioration. One can critically review Tier 1 capital and
other capital ratios and see how the banks would withstand the change.
Sensitivity Analysis – The resilience is examined with respect to credit,
interest rate and liquidity risk. If top three borrowers failed to repay, there
 2 STATE OF THE FINANCIAL SYSTEM: STRENGTHS AND WEAKNESSES 21

would be a considerable adverse impact. Similarly, the impact of deposit

run-off or adverse effect on high quality assets were also looked at.
For a systematic evaluation a reference to urban coops, NBFCs, hous-
ing finance companies, etc., will have to be studied. It would not be wrong
to say that financial system can be visualized as a network if we look at the
bilateral exposure links. FIs do have links with each other for efficiency
gains as also for risk diversification. It must be said that the risks are also
transmitted. Total bilateral exposure amongst entities increased from 31.4
trillion to 36.3 trillion <currency required> by March 2019. In the same
vein, we should note that in the international market, the share of Public
Sector Banks increased substantially from 53.5% to 62.5% (Reserve Bank
of India, 2019).

Suggestions and Recommendations

for Immediate Response

The measures discussed so far cover mainly “short-term” regulatory

impact. Post 2007–2010 crisis, more fundamental views on the way
“banking” should be undertaken have also been articulated. In fact there
have been suggestions that there should be severe restrictions on the way
banks create and lend money. In the following sections we critically review
the theoretical aspects and also suggestions for operational practices that
have been made. We briefly present some of these ideas as our analysis and
suggestions for improvements are to some extent influenced by these the-
oretical developments.
Post financial crisis of 2007–2010 in the US, there has been a flood of
books, research papers, lectures, and seminars to see how a recurrence can
be avoided and the systemic weaknesses are done away with. These are
fundamental propositions on the way “banking” should be conducted.
In the immediate aftermath the three principal players brought out the
books to narrate their experiences of actually handling the crisis.
Subsequently, all the three (Bernanke, Geithner, Paulson) jointly brought
out a work aptly titled “Fire Fighting” (Ben Bernanke, 2019).
These books, in a sense, presented details of how the banks and finan-
cial institutions were saved. The narration was interspersed with the politi-
cal hurdles they had to cross etc. But basically, it also lucidly brought out
how the Fed, Treasury and the New York Reserve Bank all joined hands,
worked in tandem and handled the desperate plan to do what it takes to
save the system.
22 V. C. JOSHI AND L. KULKARNI

Critical Evaluation of Bankers

No doubt the system was saved. But in its aftermath the Financial Services
Industry was mercilessly subjected to criticism. The “Bonus” paid by the
banks to their executives was the target for a major attack. Mervyn King,
the then Governor of Bank of England, had the following to say. “God
may have created the universe but we mortals created paper money and
risky banks. They are man-made institutions, important source of innova-
tion, prosperity and material progress but also of greed, corruption, and
crisis” (King, 2016).
Another vehement criticism (vitriolic at times) came from those who
felt that the bankers’ high salaries were totally undeserved. In fact, lectures
by eminent speakers brought out how anomalous the salary structures
were. The conclusion was that the banks indulging in and undertaking
such risky transactions were entirely on account of their greed for bonuses.
The “trading activities” were nothing but taking undue advantage of some
traders who failed to see the risks inherent to certain securities being sold.
Leaving aside for the moment this highly justifiable criticism, far more
serious objections were raised against the way banking business was han-
dled. The criticism was voiced by Lord Turner (Turner, Lionel Robbins
Memorial Lectures, 2010).
Lord Turner objects to the uncontrolled mortgage lending broaching
the level 120% of GDP. He also is in favor of tightening regulatory con-
trols and also his criticism of officials of financial services authority and
their economic ideology and views (Turner, 2015).

Conclusion
The situation is in a flux and major issues regarding role of banking, nature
of competition and social security are also coming to the fore. These will
have an important bearing on the ideas regarding stability and soundness
of banks. As shown in Chap. 1, the “do what it takes” policy and the
impact of this policy (providing monetary support on the required scale)
may last with us for years to come. And at this stage, one can only wait and
see till the future unfolds.
 2 STATE OF THE FINANCIAL SYSTEM: STRENGTHS AND WEAKNESSES 23

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 CHAPTER 3

Socio-Political and Technology Aspects

Consequent to the political change in the USA, there is a possibility that

aspects of economic doctrines like “America first”, opting out of environ-
mental pact, etc. are likely be reversed. To what extent, there is a throw-
back to the earlier ways of working will have to be seen.
Banks and FIs should not find it too difficult to change gears and get
back to an earlier era. These changes in the USA did affect the workings
of banks in so far as the dealings with US banks and entities were con-
cerned. Otherwise the earlier liberalized environment continued to be
operative. Pre-trade agreements, WTO, etc. continued to be operated.
The possibility that under new president, USA would once again go back
to the old doctrine, makes for very easy transition for the other countries
and India in particular.
We, therefore, turn to technology. In the Chap. 4 on Banking, we detail
the findings of the Economic Intelligence Unit on “Advanced Technology
and Banking”.
We begin with a listing of the major technology changes that we
would review and then consider each of these in certain detail. We
must, however, add that many of the core functions are still performed
by humans. However, major restructuring required for technology
changes, are yet to take place. The reasons are not far to seek. Lack of
skilled manpower to handle sophisticated and complicated processes is
one. In addition, the following would also have to be reckoned as con-
tributory factors.

© The Author(s), under exclusive license to Springer Nature 25

Singapore Pte Ltd. 2022
V. C. Joshi, L. Kulkarni, The Future of Indian Banking,
https://doi.org/10.1007/978-981-16-9562-9_3
26 V. C. JOSHI AND L. KULKARNI

• Shrinking margins
• Underutilization of assets
• Non-availability of skilled manpower
• Lack of revenue growth/earnings
• Burden of non-performing assets

We would like to draw attention to a very pertinent observation by the

Financial Stability Board (FSB) as early as 2017 (FSB, 2017). They point
out a number of potential benefits and risks as listed below for financial
stability as shown below:

• The more efficient use of information and credit decision. These

would obviously contribute to the creation of an efficient finan-
cial system.
• Artificial intelligence and machine learning would help regulators in
ensuring compliance and increased supervisory effectiveness.
• Of course, there will have to be proper care for data security and
adherence to protocols.
• Adequate training and testing for users to ensure that applications
are doing what they are expected to do.

It is against this background that the industry has to build the sinews
and fibers to meet the challenges ahead.
In what follows, we discuss prevailing technology trends like big data,
cloud computing, AI and ML, and AR/VR, and how all of these tech-
nologies can be used by the banks.

Big Data
Financial institutions have one great asset and it would be the cause for
envy for many others (leaving aside Facebook, Google, etc.). It is not sur-
prising that this data bank has come to be known as “big data”. Very
often, there is a criticism that so called “big data” is not quantified. We do
not subscribe to the view that the concept is of little value because it is not
qualified or defined. We frankly do not subscribe to this view. For the sake
of argument let us look at the definition of the word “wind”. Wind is
defined as movement of air, but how much air or at what speed it should
move is not mentioned. Do these omissions affect our understanding
of wind?
 3 SOCIO-POLITICAL AND TECHNOLOGY ASPECTS 27

We now indicate some of the sources from which information can be

accessed. The following sources would provide information on at most a
continuous basis:

• ATMs, mobile phones

• Branches and brokerages
• Financial dailies and journals
• Credit/debit cards
• Loans/mortgages and vehicle loans
• Quarterly and annual financial results
• Pre-stock market opening reaction etc.

We must also add the daily feed of Twitter, mail messages and
complaints.
It is essential that collection, dissemination and collation of data is an
important activity and must be assigned to specific groups.
We, however, do appreciate attempts at bringing about certain preci-
sion and turn to a paper aptly titled “Undefined by Data – Big Data
Definitions”. The term is widely used not merely by academics and indus-
try but by media, consultants, marketing people. The tech companies have
tried to define it by looking at the characteristics. Gartner defines it by
referring to volume, variety, and velocity. Oracle, on the other hand, states
that big data is the derivation of value from business data, augmented with
new structured data. On the other hand, Intel defines it with reference to
data created. It is linked to an organization which generates a median 300
terabytes weekly. Microsoft in its definition links it to serious computing
power used in machine learning, often highly complex set of information
(Ward & Baker, 2013).
It is obvious that these attempts are not fully satisfactory. We however
start with the argument that most readers are aware as to what we are
referring to. Any further quibbling and hair splitting would not throw
greater light on this. We are suggesting a very crude measuring rod. The
data analysis team should feel convinced that their requirements for deduc-
ing inferences are met and that analysts are convinced that what they are
dealing with is big data.
Prof. Nate Silver in his renowned work titled “Signal and Noise” has a
very illuminating comment on the subject – “Sheer numbers have no way
of speaking for themselves. We speak for them. We ascribe meaning to
them in self-serving ways that are detached from their objective reality”
28 V. C. JOSHI AND L. KULKARNI

(Silver, 2012). The failure of risk models in prediction of the crisis shows
how fragile such models are – part of the problem is we try to find mean-
ing where none exists.
If the quantity of information is increasing by 2.5 quintillion, the
amount of knowledge is certainly not increasing. There may be many
hypotheses to test, many data sets to mine, but a relatively constant
amount of truth. We can never make perfectly objective predictions; the
subjective biases can never be removed.
It is against this, that we should look at big data technology and what
it refers to. Basically, the following four aspects are covered in usage.

• Data storage
• Data processing arrangement
• Data management
• Data analytics

Data analysis comprises:

• Query and reporting

• Data visualization
• Predictive modeling
• Optimization
• Simulation
• Geo spatial analysis
• Natural language test and voice analysis

It would be pertinent to issue a general warning regarding the conclu-

sions that are drawn. We must accept a certain degree of uncertainty and
probability. As planners, we would like the organizations to learn to accept
these two elements in the predictions we tend to make.
We now turn to review the data collected by financial institutions. The
sources for getting data are varied. Directed data is obtained from the
direct gaze of surveillance technology on a place or person. Automated
data is obtained from human activities on digital devices, global position-
ing systems, and photographs. Volunteered data is acquired from individ-
uals who willingly give their information, sometimes through a common
system used by a large number of people on social media.
The data could be structured or unstructured. Much of the data is
obviously created in real-time. After all we need to ensure timeliness of
 3 SOCIO-POLITICAL AND TECHNOLOGY ASPECTS 29

access to data, data granularity and variety. At this stage, we would turn to
another question that is frequently raised at seminars or at training ses-
sions. Most of the participants are intrigued by the question as to where
exactly does such data gets stored. What happens to the data stored
in cloud?
This data is stored at centers that are built in abandoned mines, beneath
the mountains, and even in underground caverns. Bunkers are becoming
prime spaces for retrofitting data centers. Bunkering data in disaster proof
subterranean centers designed to withstand category 5 hurricanes, electro-
magnetic pulses, and long-lasting storms are becoming increasingly com-
mon. Some organizations require their data to be triple replicated and
distributed in geographically dispersed facilities.
The consumer protection authority in the UK has suggested certain
agreements between the facility providers and their clients. Care has to be
taken to ensure that certain rights which the clients have (when your stor-
age facility is shifted), the client needs to know in advance. Cases of hack-
ing have also come to light and the agreement should be very specific
about the responsibilities of the parties concerned.
At a lecture in Bangalore in December 2016, the author was stopped
and asked to explain the connotation of term “orthogonal” data sets.
These sets are unstructured and could be even in the form of free text.

Big Data Analytics

Big data analytics is a process of examining huge amounts of data. Some
authors categorize it to include even collection, organizing, and critically
analyzing these vast quantities of data. Basically, there are two types –
stream processing and batch processing. In stream processing, the data as
the name suggests, comes in streams and processed as soon as possible in
real time. Storm and Apache Kafka are popular stream processing models.
In batch processing, however, the data is collected and processed/ana-
lyzed at a later time as needed.
Generally, a well-defined system is based on four core attributes.

• Talent – availability plus pipeline

• Capital – seed capital, growth capital, and listed capital
• Policy – regulatory regimes, government programs, taxation policies
• Demand – consumer demand, corporate demand, demand
from other FIs
30 V. C. JOSHI AND L. KULKARNI

It must be stated that this data, apart from being used internally, can be
sold. In view of privacy rules, great care needs to be taken in undertaking
such transactions.
We now detail the areas where results from analysis could be of assis-
tance to the users in the organization.

• Customer focused: Credit scoring, uses of bank products and

schemes like mortgages, consumer credits, alerts for the clients, and
new schemes/products arising from specific problems like fluctua-
tions in client’s income.
• Operations focused: Risk management, market impact analysis.
• Regulatory compliance: Particular attention to privacy protection
and laws relating to it.
• Training and portfolio management.

Big Data Implementation: Review of Best Practices

The earlier information systems relied on captured information. The
emphasis was on capturing transactions (physical/economic). Big data
now poses a challenge to enterprises of a different kind. It arises from
configuration of information pools, past and present, structured and
unstructured, formal and informal, social and economic which are con-
stantly evolving in their constant presentation (Bhimani, 2015). Big data
adds an analytics dimension to organizational capabilities and unleashes a
variety of strategic reorientation.
With the way data flows in strategy, structured information paradigm
gets changed. The firm’s strategies are to a large extent predicated on
technological structures. Information systems are involved in the shifting
dynamics of altered information access and use as part of a wider complex
loop of intervention and analysis. We are now able to capture customer
choices.
At this stage, we must add that great attention will have to be paid to
the quality of data. One can’t forget that big data comprises many systemic
biases. Almost 15% of information obtained is based on Twitter feeds,
drawing conclusions from such information has to be done very carefully.
We now shift our attention to problems of adoption. There are four
main features which pertain to the training of staff. These are – Educate,
Explore, Engage, and Execute.
 3 SOCIO-POLITICAL AND TECHNOLOGY ASPECTS 31

1. Educate – To succeed, considerable investment would be necessary

for training the people. Training will have to be focused on knowl-
edge gathering and market observation.
2. Explore – At higher managerial levels emphasis will have to be on
strategy and road map.
3. Engage – Involving staff members in piloting big data initiatives.
Only then could they realize the value of the data and appreciate
requirements at various levels.
4. Execute – Many a time, the data analysts assume a greater role in
deciding on the information collected. During meetings of bankers
with faculty members of management institutes and technology
consultants far greater attention was paid to the requirements of this
group and others played a very passive role. We are of the view that
potential outcomes should be very clearly stated by people who are
responsible for operational results. Potential Outcomes could be
Customer centric, operational, expected risks, new product require-
ments, employee collaboration (indicative).

In conclusion, we would say that great care needs to be taken in record-

ing, retention, and management of information. Data analysis has to dove-
tail in the context of business requirement. Implementation is primarily a
business decision. We are aware that a considerable amount of interaction
will be involved with all concerned.
Many a person have told us that it is always advisable not to be after
“Big Bang Solution”. The best practice would be to start small, identify-
ing specific high value opportunities. Think Big but Act Small.
The following areas will have to be carefully assessed and decided on.

• Specific Plans for Storage, Retention, Discarding, and

Management of data.
• A constant evaluation of data requirements. Perhaps a small group
entrusted with this task would be of great use.
• One has to remember that data analysts use different languages. Care
therefore has to be taken to see that knowledge is transferred to the
concerned staff members.
• The assumptions underlying and the limitations have to be con-
stantly reviewed and examined.
• Previous investment should be properly utilized and not discarded.
32 V. C. JOSHI AND L. KULKARNI

• And lastly, a cultural shift to the data based objective decision making
has to be inculcated amongst the staff members and decision makers.

We must point out to the hurdles which might crop up and prevent the
organization from getting the vast benefits of data analysis. Many a time,
business goals are not clarified properly. One could be hampered by a
shortage of data analysts and operational staff may not quite realize the
difficulties in the use of techniques. There are a number of regulations to
ensure that data in respect of individual customers is very carefully pro-
tected. Important legal issues can come up and strict adherence to such
rules is an absolute must.

Cloud Computing
Despite its many forms, cloud computing services have three distinct char-
acteristics that differentiate them from traditional computing.

1. They are sold on demand, typically by the minute or the hour.

2. They are demand flexible, in that a user can have as much or as little
a service as the user wants.
3. The services and resources are totally managed by the provider. All
that the user needs would be personal computer and internet for
connectivity.

A cloud can be private or public. Vendors in a public cloud can sell it to

anyone and it is a shared resource. A private cloud refers to a proprietary
network or vendor supplied, hosted services to a well-defined set of users.
The goal is to provide easy scalable and secured services.
Recently, Financial Conduct Authority (FCA), UK issued a following
guidelines for the benefit of users and we give below a very brief summary.
(FCA, 2019)

• Customers may (in practice) have a limited scope to tailor the service.
• Provider may move customer data with less visibility and control for
the owner.
• Provider may contract out part of the service provided, without the
customer’s knowledge.
 3 SOCIO-POLITICAL AND TECHNOLOGY ASPECTS 33

The “Regulated” firms have additionally to worry about the following

aspects.

• Legal and regulatory considerations

• Risk management
• International standards
• Oversight of service providers
• Data security and protection
• Effective access to data
• Access to business premises
• Continuity

We now do an analysis of an equally significant development viz. use of

AI in financial Services.

Artificial Intelligence (AI) and Machine

Learning (ML)
Very broadly AI is aimed at doing things with the help of machines
designed to act intelligently. The contours of AI are not well defined. AI
could broadly be referred to as machines designed to act intelligently and
to mimic human decision making whereas machine learning refers to the
ability of the software to learn and to improve.
One of the scariest of developments in the technology field is the pos-
sibility of machines taking over jobs and robots rendering 24×7 services.
We are aware that some research papers do postulate that unemployment
could be as high as 47–50% in the near future and that this would be the
“normal”.
Leaving aside such apprehensions, AI is a method to find out a pattern.
A pattern is a prediction rule that maps an input to a given output. Simply
put, learning a pattern means fitting a good prediction rule to a good
data set.
We must add that patterns to be discerned in a pretty large data set
(comprising images, texts, and even videos) is radically far more compli-
cated than any pattern that we can imagine. These patterns can then be
put into complicated equations. Lots of data and equations and computa-
tional power would be needed before one can hope for a reliable answer.
The uses to which these technologies can be put have been listed below:
34 V. C. JOSHI AND L. KULKARNI

• Customer Focus: Credit scoring, client facing chat bots, etc.

We would briefly review the credit scoring model. In our book on
“Inclusive Finance” we have given a somewhat elaborate description
of the “Credit Scoring” application. Data called out from the appli-
cant’s transactions available with the banks or on his mobile devices
is culled out and that serves as the foundation for the credit scor-
ing models.
The analysis of the complex data features helps lenders in knowing
the borrower’s willingness to pay, and consumption behavior. With
improved tools available, now borrowers turn to unstructured and
semi-structured sources to capture a nuanced view of credit worthi-
ness and rating accuracy.
In all such cases, one problem often comes up. It relates to a
lender’s bias. This is aptly described as the black box of AI.
We have earlier referred to some complicated features and images
being analyzed. These are encountered in Know Your Customer
(KYC) documentation. Many physical characteristics do not match.
It is therefore, subjected to critical analysis. May be, this calls for
additional documentation.
• Operational Focus: Generally, of considerable use in back office
functions,

–– Capital optimization
–– Risk management models
–– Market impact analysis
–– Trading and portfolio management
–– Lastly in the area of regulatory compliance

Rise of AI in Financial Services

The development in the use of AI needs to be stressed particularly since
there is an apprehension amongst organized members of the staff in the
matters of using AI. We would therefore go into some details about the
use of AI in financial services.
These technologies are largely used for “Predictive Analysis”,
“Recommendation Engines”, “Voice Recognition and Responses”. AI
covers everything from business operations, customer service, marketing
and risk management. However, the feeling amongst some critics and,
 3 SOCIO-POLITICAL AND TECHNOLOGY ASPECTS 35

even users that AI is new, untested, and had weak security features. They
are reluctant to go by the results obtained.
In the financial services area, it should be possible to use AI for various
things noted above. The factors favoring increased use of AI are:

• Explosive growth in big data

• Cheaper computational resources
• Smarter and smarter algorithms
• Cloud computing
• Connected devices

Machines are slowly seeping into our lives. How we live, work, and
even earn are being affected. Alexa and Siri are the first sign posts in our
journey. A truly AI system is one which can learn on its own. Google’s
“Deep Mind” can make connections on its own and reach meanings on its
own without relying on predetermined behavioral algorithms. Tue AI can
improve on past iterations getting smarter.
Sometimes the machines reach conclusions which are beyond or logical
comprehensions. “The Darker Side of AI” does refer to such develop-
ments. The way certain problems are solved, conclusions reached may not
even be known to us. We may not be able to unravel it.
In the financial services area, we are focused to take note of such devel-
opments because of the following:

• We have to struggle to retain customer loyalty.

• Many of the activities would have to be self-driven.
• Customers’ needs will have to be answered through AI.

It is likely that certain low skilled repetitive jobs may be lost. But cost
considerations are already making it difficult to retain such manual
workers.
But we must also accept that post pandemic about 60% or more of the
customers are going digital. Further, they would need banks more for
advisory functions than anything else. We would suggest that considerable
reliance would be placed on data.
From a customer focus where even quick decisions may be expected:

• Credit scoring
• Consumer credit
36 V. C. JOSHI AND L. KULKARNI

• Alerts for customers

• Schemes to fit fluctuations in income etc.

The factors that may come into play would be:

• Risk management
• Market impact analysis
• Trading and portfolio management

Before concluding we would touch on “Regulatory Compliance”.

Most regulators now need liquidity planning or even asset/liability man-
agement. These requirements may need thinking in real-time.
Product management and quick thinking would be the pillars of client-­
oriented vision of delivering client oriented value by being product centric
and market driven.
Let us take the case of Twitter feeds. If 15% of our data comes from this
source, we can’t say that the analysis holds good for the entire population.
We must not lose sight of the fact that we have to ensure that our conclu-
sions are properly.

• Customer centric
• Operationally Optimized and assist
• Development of New Business Model/[s] if required

Augmented and Virtual Reality

Augmented Reality (AR) superimposes computer generated image(s) on a
user’s view of the real world thus providing composite picture. Virtual
Reality (VR) on the other hand is a computer-generated simulation of a
3-dimensional image of an environment that can be interacted with a
seemingly real or physical way by a person using a special electronic equip-
ment. It could be a helmet with a screen. It must be understood that VR
is an artificial environment that is created with software and presented to
the user in such a way that the user suspends beliefs and accepts it as a real
environment.
At the core, AR transforms volumes of data and analytics into images or
animations that are overlaid on the real world. In practice, most AR appli-
cations are delivered through mobile devices. Increasingly delivery will
shift to hands free wearables such as head mounted displays, or smart
 3 SOCIO-POLITICAL AND TECHNOLOGY ASPECTS 37

glasses. It would be worth mentioning that AR is supplementing or replac-

ing a number of traditional manuals and training methods at a very fast
pace. AR thus enables a new information paradigm which will have a pro-
found impact on how data is structured, managed, and delivered on the
internet. Flat screens have limitations. AR allows people to process the
physical and digital simultaneously eliminating the need mentally to bridge
the two.
A picture is worth thousand words. A picture that superimposes infor-
mation on the physical world reduces the cognitive distance for us. Speed
at which information is transmitted and absorbed and the cognitive dis-
tance involved in applying it lies at the root of the need for AI. There is no
better Graphical User Interface (GUI) than the physical world we see
around us. When it is enhanced by a digital overlay of relevant data and
guidance where and when they are needed. Many standard instructional
methods are quite expensive. AR addresses these issues in real time, on-­
site, step-by-step visual guidance on various tasks. Further, AR enabled
devices can also transmit what an on-site user is seeing to an expert who
can see what the worker is seeing and then help him/her. A worker wear-
ing smart glasses would be able to walk a line of factory machines and see
their performance parameters. It would then be possible to adjust each
and every machine without physically touching it.
It might be useful to compare VR with AR. While AR superimposes
digital information on physical world, VR replaces physical reality with a
computer-generated environment. VR is useful when settings involved are
hazardous or remote. When needed AR can always add a fourth capability
viz. simulation to AR’s core capabilities to visualize, interact, and instruct.
Combining AR and VR allows users to transcend distance, time, and/
or simulate possible future situations. It could even transcend scales by
allowing users to engage with environments that are either too small or
too big to experiment with directly.
AR creates business value in two ways. First by becoming part of the
product themselves and second by improving performance across the
value chain. The way products convey important operational and safety
information to users can become point of differentiation. With smart
glasses, a user can see an AR display on any product enabled to communi-
cate with them. Perhaps, AR would be of great help on cost reduction.
We are of the view that at the moment there is not much scope for
using these technologies either in marketing or in investment advisory
services. After all, FI products are intangible and there is no question of
38 V. C. JOSHI AND L. KULKARNI

“fitting” them in a given environment. However, industry is trying up and

as suggested by Bram Nawijn in his paper we find that there are about 8–9
applications for AR and VR in Financial Services Industries. (Nawijn, 2018)

1. Visualizing “data” is an important tool and helps bond dealers, trad-

ers in their day-to-day working. At the same time, it could also be
shown to investors for information or in support of decisions made.
2. Wealth management software adds certain elements to give users
better access to algorithms and trading tools.
3. Making payments be made a virtual experience.
4. Inclusion of biometric security in VR.
5. Helping customers identifying branches or ATMs, mainly during
crisis/visits to unknown places.
6. Virtual branch visits.
7. Recruitment and Training.
8. Demonstrating bank’s use of technology in operation.

There are VR tools which enable investors to view 300–400 stock prices
without switching screens. Non-Life Insurance claims can be settled in
matter of hours and not over weeks and months as used to happen in
the past.
The most remarkable thing about it is “presence”. This is a deep vis-
ceral feeling of being there. Those who have experienced it recount mem-
ories of it as if it were a place they have visited – not something they saw
on a screen. It is obviously a computer-generated world.
Naturally, the question arises as to the advantages of being there. Earlier
the models used for viewing these things were operationally not quite
suited for frequent use. Simpler versions have been developed and it is a
cradle to slip a smart phone and use for viewing.
Samsung’s Gear VR or Google’s Cardboard are the play station ver-
sions with built-in displays and relies on external processing power. The
uses of viewing range from entertainment, the thrill of being there, and
more importantly for teaching, collaborations, or applications planned for
future use.
The limitations of VR have drawn us to AR. AR is dependent on the
outside world as it is. It senses depth and distance, crunches data about
what they are looking at and places objects in a correct position.
In conclusion, we would say that the path to technology installation is
strewn with difficulties. The problems of compatibility with legacy
 3 SOCIO-POLITICAL AND TECHNOLOGY ASPECTS 39

systems, taking steps to train the staff in use of technology or data in deci-
sion making as a major input would not be easy to implement. The changes
will have to start at the very top and constantly nurse as a management
requirement.
Apart from it, there could be ideological opposition to machines replac-
ing humans or chat bots offering services 24×7. The ethics and ethical
practices in AI would need constant reiterating and effort should be made
to ensure that decisions are bias free. The CEO’s office and others in top
management must watch these aspects very carefully and pay particular
attention to “dark heart” of AI.
In their book Technology Fallacy, very pertinent observations on tech-
nology applications and their impact have been made and we quote
the same.

You don’t want to be fighting the last war but preparing for the next one.
Since the primary challenge that organizations face is adapting themselves to
a changing environment, a companies’ digital strategy will evolve as the
environment does. Therefore, digital strategy is not a singular long-term
plan to which the organization doggedly adheres.
Rather, it is a recursive process of identifying the digital goals of digital
business, developing short-term initiatives that get the organization closer
to the goal and then rethinking the nature of those goals what the organiza-
tion has learned from those short-term initiatives. (Kane et al., 2019)

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 CHAPTER 4

Reimagining Banking

The New Normal: New Business Model for Banks

The chapter with its title the “new normal” signals our hope and aspira-
tions (some may consider it exaggeration) to make a new beginning in the
field of “inclusive finance”. The micro-finance sector is passing through a
very difficult period. Many of the borrowers of various Micro-finance
institutions (MFIs) have been driven to the default category. In many
cases, just prior to the onset of the pandemic, these borrowers were having
reasonably good credit rating (perhaps they were in the two-income family
group) and enjoyed a good repayment record. We know of many such
families and they are required to draw on their “savings” once again or
borrow further monies to pay for school fees and text books or to meet
urgent demands for financing seeds and fertilizers or even to tide over
some basic financial requirements. There would be many a borrower who
would need additional financing to meet such needs. This could mean
extending the repayment period.
We are led to believe that banks will have to assume the role of “change
agent” if they are to successfully launch “inclusive finance” schemes and to
cover “the poor” groups. In fact, the pandemic has highlighted one major
weakness of the group model. Because of the lack of public health facili-
ties, medical expenditure is a major drag on a family’s meagre resources
and a major factor in loan defaults.

© The Author(s), under exclusive license to Springer Nature 41

Singapore Pte Ltd. 2022
V. C. Joshi, L. Kulkarni, The Future of Indian Banking,
https://doi.org/10.1007/978-981-16-9562-9_4
42 V. C. JOSHI AND L. KULKARNI

In a report on MFIs prepared by us, we had observed that the MFIs

never covered the poor or that it was linked with some government scheme
that had an assured repayment component. Their schemes were generally
tailored to meet the requirements of not–so–poor.
We propose that utmost priority be accorded to creating even minimal
medical facilities.
The medical availability/economic viability part can be covered with
micro-insurance schemes or through “internships”. The scheme could
have two elements. The availability of physician/physicians for the district
town. The second alternative is to finance local doctors to start dispensa-
ries at centers. Such a move to smaller centers is already noticeable. The
costs for medical education are unduly high. To add on expenses involved
for setting up a practice are also substantial. “Financing” such doctors is
the need of the hour. It could well be considered as “priority financing”.
Further linkages to city-based specialists could be made through internet/
mobile phones etc. Many a consultant are willing to offer advice online.
We are suggesting that the student desirous of joining medical schools
should be given incentive marks if they spend time in doing meaningful
work. Many American colleges give weightages even for “following” a
physician. We know of cases of boys and girls who spend time in sub-­
Saharan regions etc. They were given preference over others with better
marks at selection tests and priority in admissions.
The bank had tried out an experiment with third-year diploma students
in an agricultural college. We had some of them working with the bank’s
agricultural financing department. We gave them a stipend. Half the
amount of stipend was kept with the bank as fixed deposit and the remain-
ing amount paid to the students. They were asked to inspect and suggest
improvements to units financed by the banks or other activities financed
by banks in rural areas and submit regular reports. Our agriculture officers
guided them in their work.
Basically, the new normal requires us to break the set pattern and
go to the root causes of default. Misuse or deliberate deception could
be avoided if the banks took a holistic view and undertook these activ-
ities as part of “risk management”. Instead of complaining about a
borrower using part of the loan amount for buying text books for his
daughter, why not get the local school to start a text book library? Or
a scheme for donation.
Micro-financing for those at the bottom of the pyramid requires multi-­
dimensional approaches. The pandemic has brought out this aspect
 4 REIMAGINING BANKING 43

vividly. One cannot expect that Salvation Army do-gooder would take care
of all these problems. Nor is the way out of these difficulties increasing the
load amounts or reducing instalments.
A wider perspective needs to be developed. If somebody feels that
quoting a few random instances is enough, it can never be the solution; we
would suggest a coordination with “state” authorities. In a sense, the gov-
ernment channelizes funds through PMJDY. Banks could be proactive
and coordinate with government agencies and see how to make full use of
such funds. The “thin file” customers are in need to such guidance and
support.
We are aware that we could be charged as being “paternalistic”. Are we
not told to use masks and wash hands? Are we not advised to observe
social distancing? Circles are drawn on the roads or in areas where we are
expected to be in queue. We can be guided in these matters, and branches
may be driven to observing the rules. One does not object to such guid-
ance on the grounds that it is paternalistic.
Our study of PMJDY leads us to believe (we hope we are wrong) that
after the opening of such accounts (over-boarding) the banks made no
effort to activate these accounts. Instances, when such customers were
shunned by the banks are available in large numbers. Some of these cases
have been documented in the project reports prepared by students.
It stands to reason that when the authors propose a major departure
and want the banks to work on a new “business” model, a few suggestions
to ensure that public resources are not wasted. (The NPA figures speak
volumes about the care lavished by banks). Banks should now realize that
society now expects a vigilant outlook.
The argument above was recently used by Lord Turner in another con-
text to question bank staff salaries. Lord Turner questions as to the “skills”
required by bankers and asks if such high salaries were justified. He further
goes on to ask if these high salaries attracted the new entrants to banking
instead of going into teaching (Turner, 2010). Is it not a sad commentary
that engineering colleges have to be closed because of lack of faculty
resources? Society has rights to ask such questions and to ensure that
“social values” is built up through moneys spent. Bankers beware! Time
has come when banks too have to see that they perform their duties as
“Trustees”. We now try to evaluate the implications and to assess the
impact on financing already done.
So far, banks had desisted from undertaking such micro-financing
directly, i.e. the banks financed NGOs or micro-finance institutions which
44 V. C. JOSHI AND L. KULKARNI

undertook micro lending. A close look at the model shows that banks had
no option but to rely on such indirect methods because of the costs
involved. The entire working was “manual” and transaction costs were
unduly high for the work involved and the income generated.
However, the last three or four years have seen a major technology
change which now facilitates banks, undertaking this work and their direct
participation in this colossal but highly challenging task of poverty allevia-
tion. Leaving aside the emotive connotations, the sheer business calculus
makes it necessary for the banks to do this work on their own. The reasons
are as under:

1. The risks for loss under the present arrangement, are to be borne by
banks. The MFIs have no securities to offer for loans amounting
to crores.
2. The rates of interest are not charged or reducing balances by the MFIs
to their borrowers.
3. Basically, these are “consumption” loans.
4. A few business activities like selling vegetables, bangles, eatables or
working as tailors or are a means for generating extra income. There is
hardly any growth potential or opportunity for employment genera-
tion. If at all one or two girls were to be employed as additional hands,
their wages are woefully low and working conditions are dismal.
5. The borrowers are not at all aware that the primary financier is the
bank(s) or financial companies. For the last few years many of the MFIs
have asked (compelled) their borrowers to open the accounts.
6. Lastly, there is a “saving” component which in a sense serves as margin
money for second or third loan.

Coming to the assessment of credit requirements or risk management,

one could well say that in practice, it starts with second installment on the
payment pattern. Care is taken to see that multiple borrowing is avoided
and that group guarantee is available. It is the group presence that plays an
important role in recovery mechanism.
Some MFIs have health insurance or daycare center schemes. These
play a supportive role and go to ensure that basic lending activity does
not suffer.
In conclusion, we would say that this is “heads I win and tails you lose”
situation for the MFIs. Banks do get to put the number for borrowers on
their balance sheets. They pay a heavy price by way of the risk they assume.
 4 REIMAGINING BANKING 45

But as is happening now, remedial packages to revive the private sector

units and salvage bank loans are running into crores of rupees.
We are suggesting that the basic assumption underlying the existing
model is that each one of the poor could take up some business activity
and could become an entrepreneur needs to be given up. Surveys have
brought out that most of them are after a job which ensures a regular
monthly income. The loan application may show the purpose as “busi-
ness” but the amounts lent are for purposes other than business.
The time has come to accept the ground reality and treat these loans as
consumption loans. In fact, banks could act as proper bankers and save the
borrower considerable expense. A bank was, as suggested by us was financ-
ing a few vegetable vendors. A major expense item was for bringing in
vegetables from the wholesale market. The bank financed two drivers for
purchasing the tempo and the freight charges were reduced by half. The
loan for the tempo was paid as they were assured of regular work and they
could generate additional business because of the reduced rates.
We would now turn to the cost aspect of micro lending. Account oper-
ation through mobile phones drastically bring down the costs. Digital
lending dependent on data (account operations, social media, children’s
school etc.) help in far superior decision making than the current loan
officer centered sanctions.
Studies show that cost per transaction through mobile phones is 60–70
paise and therefore banks could be more vigilant on recovery. A few exten-
sions of services by the banks and the work of recovery would not be dif-
ficult as is made out. If the MFIs could do it so could the banks. Blacklisting
a borrower seems a serious worry and acts as a deterrent in defaulting. In
fact, even those who had defaulted on instalments make special effort to
make good and put these accounts in order.
Banks have to try out a new business model in which machines and data
analysis would play a major part. Does it mean that we would pull down
the existing edifice?
Certainly not. We could show that there is no need for an abrupt sud-
den change.
At present the MFIs are passing through a difficult phase. Their recov-
eries are far from satisfactory.
Banks when they undertake the pump-priming activities should intro-
duce some staff to work with the MFIs. A bank had tried a scheme under
which the bank gave the MFI equity funding and could exercise control
over the operations. Two general managers were inducted as board
46 V. C. JOSHI AND L. KULKARNI

members and down the line some operational managers to improve work
systems etc. The MFIs were happy at the coordination resulting at the top
management and along the administrative hierarchy. The bank’s equity
gave the MFI much needed stability too.
The government schemes envisage the following: the bank should
spread their wings and bring the activities under their active supervision.
Further, the branches could well become clearing houses for bringing sup-
pliers and sellers together. If Wells Fargo bank could do it in US, it should
not be difficult for branch managers in India to organize it. The same
arrangement could be extended to the S&MEs through the internet.
The pandemic has brought down the old order. We are suggesting
modification and changes and rebuilding with a different orientation.

Open Banking
It ensures that banks now enable third-party providers (TPP) to work
securely, reliably, and rapidly with the banks’ services and data on behalf of
and with the consent of their customers. European Union member banks
have given authorized license and TPP access to customers’ accounts
either via APIs or through their user interfaces. It mandates use of strong
customer authentication and may necessitate multiple factors of authenti-
cation. In effect, it is in a sense response to the customers changing
requirements that the banks are now required to share the data and afford
access even to small account holders through a common framework of
application programming. We have no doubt that it may fuel a wave of
innovations and would afford FinTechs seeking entry through payments
and consumer finance. However, there are quite a few road blocks. These
arise due to delays in development if APIs. In fact, many banks are quite
weary about allowing such free access. Real-time settlements (RTS) was a
contributory factor since it was open to various interpretations.
We now turn to “safety” of these balances against cyber-crimes.
Passwords and biometric identification should minimize these dangers.
But customers must be careful. We have in the Chap. 6 on cyber-crimes
indicated the precautions we have to take. Additionally, customers have to
see that they are casual about protecting the accounts from hackers. Some
insurance companies offer insurance cover. If one were available, it would
be as useful as health insurance policy. For the sake of readers who do not
like the idea of going from one chapter to another merely for the sake of
 4 REIMAGINING BANKING 47

referring to a small note, we reproduce those details about precautions to

be taken. We must warn that cyber security has now become a non-­
traditional economic and national economic threat. These now include:

• Espionage
• Propaganda
• Denial of service
• Data modification
• Hacking personal information

In case of an attack on customer account (email or other devices), banks

should advice the customer to act as under.

• Report losses to the police

• Report fraud, if any
• In case of a ransom attack, do not pay and try to get official guidance
from law enforcement
• Change passwords
• Inform the credit agency
• Provide firewalls

Digital Banking
As Fareed Zakaria writes in his book Ten Lessons for a Post-Pandemic
World, “In the 1920s people went back to their farms, factories and
offices because there was no alternative. To work, you had to be at
work. If you sought entertainment you would find it in theaters and
music halls. If you wanted to buy clothing you went to a brick and
mortar store. That is no longer true. Over the last two decades we
have seen the rise of a digital economy that makes it possible for peo-
ple to do most of these things without having to cluster together,
battle traffic, pack into trains and spend hours commuting. Today life
can be lived digitally” (Zakaria, 2020).
Gradually digital economy became so powerful that is now the domi-
nating way for satisfying our socio-economic needs. The fact that hits us
today is that everything seems on software which has spurred other break-
throughs such as cloud computing, big data, and analytics. Data fuels
modern business and therefore, software has become the key to growth.
48 V. C. JOSHI AND L. KULKARNI

Add to all this the mobile phone. The phone is the computer. Now
there are over 550 million mobile phone users in India. India leapfrogged
the digital divide with astonishing speed. In 2015, it ranked 155th. By
2017 it was consuming more mobile phone data than any other country
on earth. In an interview with Mr. Fareed Zakaria, Mr. Ambani stated that
digitization will transform India as never before. The mobile phone revo-
lution is modernizing India in more ways than one.
COVID-19 changed the human attitudes still more. The pandemic and
lock down changed the behavior. It is unlikely that we will ever go to the
past. The pandemic served as forced as a mass product testing for digital
life and technological tools passed the test.
The nature of work is also changing. Seventy-five percent of Tata
Consultancy workers can now work from home. Many companies believe
that they can maintain productivity while giving workers more flexibility
and cutting office space costs.
But we are already working differently. Collaboration which involves
team work, is going to be intellectual and not physical. It can be carried
out through email, group chats, and video conferencing. Office visits
would be for meeting for deepening connections, providing intellectual
stimulations, or simply offering entertainment. May be new hybrid models
can come up. Work would be tied to life at home. Personal and Professional
is intermingled. Our colleagues saw one side and the family another.
Look at medicine. Technology in health care is growing very rapidly.
Patients are ready for video consulting. Telehealth allows doctors more
time for serious patients. Machines and software are helping with diagno-
sis, surgery, treatment and therapy. Wearables could keep a constant watch.
No wonder Tim Cook believes that Apple’s greatest contribution to man-
kind would be about health.
Banks’ contribution could be wealth collecting, organizing and analyz-
ing information. Computers can do better than humans. AI program can
read millions of statements or data on customers. It could offer advice fare
more quickly and thoroughly than any branch manager.
Over a period, the banks could have more data and a fuller picture of
the way you use bank finances or even your own. There would be robots
to assist. “Hazards” would certainly be avoided. Information regarding
your industry, raw material prices, sales and such could be updates as and
when you need. Articles in journals, your competition etc. could be readily
made known. Automation is now set to become a part of our industrial,
financial, and even general well-being including health.
 4 REIMAGINING BANKING 49

In fact, the problem would be for us to find a purpose. We would need

more government assistance. The philosopher Nick Bostrom raises impor-
tant questions: will the machines have morale? Could it threaten human
species? (Bostrom & Yudkowsky, 2014).
Along with this are bio-tech changes. AI does a better job. Concern
would be about privacy, handling data and our lives being under scanner
24×7. In the light of the tectonic shift in customer behavior (forced, no
doubt) and some of which likely to persist, banks will have to consider on
an urgent bases, a shift to digital finance, through the establishment of
e-Banks, digital banks.
There is a lurking danger that some tech companies (with very deep
pockets) which are eyeing the “payment” field may choose to widen the
scope of their forays into finance and go for an e-Bank in collaboration
with a foreign bank or an Indian bank. The conditions are propitious.
Last but not least important is the urgent need for banks to shift gears
and move to digital working.
The idea to have business correspondents to provide door-to-door ser-
vice has neither taken off nor is it going to be a very feasible proposition.
In fact, earlier experiments in this behalf by banks resulted in major prob-
lems. There were persistent demands by such “agents” for absorption in
regular cadres of the bank. Banks are likely to be faced with major rede-
ployment problems. Some banks are seriously examining work from home
solution(s). Therefore, digital solutions would be a more logical alternative.

Bibliography
Bostrom, N., & Yudkowsky, E. (2014). The Ethics of Artificial Intelligence. In
K. Frankish & W. P. Ramsey (Eds.), The Cambridge Handbook of Artificial
Intelligence. Cambridge University Press.
Turner, A. (2010, October 11). Lionel Robbins Memorial Lecture. Retrieved from
lse.ac.uk: https://www.lse.ac.uk/assets/richmedia/channels/publicLecture-
sAndEvents/transcripts/20101011_1830_economicGrowthHuman
WelfareAndInequality_tr.pdf
Zakaria, F. (2020). Ten Lessons for a Post-Pandemic World. W.W. Norton
and Company.
 CHAPTER 5

Banking: New Frontiers

The environment and monetary authorities’ response to these changes

are bound to lead to a rethinking of the way the management’s response
to them. We have in this chapter indicated two ways in which banks could
deal with the changing situation. These suggestions are indicative and not
necessarily normative. Such changes coupled with technology changes
suggested in Chap. 3 are far reaching and necessitate operational changes
at different levels. These policies have to percolate to the down most lev-
els of the organization and would call for a commitment from all
concerned.
The pandemic and technologies are making it critically important for
banks to review not only their own business model but to also have a criti-
cal look at their customer profiles and emerging customer demands and
expectations.
The pandemic has necessitated a critical evaluation of “branch cen-
tered” banking operations and the focus is gradually shifting toward
“customer driven” operations. For the first time, the customers are not
visiting branches either to verify operations in the accounts or to with-
draw cash. The dashboard registers very few (at some branches even nil)
footfalls.
On the other hand, use of mobile phones has increased both for
securing timely access for relevant information or to complete a set of
transactions. Mobile phones allow for location independent sending and

© The Author(s), under exclusive license to Springer Nature 51

Singapore Pte Ltd. 2022
V. C. Joshi, L. Kulkarni, The Future of Indian Banking,
https://doi.org/10.1007/978-981-16-9562-9_5
52 V. C. JOSHI AND L. KULKARNI

receiving of both asynchronous and synchronous information. Mobile

phones have brought about a new level of connectedness between indi-
viduals and institutions. The new smart phones (virtually mini computers)
have narrowed the information availability gap as never before. It has
made it possible:

• Ability to act/get help in emergencies.

• Efficiency in daily operations. Mainly, not constrained by busi-
ness hours.

The mobile phone is now gradually becoming the main delivery chan-
nel. It is not mere the channel for Millennials/Gen Xers; rather it is the
channel for a majority of clients, including long-time customers.

E-Banking Facilities for Senior Citizens

Many of these long-time customers opened their accounts with the bank
25–30 years ago and have continued operations with the same bank. They
expect that their loyalty to the bank should be recognized. Their demands
are simple and, in many cases, non-monetary. On their occasional visits,
they would like to be greeted by Manager. Customer surveys conducted
since 1990 has brought out this need for “recognition.” In addition to
meeting with the manager, these customers would like special attention.
They would like to get the pass-book completed while they meet the man-
ager and sometimes even the cash withdrawal without the hassle of getting
in the queue. These can be met without any difficulty and since they have
large enough balances, the add-ons are marginal. In an e-Banking facility,
adding a prefix to their account information should bring about the
desired changes.
Banks have now to decide how to combined branch and mobile phone
business model. Many customers have indicated that the branch inspires
confidence and trust, though the mobile phone makes banking services
available 24×7. It is now up to the banks to use technology (AI, Data
Analysis) to enhance the bank’s abilities to serve their customers in a more
meaningful way and also use the branch network to be the indirect hub for
social interaction.
To start with, we begin with the possibility of having e-Banking units.
There is a growing need for a large number of senior citizens to see if they
get at least 1–1.5% higher interest on their FDs. They would like interest
 5 BANKING: NEW FRONTIERS 53

on such deposits being credited to a savings account in the branch. This is

a life-style savings need. They would be prepared to keep higher minimum
balance (say Rs. 1.5 lakhs). It is assumed that banks would permit break-
ing up such receipts in case of hospitalization. Some customers have also
expressed their need to transfer excess amounts in savings account to
e-Bank accounts. If the experience of American or European banks is any-
thing to go by, the cost for e-Bank customers for transaction would be
much less compared to transactions in a branch.
Further, the banks have to appreciate the fact that they have to bring
into their fold “thin file” customers. In the first few months, their visit to
the branch could be somewhat frequent. The novelty and the prestige of
having a bank account could prompt some of them being desirous of
being attended to.
We now turn to see how technologies like AI, or AR/VR techniques
like data analysis could prevent misuse. We wish to suggest that PSU banks
need to economize on research and technology application expenses. Why
can a number of banks not be served on an all India basis by a research
center in Hyderabad? Many Central Banks undertake technology risk
assessment and certify safety of use. Banks need not duplicate such
expenses. Equally important is to use technology resources judiciously.
Data analysts are scarce. Using cloud-based technology, many of them
could be given an access to multiple banks under proper care. They could
work for Head Office or some branch specific problems.
Providing a common, centralized facility would ensure that technology
expenses are kept to the minimum and similarly staff could have better
training facilities for upgrading their skills. Many such labs attached to the
banks operate on a philosophy that we need a new idea or thought every
morning. As one Director of Research told us at a conference, that their
motto for the bank’s research department is “you can’t solve today’s prob-
lems with yesterday’s solutions.”
We now turn to the issue of use of technology in the next three to
five years. We would refer to a survey undertaken by Economist Intelligence
Unit amongst bankers (The Economist Intelligence Unit, 2020). Banks
are under pressure to deploy new technologies and reshape their company
cultures. The task is becoming urgent as the competition from FinTechs
(big and small) is becoming more and more intense.
They begin with a universally acknowledged fact that the Coronavirus
crisis has focused attention of banks firmly on new challenges. Bank branch
traffic was already falling before the pandemic and this trend will only
54 V. C. JOSHI AND L. KULKARNI

intensify with society in lockdown. Customers are naturally reluctant to

leave their homes and employees in many cases are working from home.
Banks have never planned for a contingency where their branches are
closed. Perhaps as Skinner puts it, “This is the big lesson of the crisis”
(The Economist Intelligence Unit, 2020). Many of the executives sur-
veyed maintain that their strategic response in the face of such competi-
tion is to build a truly digital ecosystem. Sixty-six percent identified that
machine learning, artificial intelligence, and new technologies would have
the biggest impact by 2025. An additional 42% cited regulations for data
protection and digital technology as having the largest impact. In fewer
than 20% believed that changing socioeconomic circumstances or com-
petitive environments would have the largest impact. For full survey
results, see (The Economist Intelligence Unit, 2020).
Indian banks will have to give far greater attention to changing cus-
tomer behavior on account of:

• Banks’ changing business model.

• Changes in customer behavior brought about by COVID-19.

We would particularly point out that the transition to such a changed

technology-based operation is quite challenging. The banks will have to
have a continuous dialogue with tech companies, bank customers and
their own research departments and IT groups during the implementation
stages. Banks will have to bring home to them that without such changes,
it would be difficult to attract, nurse and retain their changing cus-
tomer groups.
We have indicated in the Chap. 6 on Cyber Crimes and Chap. 8 on HR,
how the process can be initiated and have an integrated technology devel-
opment. Equally important, would be the use of AI for portfolio manage-
ment (investment advice for customers), business planning, fraud
detection, and in back-office functions. We must add that banks would
have to undergo a major cultural change.
Another source of concern for banks would be attention to environ-
mental factors. Financing of environmentally friendly projects would be of
considerable importance. Financing of carbon emission and environmen-
tally unhealthy aspects will have to be avoided.
Frankly, managing the client transition to digital operations would be
a worry.
 5 BANKING: NEW FRONTIERS 55

An immediate fallout of technical innovations is a critical evaluation of

branch network of banks and a review of all organizational set-up. The
branch was the main operating unit of the banks. Record keeping, offering
of various services, and marketing were the crucial functions which were
carried out by branches.
Consequent to major technology changes, it is now imperative for
banks to examine if the present branch setup is functionally necessary and
useful. The main reason for the spread of branches was the need to bring
banking through branch network virtually to customer’s doorsteps. The
branches were opened near the main business centers, railway and bus sta-
tions, marketplaces, and even as near as possible to the housing societies.
Customer convenience in terms of distance travelled, the timing for busi-
ness were added considerations.
An equally important consideration was to ensure prompt disposal of
customer grievances, complaints and more importantly meeting customer
requirements. The regional/area office could deal with such matters “on
the spot” and the need for reference to higher authorities was done away.
A loan proposal could be sanctioned in a matter of days.
The result has been that there is a totally unwarranted growth of branch
network. Many large cities generally have bank branches on the major
roads passing through the city centers. In some cases, one could count
5–7 branches from one end of the road to another.
The argument that it is to meet customer demand has been negated by
technology developments. The customer(s) can through their mobile
phones operate on their accounts anytime from anywhere. This is particu-
larly important in the current situation.
During the pandemic branch visits either for renewal of deposits, cash
transactions are reduced to a minimum. Technology has or is gradually
leading to a diminished dependence on branches for operational needs.
Perhaps in response to such changes, certain rationalization is already
under way. However, even the present arrangement seems to be somewhat
redundant.
We are logically driven to suggest that all the present PSU banks be
merged into one bank and divided into five zonal banks. We would have
two major banking operations. The SBI and the Zonal Banks as a new
merged entity. It could easily be modelled on the lines of Railways in
India – north, south, east, and west would in addition to Northeastern
could be zones with a few branches required in each city.
56 V. C. JOSHI AND L. KULKARNI

Such structure meets the customer expectations. The zones would have
urban units and separate rural units. Banks have recruited a large number
of agriculture graduates and post graduates. Their talents are largely unde-
rutilized. They could be used as guides for the farmers and a very useful
link between the state government and the banks.
At the head office level, the main thrust would be on framing and guid-
ing implementation of policies in respect of:

(i) Technology
(ii) HR
(iii) Marketing

At the same time a special division to fight out NPA cases. Currently, a
majority of banks customers can be classified as:

(i) Seniors above 65 years of age

(ii) Millennials (Natives)
(iii) Aliens <Add definition and reference>

Those in categories (ii) and (iii) have not completely shunned bank
branches.
But their visits are primarily for grievance settlement, loan/overdraft
facilities or instrument advice. The group has quite a substantial number
of high net worth customers.
The branches would have to pay special attention to avoid overcrowd-
ing at the same time due care for their privacy. At one end one would need
such branches for “priority” customers (seniors, high net worth). They
could meet bank officials by prior appointments. At the other end, we
would have reasonably medium sized places modelled on the current
setup with a maximum capacity for 6–8 customers. Admissions not to
exceed a given number being the “operational” requirement. In the rural
areas very small cubicles on the lines recommended by a team of IIT stu-
dents at a design competition.
The attempt should be to reduce expenses on real estate and rents. The
reliance should be on customer service, chatbots for routine queries (to
avoid human contacts and provide infection free surfaces).
The ideas behind the proposed research center arrangements are:
 5 BANKING: NEW FRONTIERS 57

1. Avoid undue reliance on technology costs.

2. Human resources required for data analysis, AI are scarce and expen-
sive. Every year their salaries are increasing by 15–20% per annuum.
3. Technology would be a determining factor in the competitive era.

Lastly, our research team has come out with newer solution. At a con-
ference in eastern Europe, a director research (chairperson for the meet-
ing) said that her team has to come out with newer solutions. The guiding
principle for the staff is that one can’t solve today’s problems with yester-
day’s solutions.
Banks would now have to deal with FinTechs with deep pockets and a
large customer base. Banks talented staff has to give us solutions (both
cheaper and faster) to meet such competition. Banks have information and
data which the FinTechs can’t match. Banks must put it to use. JP Morgan
and Chase bank’s chairman Jamie Dimon put it well. Silicon Valley are
around the corner. Banks have to face a global challenge including the one
from TenCent, Amazon, and the like. The scarce resources have to be
conserved. The strength lies in having a united and strong front. When
the chips are down, banks, if required, get totally ignored. Banks have to
jealously guard their turf.
So far, the presence of FinTechs has not made intrusions which would
necessitate a “c: suite” focused attention. The activities have now reached
such proportions that the Economic Secretary of the British Treasury has
recommended an active participation and even collaboration between
FinTechs companies in furthering certain economic activities. It is worth
noting that there is not a word about British or Chinese banks.
One could well say that ultimately, we should be concerned with what
they do. True it is, that unlike the banks, the FinTechs are not regulated.
Currently, the regulation scrutiny relates to the technology used and the
ensuing risk funding. Otherwise the FinTechs seem to be beyond the pale
of financial regulation. The banks and other FIs coming under regulatory
scanner obviously suffer from a cost disadvantage. The regulatory costs are
considerable. At the same time banks and the other FIs get a boost to the
“trust” factor and also considerable help and guidance in adherence to
international state and regulatory requirements.
But the fact remains that sooner and not later, the FinTech companies
would justify the nomenclature “disruptive” that accompanies the word
technology. Christensen was categorical in using it to connote that these
technologies help tech companies in competing with and in attacking the
58 V. C. JOSHI AND L. KULKARNI

soft underbelly of the FIs. In that sense, the major FinTechs would post a
serious threat to the banks (Christensen & Bower, 1995). The possibility
of them becoming a menacing competitor cannot be ignored.
Finally, before concluding, we must add that the need to have a sepa-
rate bank to meet the needs of farmers and other dependent on horticul-
ture etc. is acutely felt. Banks have the wherewithal. These resources need
to be channelized. There is an actual need for coordination amongst vari-
ous agencies. What is also wanting is a concerted effort.
Unless this acute need is fulfilled and fulfilled on an urgent basis, we
would be making a grave mistake in our duties to allocate capital. NABARD
should have the same role for supervision and development as agriculture
has. They should have same/similar authorities to deal with the banking
units, coordinate their activities, correct the erring units and build up the
machinery for growth. One gets the feeling of a sector being neglected.
Let it be brought on par with “Industry” and developed. It must be done
on a “mission” mode!

Bibliography
Christensen, C. M., & Bower, J. L. (1995, 02). Disruptive Technologies. Retrieved
from hbr.org: https://hbr.org/1995/01/disruptive-­technologies-­catching-
­the-­wave
The Economist Intelligence Unit. (2020). Forging New Frontiers: Advanced
Technologies Will Revolutionise Banking. The Economist.
 CHAPTER 6

Cyber Crimes and Laws

Before proceeding on the journey ahead, it is necessary to survey the cur-

rent state of the “minefield” we would be entering. India’s unique geo-­
political position creates strong incentives to more brazen cyber-attacks
with fewer deterrents. In fact, as time passes, the line between nation
states, cyber warfare and cyber-crimes is getting blurred. The “finance
industry” is subjected to attacks by nation state attackers, organized crime
gangs and con artists.
We begin with a review of “cyber space”, the playground for the crimi-
nals. Cyber space is an interactive domain made up of digital networks that
is used to store, to modify and to communicate information. It includes
the internet and also other information systems that support business
infrastructure and services.
The field manual of the Unite States defense department defines “Cyber
Space” (Cyber Space Glossary – CSRC) as under:

It is global network of information environment consisting of information

technology infrastructure and resident data including the Internet and tele-
communications networks, computer systems and embedded processors and
controllers.

© The Author(s), under exclusive license to Springer Nature 59

Singapore Pte Ltd. 2022
V. C. Joshi, L. Kulkarni, The Future of Indian Banking,
https://doi.org/10.1007/978-981-16-9562-9_6
60 V. C. JOSHI AND L. KULKARNI

The UK cabinet office describes cyber space as under:

Cyber space is an interactive domain made up of digital networks that is used

to store, modify and communicate information. It includes the interment
but also the other information systems that support our businesses, infra-
structure and services. Digital networks already underpin the supply of elec-
tricity and water to our homes, help organize delivery of foods and other
goods to shops, and acts as an essential tool for businesses across the
UK. And their reach is increasing as we connect our TVs, games and con-
soles and even domestic appliances. (The UK Cyber Security Strategy
Protecting and Promoting the UK in a Digital World, 2011)

Cyber space is a system of systems. It takes the form of a global network

of computers located mainly on land, but also across seas, air, and space.
Many small and diverse systems comprise the structure as a whole. These
domains are tightly interconnected and such that an event in one or the
other domain(s) greatly expands and can complicate the situation. The
initial limited battle field can easily become a global horizon.
At an abstract level, cyber space comprises the core technical infrastruc-
ture, networked hardware and software across land, air and sea that enables
the flow between producers, consumers, audiences and systems. This
space in short, is a community. It should not come as a surprise that hereto
there are various con artists operating here and are carrying out their
nefarious activities. They are out to trick us and get into our accounts and
the banks systems.
The attack surface has been growing with hyper connectivity across
devices and services. The data from virtually any source suggest that cyber
security threats in India are on the increase. The International
Telecommunication Union (ITU) had brought down India’s ranking
from a security perspective to 47 in 2018 to 23rd in 2017 (India Ranks
23rd Among 165 Nations in Cybersecurity Index, 2017). It clearly indi-
cates a decreasing level of cyber security engagement. At the same time,
we must add that the geo-political dimension, (ever since the border skir-
mishes started), the number of attacks is going up. Currently, it has
reached a figure of 400. These attacks are primarily against defense estab-
lishments or connected entities.
The white paper prepared for the office of the National Security
Coordination (NCSC) Government of India, highlighted some of the
dangers lurking ahead.
 6 CYBER CRIMES AND LAWS 61

The attack surface is also growing with hyper connectivity across devices and
services. Whether we look at data from companies, consulting organizations
or even the government itself, the one point that always comes up is that
cyber security threats are on the rise in India.

Attacks on assets (public, or private) can render a vulnerable system

useless in the blink of an eye. Even worse, it could mask the vulnerability
in the system. We can’t forget the fact that 90% of the people are currently
mobile users. Such digital inclusion needs to have proper security features
embedded in them and their applications.
In the light of such gaps in the current context we need to undertake:

• Identification of gaps in the current system and try to raise the level
of preparedness.
• Work closely (in cooperation with) global regulators.
• Try and review both local and global problems.

We must take careful note of the fact that criminals are bound to take
advantage of authorities being busy with COVID-19 and related issues
and in all probability less vigilant about cyber cases. Therefore, all of us
have to be in our own way careful and vigilant not only about our accounts
but particularly about devices we use.
At this stage, we would like to dispel a misconception which many cus-
tomers often have. They have a feeling that if there were a meager balance
in the account criminals would not bother with it or tamper with it. It
should not be forgotten that criminals are trying to get to the banks’ sys-
tems. The negligence on your part, could result in a major attack being
launched. There are innumerable instances to bring home the truth in this
assertion.

The Criminals
We are often asked about the perpetrators. These could very be classified
as under:

• Nation state actors.

• Organized gangs. They are as organized as any corporate entity
would be. They have their own divisions for dealing with spe-
cific crimes.
• Criminals acting on their own.
• Disgruntled staff.
62 V. C. JOSHI AND L. KULKARNI

The reason for the increase in their ranks could be:

• Difficulties in detection.
• If caught penalties are less stringent.
• Costs for undertaking such “feats” are at best US $250 laptop. One
need not dig a tunnel to reach bank’s vaults. Breaking the firewall
is enough.
• Cross border crimes take unusually long time before a “case” can be
brought to trial and concluded.

Motivation for Crime

Why do these crimes occur? The perceived anonymity and financial gains,
is the main reason. Other reasons are as follows:

• Through such attacks, companies could steal research data, other

information and gain certain advantage or save some expense.
• Disgruntled Employees or some senior management staff being
lured by gain or revenge against their seniors or colleagues.
• Social engineering through friendships built up for such nefari-
ous purpose
• Laying hands/figuring out cryptographic keys.
• Get to know about passwords through “contacts”.

Unfortunately, laxity on part of network administrators, dereliction in

sniffing of all the traffic on the network, and neglect in following instruc-
tions about opening email attachments.

Cyber Crimes
Cyber-crimes consist of criminal acts that are committed online by using
electronic communication and information systems. These are/can be
borderless problems that can be classified as under:

• Crimes specific to the internet such as attacks against internet sys-

tems e.g. phishing.
• Online fraud and forgery.
• Illegal online content e.g. child abuse, pornography, racial hatred or
inciting terrorist acts.
 6 CYBER CRIMES AND LAWS 63

In the same vein, we can include the following:

1. Harassment via emails

2. Cyber stalking
3. Computer vandalism
4. Credit card frauds

One could list the following as crimes against society

• Polluting the youth through incorrect/indirect exposure

• Forgery
• Financial crimes
• Online gambling

Equally worrisome are case of:

• Espionage
• Propaganda
• Denial of service
• Hacking secret information
• Infrastructure manipulation

We must at this stage mention money laundering/terror finance. These

are currently on every financial institute’s radar screen and even specific
software are available and are in use to detect such fraudulent behavior.
Given hereunder is a brief review of the impact of such attacks of crimi-
nal activities (Table 6.1) (RISK MANAGEMENT FOR ELECTRONIC
BANKING AND ELECTRONIC MONEY ACTIVITIES, 2003).
Acts described about are such that the banks would have to follow the
laid down procedure or go in for legal action where necessary. For the
individual customer who are subjected to such attacks the following course
of action is suggested.
These are acts for which the bank/FI would have to follow the laid
down procedure or go in for legal action as necessary.
But we would, for the individual customer suggest the following if an
individual were subjected to such attack:

• Immediately report the losses to the police station.

• Report frauds if any to the Crime Branch/Cyber Cell.
64 V. C. JOSHI AND L. KULKARNI

Table 6.1 Impact of attacks of criminal activities

Criminal act Possible manifestation Potential effect

Unauthorized Entry into internal systems Loss of data

system access Confidential information Theft of information
intercepted Costs for such frauds
Corruption of data
Employee frauds Data altercation Reimbursement of losses
Funds withdrawal from accounts Reconstitution of data
Theft of smart cards
Repudiation of a Customer’s denial of the Loss of funds
transaction transaction though otherwise Legal action
completed
Significant breach Introduction of virus Customer may discontinue
of security Illegal entries by hackers dealing with the bank
Money laundering Criminal encashment Legal sanctions for
non-compliance

Source: RISK MANAGEMENT FOR ELECTRONIC BANKING AND ELECTRONIC MONEY

ACTIVITIES (2003)

Table 6.2 Cyber

Year Cases registered Persons arrested
offenses
2013 4356 2098
2014 7201 4246
2015 8045 5102
Under IPC
2013 422 446
2014 2272 1224
2015 3422 2867
Websites hacked
2014 32,323
2015 27,205
2016 8056

Source: National Crime Records Bureau Annual Publication

• In case of blackmail or ransomware DO NOT PAY.

• Get official guidance forthwith.

We give in Table 6.2, information in respect Cyber Offenses under

Information Technology Act (2000–2008).
 6 CYBER CRIMES AND LAWS 65

Precautions at the Scene of Crime

There is enough material and we would draw attention to or look at our
book on Digital Finance Chap. 7. (Joshi, 2020)
For officials working at branches/controlling offices, it might be neces-
sary to take precautions in respect of “evidence” in case of happenings on
banks’ premises. Please contact Head Office Legal Department, Bank
Lawyers regarding care to be taken while handling devices used.
We know that certain staff unions have contacted lawyers and sought
guidance on these vitally important matters.

Data Protection
Area which is now attracting attentions from various industries including
banks pertains to data collected by them. It must be remembered that this
information is given by the customers/clients voluntarily. As custodians
therefore, its care has to be lavish. On the use of this information and
ensuring that it does not fall into wrong hands. Few years back, the crimi-
nals used to sell this information. Because of difficulties in identity of the
counter party the criminals also look for ways in which they could collect
the cash for this information. Various countries in Europe, UK have legis-
lations to protect data and stiff penalties for any misuse of leakage are
levied. A data protection bill was introduced in the Indian parliament and
after the scrutiny by the standing committee by the parliament, it is likely
to be passed in the current session as an act. Given below briefly are the
salient features of the act.

• Categorization of the individual as “data principal” and the recipient

of the data as “data fiduciary”.
• Obligation on data fiduciary to collect data only for necessary pur-
poses after satisfying certain conditions.
• Categorization of data into personal/sensitive personal data.
• Right to be forgotten.
• Transparency, security and accountability measures.
• Data localization requirements.
• Offences and penalties.
• Setting up a data protection authority.
66 V. C. JOSHI AND L. KULKARNI

Currently, there is a controversy pertaining to automatic reuse of indi-

vidual concerned.
We give below some crimes pertaining to store data. The crimes of
course are varied and not limited to.
We list below some crimes which are affecting stored data. The crimes
of course are varied and not limited to:

Data Diddling
IT is through input manipulation. It involves changing the data before or
during the entry into a computer. It also includes adding, changing the
data with a malicious intention before or after feeding it into a computer.
It includes fraudulent data input, altering it or wrongly posting the
transaction.

Data Leakage
Refer to illegally copying the information for ransom, blackmailing or
other fraudulent purposes. Scavenging in fact does refer to using informa-
tion which might have been left over.

Data Spying
Added to this list are software crimes which arise due to affected software
or corrupted one. These could also be hardware defects even in computer
chips. One finds it difficult or little less careful in applying security patches
provided by the software companies from time to time.
There are now literally hundreds of connected devices. The informa-
tion collected by them can and is easily misused. Additionally, cases of data
misuse have been possible through:

(a) Information collected by the Police Department. 779 such

instances are reported in UK.
(b) Smart phones are “sitting duck” targets.
(c) Companies misusing the data from social media. E.g. Cambridge
Analytics misused voter data from Facebook.
 6 CYBER CRIMES AND LAWS 67

We now review various acts pertaining to cyber-crimes. India is one of

the countries where a full-fledged information technology act was passed
in 2008 and subsequently amended in 2012. At this stage we are restrict-
ing ourselves to the problem areas and not going into a detailed analysis of
individual provisions. The subjects have now assumed huge proportions
and therefore beyond the scope of this work.
We highlight however, for the benefit of the reader, the difficulties that
are generally encountered.

1. Consequent to the passing of this act, changes had to be made in the

following acts.

• Criminal Procedure Code

• Negotiable instrument code
• Contract Act

2. The difficulties arise on account of the peculiarities of the cyber-­

crimes. They can be committed from anywhere and it becomes
extremely difficult to pinpoint the culprit. At the same time, collec-
tion of evidence from the dark markets is impossible. Equally diffi-
cult is the need for organizations involved to part with certain details
regarding proprietary item say software. At times, certain banks in
India which were attacked and had to collect information could not
get such details and had to apply to courts to force the companies
concerned to part with it. One could go on listing such difficulties
and we would only end by saying that the banks need to develop to
deal with comparatively simple matters and to liase with cyber-law
specialists on the other.

A broad review of the crime scene shows that the following are the
major acts receiving the attention of the enforcing authorities.
Before concluding this chapter, we also give few details in respect of
similar legislation in UK and in Europe. We must however, add that in this
matter there is a great need for collaboration between banks and their
regulators and various other institutions concerned. It is observed that
while banks share the information with the regulators there is a reluctance
to share it amongst their competitors.
In India, we would once again plead for the banks to get together and
face this menace collectively. It may not be a very serious problem at this
68 V. C. JOSHI AND L. KULKARNI

stage but it is going to assume a very important place on the top manage-
ment radars for security concerns. Individually banks may find it difficult
and strength lies in facing the dangers collectively.

The Laws
Most of the countries now have reasonably well-developed legal frame-
work. The Indian Government has through the IT Acts (2008/2012)
legal norms laid down. The consequentially required modifications to the
various prevailing acts have also being under taken (e.g. Criminal
Procedure Code, Negotiable Instruments Act, and other Contract Acts)
Similarly, in the UK there are a number of acts, directives, and regulations
which come into play while dealing with criminal acts. In fact, in the UK
there are as many as 12 acts ranging from Computer Misuse Act 1990 to
Data Protection Act of 2018.
The EU is also not far behind. Harmonization of acts has been achieved
and significant legal protection is afforded to individuals for protection of
data and dealing with data breaches.
For the sake of good order, we would add that a detailed review of vari-
ous acts/directives is available in our book Digital Finance (Chap. 7).
As a word of caution, we would add that the criminals find it compara-
tively easy to move out of clutches of these acts. The means required for
perpetration do not (as suggested by some of them) cost much. They can
operate from anywhere around the globe. Considerable procedural hur-
dles (including references to Interpol) need to be crossed to get the
required documents or even cooperation. Booking the culprits and pun-
ishing them turn out to be herculean task and cases linger over years.
Therefore, as suggested in the next chapter building the protective sys-
tems is the way out.

Bibliography
Basle Committee on Banking Supervision. (2003, July). RISK MANAGEMENT
FOR ELECTRONIC BANKING AND ELECTRONIC MONEY
ACTIVITIES. Retrieved from BIS.org: https://www.bis.org/publ/
bcbs35.pdf
Cyber Space Glossary – CSRC. (n.d.). Retrieved from NIST: https://csrc.nist.gov/
glossary/term/cyberspace
 6 CYBER CRIMES AND LAWS 69

India Ranks 23rd Among 165 Nations in Cybersecurity Index. (2017, July 6).
Retrieved from The Economic Times: https://economictimes.indiatimes.
com/tech/internet/india-­ranks-­23rd-­among-­165-­nations-­in-­cybersecurity-­
index/articleshow/59478111.cms?from=mdr
Joshi, V. C. (2020). Digital Finance, Bits and Bytes. Palgrave Macmillan.
The UK Cyber Security Strategy Protecting and Promoting the UK in a Digital
World. (2011, November). Retrieved from https://assets.publishing.service.
gov.uk/gover nment/uploads/system/uploads/attachment_data/
file/60961/uk-­cyber-­security-­strategy-­final.pdf
 CHAPTER 7

Cyber Risk Management

For analytical convenience, the chapter is divided into sections. In part I,

we look at the present state of the cyber risks faced by the industry. We
would briefly touch on the causal aspect and/or the motivation of the
actors committing the crimes. The next section broadly reviews the risk
management practices adopted so far. A sequel to such policies also
touches on the general attitudes prevalent. We briefly review the impact of
the pandemic and the emerging policy scenario. In the next section, we
comment on the industry perception and elaborate on the need for a strict
vigil. The relaxed attitude currently we see leads to serious concerns in our
minds and has necessitated the detailing the regulators instructions in
detail. We conclude with re-doubling of efforts for staff training and
increasing the awareness amongst customers and equally important shar-
ing of information amongst peer groups.

Part I

State of Cyber Risk

The last few years have brought cyber risks as number ONE risk in the
ranking of risks. Various executive surveys amply bring it out. The last
chapter (Chap. 6) details the various ways in which cyber attacks take place
and also shown the impact they have. The contributory (negligence) ele-
ments which facilitate the work and may even afford encouragement to

© The Author(s), under exclusive license to Springer Nature 71

Singapore Pte Ltd. 2022
V. C. Joshi, L. Kulkarni, The Future of Indian Banking,
https://doi.org/10.1007/978-981-16-9562-9_7
72 V. C. JOSHI AND L. KULKARNI

the perpetrators. Such errors have a tendency to recur and constant vigil is
the remedy.
Table 7.1 lists the nature of several crimes and their impacts. (RISK
MANAGEMENT FOR ELECTRONIC BANKING AND
ELECTRONIC MONEY ACTIVITIES, 2003).
In Table 7.2 we list some of the root causes facilitating such crimes and
the causes have been reported in the organizations where such crimes took
place. These have come up through reports to the Financial Conduct
Authority, UK (Cyber and Technology Resilience: Themes from cross-­
sector survey 2017/2018, 2018).
These could be listed as shown in Table 7.2.
Organizations should periodically examine the degree of risks from cer-
tain technologies in use. Briefly, we have indicated how such an exercise
could be carried out say for instance internet connections, wireless net-
work access etc. (Table 7.3).

Table 7.1 Cyber crimes and their effects

Criminal act Possible manifestation Potential effect

Unauthorized Hacker enters internal Loss of data, unauthorized copying

system access systems, confidential of information/data, repairing
information is intercepted, perceived insecurity of system
data corrupted, crash of
system
Employee fraud Alteration of data to draw Reimbursement of customer losses in
funds from accounts, card accordance with RBI guide lines,
fraud reconstruction of accurate data,
sanctions /regulatory sanctions
In accordance with RBI guidelines
(limited liability of customer)
Counterfeiting of Criminals alter or duplicate Liability for falsified money.
electronic money electronic money to obtain Replacing costs associated with a
goods or funds compromised system
Repudiation of a Customer denial for a Possible loss of funds or legal
transaction completed transaction expenses to prove otherwise
Significant breach Introduction of virus Loss of customers/other may follow
of security
Money laundering Misuse by criminals Legal sanction for noncompliance

Source: BIS – Risk management measures in retail electronic banking and electronic money. https://
www.bis.org/publ/bcbs35.pdf
 7 CYBER RISK MANAGEMENT 73

Table 7.2 Incidents

Change management 91
reported to F.C.A. UK
Third-party failure 70
Software application issues 60
Hardware issues 37
Human errors 20
Process control failures 22
Capacity management 22
External factors 16
Root causes not detected 5

Source: https://www.fca.org.uk/publication/
research/technology-­cyber-­resilience-­questionnaire-
­c ross-­s ector-­r eport.pdf

The pandemic has complicated the task(s) as never before. The remote
working has made it possible or necessary for staff members working in
different environments to get access to sensitive data/information, and
even exchange of such information amongst each other. The devices used
and a degree of carelessness in leaving the devices open or laxity in elemen-
tary precautions like sharing of passwords have opened the flood gates for
developing a fertile land for exploitation by the unscrupulous elements.
As if all this were not enough, we have nation state actors ably guided
by their Tech Gurus, happily attacking financial institutions and even cen-
tral banks, defense establishments, interrupting supply chains. They are
able to collect information on movement of troops, truck movements in
border areas, thus enabling them to bring these activities to a grinding
halt. In short, they can make these utilities dysfunctional (US oil supply
attack). The increase in such attacks no doubt is a cause for serious con-
cerns as our utilities are soft targets for hackers. One naturally tends to
build up a process of computing and evaluating the losses. True it is that
the losses are substantial but estimating them is not easy.
Cyber incidents lead to financial, operational, legal, and far more
important reputational risk being suffered. They no doubt can signifi-
cantly impact capital and earnings.
Costs may include forensic investigations, PR campaigns, legal fees,
consumer credit monitoring and even technology changes. Cyber security
must be integrated throughout the institutions part of enterprise wide
governance process and should cover information security program, busi-
ness continuity, and third-party risk management.
74 V. C. JOSHI AND L. KULKARNI

Table 7.3 External threats

Category: Risk level
Technologies
and Least Minimum Moderate Significant Most
connection
types

Total number No Minimal Moderate Significant Substantial

of internet connections complexity complexity complexity complexity
service (1–20 (21–100 (101–200 (>200
provider connections) connections) connections) connections)
(ISP)
connections
(including
branch
connections)
Unsecured None Few Several Significant Substantial
external instances of instances of instances of instances of
connections, unsecured unsecured unsecured unsecured
number of connections connections connections connections
connections (1–5) (6–10) (11–25) (>25)
not users
(e.g., file
transfer
protocol
(FTP),
Telnet,
rlogin)
Wireless No wireless Separate Guest and Wireless Wireless
network access access points corporate corporate corporate
access for guest wireless network network
wireless and network access; access; all
corporate access are significant employees
wireless logically number of have access;
separated; users and substantial
limited access points number of
number of (251–1000 access points
users and users; 26–100 (>1000 users;
access points access points) >100 access
(1–250 users; points)
1–25 access
points)

Source: FFIEC Cyber Security Assessment Tool: Federal Financial Examination Council. https://www.
ffiec.gov/pdf/cybersecurity/FFIEC_CAT_May_2017.pdf
 7 CYBER RISK MANAGEMENT 75

Assessment
The Assessment is designed to provide a measurable and repeatable pro-
cess adequate for the institute’s level of cyber security risk and
preparedness.

 yber Security Maturity

C
Post assessment, one must get a proper idea about security preparedness
as measured by maturity levels. In fact, such exercises must be undertaken
periodically.

Risk Profile
Management ought to review risk profile whenever new products, ser-
vices, or initiatives which are enterprise-wide are introduced. The purpose
is to understand which policies, procedures, processes, and controls are in
place and where gaps may exist. Only after such an exercise is undertaken,
should the action plan be drawn up.

Part II
Our current practices of risk mitigation (attempts at closing the loop holes
through dummy attacks carried out and fortification of the security appa-
ratus) had to an extent reduced the attacks on banks or financial institu-
tions. The current practices have been found to be reasonably adequate
and banks have created sufficiently sturdy barriers to ward off the criminal
acts attempted.
The banks had further developed resilience to quickly rectify the break-­
downs in shorter timeframes with costs which comparatively are lesser
than those incurred by the “industry counterparts”.
For the benefit of the reader, we enumerate different ways in which
attempts are made to defraud the banks. One has unfortunately to remem-
ber that even the members of the staff could be engaged in such acts or be
partnering outside perpetrators. Given below are the ways in which crimes
are perpetrated (this should facilitate attempts to prevent them) (Table 7.4).

1. Previous experience in understanding and prevention.

Organizational Memory.
Occurrences reported.
Incidents and attempts foiled.
76 V. C. JOSHI AND L. KULKARNI

Table 7.4 Fraud prevention and awareness

Fraud prevention Fraud awareness Technology based Legal deterrence
protection

Customers Institutions and Identity management Prevailing laws

other banks
Corporates Non-banks finance Credit card data and Regulations
companies other facilities
Merchant Brokers Debit card schemes Relations with other
establishment industry bodies
Third-party Fund managers
establishments

Source: Author

2. Fraud prevention policies to be examined critically.

3. Evaluation of technology-based protection.
4. Legal deterrence.

E-business (currently growing in leaps and bounds) poses distinct

encounters to raw execution arms. There are many cases with extra territo-
rial dimensions and have international connections. Apprehending and
controlling such attempts is extremely difficult. There are obvious chal-
lenges for cyber jurisprudence and these are multiplying because of mobile
services and generated content.

Part III

Current Developments
In the post pandemic situation, banks are trying to reset, reinvest, and
reimagine their business and practices. The need of the hour is to have an
urgent focus on effectively combating frauds through productive analytics
and robotic process automation. The increasing use of robots could be
attributed to the urgent need for vulnerabilities of human elements and
their susceptibility to disease. The robots do not suffer from these and do
not need social distancing. The post pandemic situation thus witnesses
increasing reliance on technology to fortify and strengthen the organiza-
tional defense systems.
 7 CYBER RISK MANAGEMENT 77

We also must touch on some earlier useful tools developed in the pro-
cess of analysis. Federal finance examination council has developed what
they term as an assessment tool (Cybersecurity Assessment Tool, 2017).
Senior management must constantly be on the lookout for the availability
of such tools etc. In this context, we would highlight the efforts being
made by Bank of England in identifying the soft underbelly. From time to
time, with the concurrence of the concerned organization, Bank of
England carries out such attacks and highlights for the banks or institu-
tions concerned, the weak spots. These help the organization to rectify
weaknesses previously not noticed. However, care must be taken to see
that such exercises are carried out with a seriousness and not treated as
being on par with “fire drills”.

Part IV

The Regulatory Guidance

In view of the seriousness and inherent dangers, regulators and even
accounting firms etc. are constantly issuing guidance notes for the use and
benefit of the institutions. Given below in the summarized form the rec-
ommendation made by F.C.A., BIS, National Standard Institution, and
lastly a reference to RBI circular on the subject.
Most of the Regulatory Authorities have issued the guidelines or advi-
sories. For the convenience of readers and for easy reference, we have
briefly summarized some of these and the organizations should try and
implement these guidelines.
F.C.A. (UK) Guidelines:
F.C.A. wants to secure appropriate protection for consumers and also
to enhance the integrity of the UK financial system and to promote effec-
tive completion in the interest of commerce. (Insights from the Cyber
Coordination Groups, 2021) Cyber risks challenge each of these objec-
tives, through market disruptions, loss of availability of platforms, sensitive
market or customer data being stolen or compromised or even access to
core banking. F.C.A.’s recommendations could broadly be summarized
as under:

• Security culture.
• Good governance around cyber security.
• Senior management engagement, responsibility and challenges.
78 V. C. JOSHI AND L. KULKARNI

• Get the right people for effective control and evolution of suit-
able measures.
• Identification of key assets. Appropriate protection around these.
• Adequate detection capabilities and good threat intelligence.
• DDoS and Defenses. Websites and Scripting difficulties. Get AI to
look for vulnerabilities. Most important are response and recovery.

F.C.A. also broadly indicate key emerging risk areas:

• Ransomware threats by Crazy Sophisticated Firms.

• Data Storage – Guidance on secure cloud management.

In the final analyses most attacks are due to basic failings.

Basel Committee on Banking Supervision

On December 4th 2018, the Basel Committee on Banking Supervision
published a report entitled “Cyber Resilience – Range of Practices”
(Cyber-Resilience: Range of Practices, 2018).
The committee organizes their review of cyber resilience into four
broad categories.

1. Governance arrangements and culture.

2. Approaches to cyber risk management, testing, incident response
and recovery.
3. Communications and information sharing.
4. Expectations and practices related to interconnections with third-­
party service providers.

Cyber resilience is defined by Financial Stability Board as “The ability

of an organization to continue to carry out its mission by anticipating and
adaption to cyber threats and other relevant changes in the environment
and by withstanding, containing and rapidly recovering from cyber
incidents”.
The Basel Committee identified 10 key findings:

• General Landscape – Technical specifications and supervisory prac-

tices vary across jurisdictions and result in a complex and somewhat
fragmented international regulatory landscape.
 7 CYBER RISK MANAGEMENT 79

• Strategy – Regulators expect the organizations to maintain adequate

capability in this area. However, a specific cyber strategy is
not required.
• Cyber Risk Management – Broader IT and operational risk manage-
ment practices are quite mature and are used to address cyber risks
and supervised cyber resilience. Furthermore, jurisdictions expect
banks to have a strategy and framework to comprehensive map and
actively manage their IT system architecture.
• Governance and Organization – Cyber resilience is not clearly articu-
lated across technical business and strategic lines. Naturally, it con-
tributes to a confusion in roles and responsibilities which naturally
hampers the effectiveness of the three lines of defense model.
• Workforce – A shortage of workers in this field has contributed to
recruitment challenges. In some jurisdictions cyber certifications
have been implemented or leveraged to do this.
• Testing – While protection and detection testing is prevalent and
evolving incident response and recovery testing is less prevalent. IT
is typically done through table top exercises and broader continu-
ity testing.
• Incident Response – For all jurisdictions, supervisors expect banks to
prepare an incident response plan to deal with material cyber inci-
dent. Additionally, banks are expected to classify information assets
and services based on operational sensibility and business criticality.
• Assessment Metrics – No standard metrics have recommended yet.
Difficult for supervisors and banks to engage on cyber resilience.
• Information sharing – is mostly on a voluntary basis and the ones
between banks and regulators are more common and frequent.
• Third-party risks – Basel Committee found no common approach
with respect to third parties aside from outsourced services.
Institutions have to show and understanding and management of
third-­party risks.

Generally, regulators expect a board approved information security

strategy and policy approaches. Published guidance has been circulated
and distributed by regulators. Regulators expect cyber security training,
background checks of new employees.
The National Institute of Standards suggested framework which is
likely to be a good starting point (Cybersecurity Framework CSF).
Given in Fig. 7.1 is the emerging Cyber Security Framework.
80 V. C. JOSHI AND L. KULKARNI

5.
Recovery
Business Continuity Plans. 1.
Initiation of Plan. Identification
Mobilization of Baseline Profile
Resources. Risk Exposure
Expected Losses

4.
Incident Response
Predetermined Threat
Scenario.
Dynamic Simulation

3. 2.
Detection Protection
Application Security Capabilities. Increased 3rd Party Security Capability.
Periodic Scans of security issue & Increased 3rd Party Patches to ensure
security & functionality of the A P
capabilities.
environment.
Network Vulnerabilities.
Physical Penetration.
Dynamic Thread Simulation.

Fig. 7.1 Cyber security framework. (Source: Cyber Security Framework CSF)

NIST plan assumes that the banks would have a draft plan ready and
that it would be in alignment with National Regulatory expectations.
We conclude with a brief description of Bank of England’s CBEST
(framework for cyber security threats).

Bank of England: CBEST Testing Overview

Basically, CBEST assessment process consists of four phases of work. Very
briefly stated it is an attack simulation under controlled conditions. It is
done under Bank of England supervision by licensed and authorized
 7 CYBER RISK MANAGEMENT 81

attacker. It has surprise elements and the organization gets to know its
weaknesses. There are pointed out after the attack.
The official hackers are chosen by Bank of England. It is a mock attack
and details are available in the published handbook.
Sometimes one has an uneasy feeling that the cyber criminals have an
upper hand and that the laws are not sufficient to rope in and bring them
to book. However, the future is not bleak. The cyber crime tools, tech-
niques, and procedures would continue to develop. The financial institu-
tion’s investment in skills, technology, and processes would match the
pace of the underground economy. We must have a hard look at the
underlying causes for the uneasy feelings that we have. These could be
summarized as under.

• The judicial enforcement responses will continue sometimes to falter

partly because of complexity of procedures and responses.
• Legal framework lags and is not able to keep pace with the develop-
ments in the technical fields.
• Democratization of security products and security as a service or
innovations in fraud detection may not be sufficiently radical or uni-
versal enough to alter the returns on investment of the under-
ground economy.
• Financial crime grows exponentially and institutions tend to suf-
fer losses.
• Lastly, the criminals may shift their attention to small and medium
enterprises.

The security apparatus briefly indicates the areas that could shape the
field from a security perspective.

1. Authentication and Privacy – Role of enhanced authentication

methodology would be critical. Biometrics including voice is gradu-
ally coming into use. These could well be used for safe collection
and storage of data. One could then achieve the required balance
between privacy and security. One of course will have to take proper
care in the retrieval, use, and reuse phases.
2. Big data and elastic search – the foundation for effective detection
lies in collection and enrichment of structured/unstructured data
sources. One will have to create an agile environment to transform
82 V. C. JOSHI AND L. KULKARNI

fraud detection. Gradually, search and big data solutions are emerg-
ing to create game changing fraud detection system.
3. Security as service – A move towards security as service as a response
to evolving cyber threats is one of the likely developments in the
coming 5–10 years and would provide a life line to S&ME sector.

Recently, the RBI has issued a circular (Guidelines for Managing Risk
in Outsourcing of Financial Services by Co-operative Banks, 2021) advis-
ing co-operative banks the measures required to be taken and the same
would become applicable to commercial banks also. It is a question of
time and as soon as the parliament passes the act on data protection, these
guidelines would be relevant.

Conclusion
Very often the executives express their frustration as many of the cases
keep on lingering. The executives may sometimes feel frustrated at the
delays and conclusion of court cases. It is all the more necessary that the
financial institutions and banks take a great care in building the necessary
resilience.

Bibliography
Cyber-Resilience: Range of Practices. (2018, December 4). Retrieved from bis.org:
https://www.bis.org/bcbs/publ/d454.htm
Cybersecurity Assessment Tool. (2017, May). Retrieved from Federal Financial
Institutions Examination Council: https://www.ffiec.gov/cyberassess-
menttool.htm
Cybersecurity Framework CSF. (n.d.). Retrieved from NIST Information
Technology Laboratory COMPUTER SECURITY RESOURCE CENTER:
https://csrc.nist.gov/Projects/cybersecurity-­framework/nist-­cybersecurity-
­framework-­a-­quick-­start-­guide
Guidelines for Managing Risk in Outsourcing of Financial Services by Co-operative
Banks. (2021, June 28). Retrieved from Reserve Bank of India: https://www.
rbi.org.in/scripts/NotificationUser.aspx?Id=12123&Mode=0
Insights from the Cyber Coordination Groups. (2021, April 29). Retrieved from
Financial Conduct Authority: https://www.fca.org.uk/publications/research/
insights-­cyber-­coordination-­groups
 CHAPTER 8

Digital Marketing

Post pandemic “marketing” of services has entered a difficult phase. Most

customers have had a somewhat difficult time in transiting from branch
banking to mobile banking. Naturally, one could notice, that there was
amongst the customers a feeling of uneasiness and uncertainty.
The marketing departments’ first priority is to build up a sense of con-
fidence amongst their customers. They have to reassure the customers that
in spite of staff shortages (WFH or absentees) the branches were function-
ing and serving the customers. In fact all due care was exercised in the
proper conduct of accounts etc. The customers were from time to time
advised regarding their balances or credits/debits of a given amount were
also confirmed. Many of the customers were also provided with account
statements from the 1st April to the 30th September through email etc. to
meet their tax return requirements.
Term deposit renewals on due dates did take place. The basic idea
behind all this was to assure the customers that there is no slackening in
conducting the routine branch functions and operations. Once the pre-
liminary foundations were laid, could the banks start making solicitous
enquiries about any particular requirements that may have arisen and to
see if the bank could meet those. It may be as simple as a temporary over-
draft requirement for facilitating some mandatory payments etc. The first
thing the marketing department needs to make sure is that the appropriate
time for making the pitch has come. Would the clients be in a listening
frame of mind?

© The Author(s), under exclusive license to Springer Nature 83

Singapore Pte Ltd. 2022
V. C. Joshi, L. Kulkarni, The Future of Indian Banking,
https://doi.org/10.1007/978-981-16-9562-9_8
84 V. C. JOSHI AND L. KULKARNI

“Neither the sky is falling” “nor business as usual” would be an appro-

priate opening. We have to remember that any marketing strategy would
necessarily have to prepare the ground work and that too very carefully. In
no case should the banks appear to be over solicitous.
The word empathy must stand out through actions. The receiver must
feel that he is duly recognized by the staff and that he is a shade above
being a mere number.

• One may if required offer a few tips either from a physician.

• Once in a way, you may like to compliment the customer for some
decisions affecting him favorably, say sale of shares.
• It at this stage essential to bring to the customer’s notice some of the
features on the bank’s website. Our experience suggests that even
the bank’s own staff, many a time, may not be familiar with the con-
tents of the website. It must conform to the following standards.
1. It should be brief and interesting.
2. Updated, informative and catchy.
3. The writing should be crunchy.
4. It must show contact numbers area wise of branch offices, ATM
locations, business hours, if changed from the normal, clearing
time for cheques, priority for high value items.
The idea is to establish contacts and to ensure that you are contacting
the customer does not annoy them.
The present phase could well be used to train the customers in the free
use of mobiles for their operations. Suitable training packs with pictures,
instructions on sheets on the lines of operating manuals and some precau-
tionary warnings should be brought to the notice of the customers,
Secondly a small note on general precautions to be taken while working
from home must be prominently displayed. It is always useful if the banks
add information about ATMs. An important requirement could be, trans-
ferring accounts from office areas to a branch near the residence automati-
cally without any further formalities. A mere letter request should
be enough.
We are asked about bank advertisements. The thrust should be on cost
reduction. Print advertisements/billboards at city centers etc. are not
going to be of particular use.
Attempt should be for specific/pointed ads with thrust on meeting
some immediate/emergency customer need-say a new scheme where a
 8 DIGITAL MARKETING 85

minimum balance over a given period would lead to automatic TOD if a

need arises. If possible with the help Head Office special webinars could
be organized with or without prior registration.
Separate broadcasts for women in which lady doctors could participate
would be useful.
Banks have at all times to ensure that customers don’t feel forced into
digital banking. In no way should they have a sense that banks are taking
undue advantage of the pandemic to bring about:

• A paper less banking.

• Closure of branches.

Sooner or later a data analytics and AI would lead banks to what could
be akin to personalized banking services. The journey towards digitaliza-
tion as earlier indicated should begin with the first few steps.
Slowly the branch as a hub of various activities should give way to
mobile apps. One may not be wrong (going by the experience) in assum-
ing that gradually the possibility of branches assuming the role which they
had prior to the pandemic is becoming a distant and rare possibility.
The customers are unlikely to sacrifice the anytime/anywhere mobile
facility for cash transfers or collecting information about their accounts
etc. The branches must remember that they are slowly preparing for a day
when staff strength stands considerably reduced. Nearly 10,000 staff
members are to retire over next six to eight months. From the banks’ ser-
vices. The indents for additional staff currently received from banks is just
around 1500 and that too barely three or four banks are intended for it.
A significant change during the pandemic which is disturbing to an
extent is the fluctuating monthly income of a number of customers. A
perusal of accounts is a must in such circumstance. Such information
should likely create new methods for savings or a change in life cycle’s
investments. One must gradually learn to adapt to such changing
conditions.
The banks in India are under considerable pressure (due to the corona-
virus pandemic) to deploy technologies to facilitate their routine banking
transactions. At the same time there is a growing impact of Fintech on
customers to switch over. The banks are now forced to compete with tech-
nology firms to keep their hold on “payment” business. The task to move
towards digital is getting more and more pressing as time passes.
86 V. C. JOSHI AND L. KULKARNI

However, for the time being banks will have to work on both digital
and their previous marketing strategies where branch services too come
into play.
There are some distinct changes in the customer profile. Due note has
to be taken of such changes and actions should follow in response to such
changes.
The marketing departments at the regional/area level could begin by
acknowledging that customers have been largely inconvenienced but that
the branches have been advised to make suitable arrangements for social
distancing, speeding up cash disbursement. The cash department is asked
to run a special counter exclusively for senior citizens.
It would be advisable to inform the customers how attempts are made
to ensure that as through suitable staff and work adjustments most of the
services previously given are available.
The changing customer profile is likely to be in the increase in the number
of younger customers who would have shifted their operations from
branches nearest to the office to the one closest to the residence. They are
the “target” group for “digital banking” and should be informed about
probable dates by which the bank would make such services available.
There would at the other end of the spectrum, a group of thin file cus-
tomers. We have suggested that banks should have a relook at their busi-
ness model and to see how they could get into “micro financing”. This
would be an opportune time to start. Help given at this time should go a
long way in building a long-term relationship.
The visits by such customers would be frequent. They should be treated
with patience and courtesy. We have personally experienced that some
branch staff are lacking in the “extra” polite behavior. This is particularly
true in cases where sanctions are to be accorded or payments are to be
made. All we are saying is that they are perhaps new to branch working
and need to be gently inducted.
In addition to the usual marketing, say on a demand for a deposit
scheme which could suit customers with fluctuating incomes. In fact, this
should not be an ad-hoc response but should be the beginning of a well-­
designed digital strategy.
Gartners have developed a suitable roadmap for those wishing to adopt
a digital marketing strategy.
It starts with a commitment on the part of managements to move
toward digital working. In the first instance, staff would need to have
facilities available so that the staff can upgrade their skills. Access should
 8 DIGITAL MARKETING 87

be ensured and further, the staff must be confident that the assurance to
have such a change brought in would be acted on in a given time frame.
It needs to be mentioned that banks would not have the luxury of
pilots and trials. These are reasonably well-established systems. Further,
Jamie Dimon, CEO of J.P. Morgan rightly warns that Silicon Valley is at
the door.
The somewhat late followers like Indian Banks have the advantage of a
comprehensive plan of action formulated and made available to the orga-
nizations. The steps listed by them can be recapitulated as under:

A vision
Strategy
Processes
Customer Experience
Information and Insights
Technology
Metrics

Frankly, this is a business “strategy” and not a technology one. One has
to ensure that the aim is to optimize profitability and revenue through, of
course, customer satisfaction.
The CRM must have enterprise wide dimension. But the Marketing
Department must be a part of “corporate planning” exercise not only at
Head Office but their counterparts at the zonal/regional levels also.
The idea that Marketing is a “Public Relations” exercise should be dis-
pelled once and for all.
It has to be an enterprise-wide initiative. The staff must be involved
and should bring to bear on their tasks their own experience as “custom-
ers”. What facilities do they get when they use digital facilities? Listing
preferences, quick delivery, product displays to enable you to widen your
choice. Why can’t they bring it to bear on branch customers? When a
customer seeks an appointment for a mortgage loan, the staff should
know that the customer’s current loan would be repaid during the next
two months and that you could offer him a higher loan amount for a big-
ger house.
In this section, we chart out the bank’s and FIs future course of action.
On the one hand, they have effectively to counter the Fintech threat, cater
to the varied requirements of Gen Z (youngsters brought up on mobile),
88 V. C. JOSHI AND L. KULKARNI

the Millennials (Digital Aliens) – these are adults who are comfortable
using the internet based technologies while Gen Z (natives) who have
grown up with the internet as an integral part of their lives. They are the
ones who want a seamlessly integrated digital channel.
In fact, we would like clearly to state that we do not visualize or advo-
cate a situation where branches are no longer required. At best, the num-
ber would be reduced or the footfalls would be much less and consequently
staffing patterns may change. But branches would be there, nay even
should be there.
No doubt, their design, architecture, and transaction methods may be
different. They could perhaps over a period may have chat bots to answer
their queries. Perhaps, instead of the Manger, they may get to meet spe-
cialists say investment advisors, mortgage loan officials or someone to
guide them for overseas money transfer. In Chap. 4, dealing with banking,
we have ventured forth and suggested an outline.
During the pandemic, we were often informed by many clients that
somehow the branch structure inspires confidence. Many of these notions
are firmly implanted for a long time. But the fact remains that the long-­
term life cycle planning will have to be built upon such confidence build-
ing measures.
The digitization process normally begins with “cloud computing/stor-
age”. Such data transfer, is not a very simple routine activity. It has to be
properly planned and extremely well-coordinated exercise, executed by
experts who could guide the bank staff.
We do not have the proper expertise to detail the required steps. We
could only say that central bankers/FCA etc. have offered guidance on the
precautions that need to be taken.
The storing agency must notify the users about any location changes.
There must be an agreed arrangement for auditors to visit such places.
Any attempts at hacking must be made known immediately.
Smaller entities who sometimes get attacked have found that the
Amazon/Microsoft, do not take care of small sized units as is warranted
by their agreements.
We must at this stage refer to the important role of Data Analyst. In
Chap. 3 on Technology, Changes, we have dealt with integrating these
specialists with banks’ “normal” business streams. They are an expensive
community. In fact, some writers have gone to suggest that it would be
perhaps necessary to locate such center say Bangalore/Pune where large
IT firms have their offices.
 8 DIGITAL MARKETING 89

Secondly, the banks have to realize that the business decisions need to be
based on a proper analysis of customer requirements. We would refer to
some newer requirements thrown up recently. Many S&MEs are faced
with availability of the spares, raw material etc. Many a time, the requirements
could even be met by the banks’ customers. Banks could well offer through its
web a clearing house facility. In a similar experiment carried out by us
through the publication of a Directory of S&MEs financed by us led to
almost 80% of customers exchanging their “produce” through the banks’
clearing house. There was an indirect check on prices and payments.
In the first instance, integration of Data Analysts must/could start with
our S&ME borrowers and depositors. Post pandemic banks are pretty
much ignorant of what the customers need. Pre-pandemic information is
inadequate. Banks can expect to compete with Fintech only on the basis of
“advance” knowledge and information about the customers. Further such
analysis must be specifically directed to decisions to be take. IT HAS TO
BE DECISION LED. Only then could it be meaningful.
Recently, Ernst and Young have brought out a report about the way
FinTechs and the British Treasury could achieve business amounting to
billions of pounds.
The Millennials represent a new customer base for the banks. They are
not merely diverse, well-educated and comprise the largest workforce that
has significant purchasing power. Lastly, they stand poised to inherit most
wealth than any other generation (leaving aside the agriculture sector).
The digital natives may well get away from banks and take to other con-
nected institutions if proper and prompt steps to “rope” them in are not
taken. In many cases, their important needs like housing are well met.
Perhaps they even have a second house solely for investment purpose.
Banks must see if they could be lured into banks’ services. Secondly,
special efforts must be made to see that they do use banks’ services.
Engagement and convenience are the keys to attract them.
Surveys have shown that their prime requirement is online or digital
banking. Frankly, institutions have to make a special effort to bring the
millennial in and have a sustained relationship.
Banks have to rope in the tech savvy and show that they are trust wor-
thy as their parents and grandparents had found.
Consumer view of what a Digital Bank should be like (Fig. 8.1):

• This is a model of Full-Service Digital Bank.

• It is AI enabled.
90 V. C. JOSHI AND L. KULKARNI

A. I. Enabled
Digital Sales and Robot Advisors Digital Financial Planner
Banking Products
Bio-Metric
Idenficaon
Electronic

Credit Cards Mobile First

S. M. E. Upside

End to End
Big Data
Digital

Fig. 8.1 Future digital bank. (Source: Authors)

The customers expect that the banks must provide holistic, interactive
and more broadly the information their current accounts, deposit bal-
ances, transactions, outstanding loans if any, provident fund and other
contributions or other details on the transaction from the DeMat account.
The customer would need help in organizing his financial management
generally and guidance on steps for children’s education, early retirement,
planning medical and health insurance etc.
Of course, the mobile phones would be the primary source for domes-
tic, international payments/remittances.
We are aware that this is what the Gen Y/Gen Z want forthwith.
There is no point in promising “the now”. Banks, no doubt have to see
that customers get their message(s) from amongst the vast array of adver-
tisement carriers say YouTube, Netflix, and 100s of other carriers of adver-
tisement content.
We are more interested in seeing that the consumers get to see your
content. We would once again reiterate that banks (public sector) should
at least collectively make such efforts at getting to their customers. We fail
to understand why all the nationalized banks not have a common research
center, data analysts, AI research facilities etc. The notion of competition
is meaningless. It is wasteful and hardly even practical.
 8 DIGITAL MARKETING 91

The good/great content would get shared quickly. One can measure
the impact and assess what combinations work best and attract the
customers.
How then should we reach and achieve the digital goals? We have in the
Chap. 5 on Banking, the kind of branch structure that would be condu-
cive to such digital transformation.
We now briefly touch on what equipment/devices should be available
at branches and also be available to the staff.

• Bank staff with tablets.

• Interactive teller machines.
• Video conferencing room(s).
• Service terminals/kiosks.
• Robot greeters.
• Interactive digital walls.

Interactive Teller Machines

These devices function as a bank in a box by incorporating human connec-
tions to a human banker. The customer would if he so desires, complete
all his planned transactions at the branch itself.

Service Terminals
These could be placed inside/outside the branch. These are simple devices
and customers could on their own handle money transfers, applications for
new products, renewal of Fixed Deposits and such.

Interactive Digital Walls

These could be gateways for many purchases which customers want to
complete. We are aware that current perceptions may undergo a change
with use of mobile apps. Customers would want everything on the inter-
net. They would like simplification of processes.
Gen Z and MBA students invariably question the need for a branch
visit. They would prefer some convenient location to a branch. These are
requirements of customers in a transition phase. Every effort must be
made to maintain the delicate balance.
Banks need to make a sale. Spaces and connections are less important.
92 V. C. JOSHI AND L. KULKARNI

 hat Does the Future Hold?

W
In an article titled “7 Digital Marketing Trends for Banks in 2019”, we
found the following which appeared particularly important. (Bruce)

• Consumers feel that authenticity is an important factor.

• Voluntary content generated and passed on by friends and others on
their social media.

We are aware that consumers are bombarded with messages which are
not saved at all. What then comes into play is a micro moment response. I
want to know or I want to do something are such micro moments.
Consumers experience and act on micro moments at least 150 times a day.
Sometimes such moments can turn out to be important. The game chang-
ing moments are:

• I want to know.
• I want to do.
• I want to buy.
• I want to go.

We need to refer to FinTech competition before proceeding further.

We now want to also see that digital strategy is suitably dovetailed and
could coexist with check and track strategies that would be running at the
same time as part of the customers would be operating on their own
accounts digitally.
It is quite clear that the strategy would have to be in place and used not
merely for informing the clients but also to ensure its use at the branch
level. Information dissemination and information-based decision making
needs to be developed and used by concerned departments. The informa-
tion should travel in the value-added chains as given under:

1. Downstream between the firm and the consumer.

2. Upstream between firm and the FIs.
3. Within the firm itself.

It is extremely important to ensure that promises made and practices do

match. During the pandemic, customers did put up with a number of dif-
ficulties without a murmur. Once they have the free access to branches,
the situation would change.
 8 DIGITAL MARKETING 93

At the same time, the staff will have to gently coax the senior as also the
thin file customers that there is a little chance of errors being made or pos-
sibilities of their accounts being operated on/misused by con artists.
The staff must realize that transaction costs for the branch level opera-
tion are becoming more and more costly. Therefore, it is in Bank’s interest
to ensure that the transactions are smooth and made speedily. Having
practice sessions at the branch would be quite useful.
A sheet with diagrammatic representation would also be useful to boost
customer confidence not only in the use of mobile with appropriate pre-
cautions for operations. Manu of the senior citizens have expressed their
apprehensions in the use of devices and consequently in the safety of their
accounts. There is always a lurking fear that a small “operational” error
may have wider and more serious consequences.
Curiously, little formal attention has been paid to the effects of trans-
formation on marketing theory and practice. Conventional marketing
theory is of little use. Non-verbal communication is deconstructed
(Smiley). Include the consumer, you are broadening not only the activity
but the market itself. The consumers in the developing scenario would be
active participants and more so when it comes to “finance”.
We pay far more attention to the “devices” used and their operational
safety. Unlike a Netflix content review, “banking” products need a differ-
ent kind of evaluation.
The customer is in the driving seat. He has not merely multiple avenues
to choose from but could easily find alternatives to satisfy his require-
ments. To deal with customers who use both brick and click and electronic
devices is not easy.
In the case of marketing intangible products information plays a central
role. The intangible economy is structured round men, ideas and symbols.
Demand for intangible artifacts and supply of intangible assets will be
understood in the light of intellectual property and capital. The earlier
equation where purchases equal consumption is not valid. The number of
free riders routinely exceeds that of paying consumers by a factor of three
or more. Consumers can create their own combinations of content.
The conventional pricing and transaction mechanisms largely tend to
be inadequate. Economies of scale is determined by consumption and not
by production or capacity. In fact, the range of pricing is becoming
broader. Equity research can be a part of “brokerage”. “Pricing” is very
complex and very broad too.
94 V. C. JOSHI AND L. KULKARNI

On the supply side brand is very important. Social media reporting

plays an equally important role. More than any technical assistance evalu-
ation by someone you happen to know weighs more with the purchaser.
Telecommunication information and electronics now overlap. The cus-
tomer is well-informed. He knows as much or a shade more about the
product than average salesman. In fact, human resources, IT and Finance
functionaries have to support a strategy to reach out and achieve desired
results.
Given below in a diagrammatic representation of interrelationships
(Fig. 8.2).
• The role of marketing is undergoing a change. In today’s context
retaining a customer is more difficult that getting one.
Telecommunications, informatics, and electronics are now overlap-

Non-
Institutional
Controllable
Objectives
Environment

Financial Marketing &

Management Management

Business Policy

Systems Personnel

Fig. 8.2 Marketing plan in corporate plans

 8 DIGITAL MARKETING 95

ping. Time honored distinction between intermediate goods and

financial products are crumbling.

Bibliography
Bruce, D. (n.d.). 7 Major Digital Marketing Trends to Look Out for in Banking.
Retrieved from knowledgenile.com: https://www.knowledgenile.com/blogs/
digital-­marketing-­trends-­banking/
 CHAPTER 9

HR Digitized

In part I of this chapter we discuss aspects of a journey towards digitiza-

tion. Part II describes the gradual evolution of the development effort in
this behalf.

Part I

Keeping Innovation Engine Running

Banks need to create a well-oiled innovation engine that not only smooths
the life cycle of an idea from inception to implementation but also creates
a virtuous cycle that builds up innovation into an enterprise wide initiative.
This naturally leads to radical changes in processes such as Human
resources planning which have been the bedrock of banks’ internal
operations.

Forces Driving Digitization

1. Banks are now engaged in competing with FinTechs while simulta-

neously attempting to innovate around their core traditional offer-
ings. Data analysis skills are now a priority demand. Research scholars
from MIT and such other institutions would perhaps be required by
the banks a last-resort and partnerships may have to be formed.

© The Author(s), under exclusive license to Springer Nature 97

Singapore Pte Ltd. 2022
V. C. Joshi, L. Kulkarni, The Future of Indian Banking,
https://doi.org/10.1007/978-981-16-9562-9_9
98 V. C. JOSHI AND L. KULKARNI

2. Developing facilities and people for in-house technology develop-

ments. Every effort must be made to see if people from tech insti-
tutes could be engaged to build a sustainable supply of talent in
other areas also.
3. Segment innovation – encourage the build-up of merger of start-ups
and allow them to develop creative ideas so that such juices flow
unbridled.
4. Apply Design Thinking – Apply the design thinking approach, build
in customer centricity and design unique/differentiated solutions.
Design thinking, very broadly refers to strategic and practical pro-
cesses by which design concepts (proposals for products, machines,
communications) are developed. Many of the key concepts and
aspects of design thinking have been identified through studies
across different design domains, design cognition, and design activ-
ity (both in laboratory and natural context).
5. Develop a Centralized and Innovation Management Center which
should not only determine standards but also act as a hub for con-
tinuous development of innovative ideas (collaboration, amalgama-
tion, mergers etc.) Also, to examine collaboration with a major tech
company to develop new capabilities.

HR Challenges in Banking
HR challenge in Indian Banking has reached a tipping point. The public
sector banks will witness unprecedented loss of skills and competencies in
the form of retiring senior and middle management level executives over
the next few years. Coupled with the need for a large-scale reskilling,
attracting, and retaining fresh talent would be a priority for HR
Departments. Controlling the growing employee costs and introduction
of a new performance discipline code are going to be significant chal-
lenges. The Table 9.1 highlights these changes and would act as a ready
reckoner.

Making the Promise Come True

In the near future, the leadership pipeline is likely to become perilously
thin. Almost 80% middle management and 50% of the juniors may be lost
through retirement. We are looking at a period where there could be a
ten-year yawning gap. As against it, the banks owned by the private sector
 9 HR DIGITIZED 99

Table 9.1 State of HR and challenges ahead

Demographic risk Containing employee costs

 Capacity know how loss is to be made up
 Variable cost structure
 Performance links
Talent induction  Young staff at junior levels
 Few at senior levels too
Motivation
 Officers
 Clerks
Performance discipline Lingering unlearning
Perception bottlenecks
Legacy theories
Productivity growth
Foot to tail ratio

Source: Author

have seen to it that the growth in manpower is in sync with their balance
sheet requirements. As against that, the public sector banks have grown by
a meager growth rate of 0.5%. The average cost of employee in public sec-
tor banks is continuously growing. Employee cost as percentage of cost to
total cost comes to 62%. As against it, these are 37% in the private sector.
The temptation for the PSU banks to outsource is natural and will have to
be relied on.
There are a number of sector challenges and the most important one is
the need to induct people in large numbers and yet to contain staff costs.
The need therefore comes to courting young talent and to overcome the
prevailing mindset that new recruits must earn their “stripes” before they
are counted and courted. Transforming the Human Resources Framework
needs to be taken up on a priority basis. Unwinding the legacy system
requires a concerted and determined effort.

Digital HR
Post pandemic we have come to expect digital options for completing
everyday tasks – no matter how big or small. HR will therefore have to
identify gaps – level wise and organization wise. Grooming youngsters for
higher positions and consequently to higher grades would result in accel-
erated promotions with proper objectives assigned. The level wise
100 V. C. JOSHI AND L. KULKARNI

assessment will have to be functional (not determined by salary scale

alone). Scale 3 branch or staff strength at the branch would no longer
decide placements.
A digital transformation will have to be soon underway and HR depart-
ment can start the exercise as shown below. Generally speaking, there are
a few important points which need to be taken care of to ensure a success-
ful implementation. It must be stated that only a systematic, well defined
plan could result in bringing about the required change(s). There are
some agreements, with staff, unions etc. and these will have to be reworked.

• The goals must be very clearly and precisely defined.

• A transformation team should be gathered and formed with authori-
ties derived from the highest level.
• Strategy should be developed and be in place. The right tech stack
must be built.
• Don’t be afraid to experiment.
• Measure the results continuously.
• Be transparent.
• Don’t lose sight of your bank’s culture.

A digital transformation is defined as the process of integrating digital

technology into business. For human resources, it means improving way
the department functions. It is expected that the proposed work could
move as indicated below.

• Cloud based storage.

• The digital recruitment.
• Internal communication platforms.
• Work force engagement.

New apps, tools, and programs must be freely used to transform the
workforce and the work systems.

 ransformation from Traditional to Digital

T
We may say in passing that the leading public sector bank has set in motion
the process by calling for quotations through tender for digitization of
HR Development (HRD). In course of time, this bank could share its
experience or transfer acquired knowledge to other banks desirous of
 9 HR DIGITIZED 101

changing their processes. There are many potential benefits for such tran-
sitions. Whereas HR traditionally involved much paperwork and slow and
error-prone processing, digital HR can be much more efficient and accu-
rate (Flock, 2017). Table 9.2 compares the characteristics of traditional
and digital HR.
The workforce would also be changing. It is possible that it would be
diverse, more remote, freelance, and even part time. Very probably, they
will have a thorough familiarity with computers and apps, perhaps that is
a must. The HR department has to lead the dynamic team. The organiza-
tional needs and aspirations of individuals have to be clearly matched. The
department will have to make sure that the decisions are objective and
data driven.
We now turn to a detailed review about the goals and other objectives

• What is it that the departments want the transformation to achieve?

The strengths and weaknesses in the system must be identified so
that the digital transformation clearly stands out. It must be stated,
that when goals are properly defined, the department would know
that the road you take is correct.
• Sixty-four percent of the departments surveyed say that improving
operational excellence is their top business objective. The other
goals include:

–– Growth of business
–– Innovation for success
–– Optimization of Costs

Table 9.2 Traditional

Traditional Digital
HR vs. digital HR
Plenty of paperwork Reduced paperwork
Only administrative functions Accessible from anywhere
More manpower Less manpower
Time consuming Time efficient
Costly Cost effective
Slow processing Quick processing
Human errors Machines more efficient

Source: Author
102 V. C. JOSHI AND L. KULKARNI

• The next step would be preparing a step-by-step plan. A clear-cut

distinction between short-term and long-term goals need to be
made. While conducting this exercise, the technology stack should
be such as can be easily integrated. One needs to remember that
before taking further steps, processes developed earlier are given
time to sink.

The world of work is changing fast. It also comes with new technology
listening devices, interpreting vast amount of social media information to
better understand and even predict the wants, needs, and capabilities of
people. The cloud-based HR information helps in gaining a degree of
enlightenment. To sum it up, digital HR equals business value in the new
world of work. In effect, this is what HR does in a digital way. HR must
identify the right levers that it can pull to generate business value.
Currently, apart from the priorities defined under endemic requirements,
HR will have to take note of the following:

1. Actively manage customers’ (various departments/staff members in

the bank) expectations.
2. Develop the skills-based organization.
3. Provide the work force with analytical insights (through the con-
cerned departments).

We must warn that building the new HR agenda and its acceptance by
the departmental people is extremely important. The use of the term
“Customer” is extremely important. The HR department must all the
time be ready to ensure that they capture the decisive moments and
moments that matter. Such moments are generally aligned to an employee
perception.

Agile Service Design

• HR processes must be designed that they can be used with agility

and that the customer perspective will be kept in the forefront.

Customer Experience

• The main thrust of the HR department should be on customer expe-

rience management. What you can’t measure, you must imagine.
Otherwise you will never be able to manage and move on.
 9 HR DIGITIZED 103

• Implement changes from the agile service design as a minimum via-

ble service. Measure its impact on customer experience and then iter-
ate to continuously improve the impact of the service on the
customer. The endeavor should be on improving the customer
experience.
• Providing the best possible experience must not blind you to the
required scale and the costs to be incurred.

 pplication and Machine Intelligence

A
To provide best experience, one must ensure that sufficient scale is pro-
vided and that costs are held down. Skill based organization of work is the
major value contribution of HR to business. Work and employee talent
matching can be improved significantly by using techniques of online tal-
ent market place applied within a company. Enabling networking and col-
laboration should be practiced as often as can be. It should be remembered
that network leadership culture, trust, indirect management and feedback
(continuous and effortless) is very much important.
We now take up work force analytics. These could be Descriptive and
Predictive. It must contribute to work force planning.

Innovation Culture in HR
HR operations and talent management are the classic skill set centers.
Design thinking will create innovative services for better customer experi-
ence. It should help the organization to be adaptive to the speed of the
business. Analytics would generate fact-based insights for better people
decisions.

Technology Tools
We therefore need tools to automate existing tasks and to establish new
innovative behavior. It must also foster further innovation. In fact, new
benchmarks for customer experiences in HR services need to be established.

 PI Decided on Cost and Budget Initiative

K
The community for HR should be wider. It should not be restricted to
HR specialists only. On a larger scale one must be able to derive cus-
tomer needs.
104 V. C. JOSHI AND L. KULKARNI

S etting Up of HR Strategy
Identify HR priorities which would ensure highest business impact and
get the entire team behind these. One must look critically at current HR
maturity. It must be peer to peer benchmark, strategic goals, and compa-
ny’s risk profile. Innovation workshops could give shape to translating
these ideas into action items.
At this stage, a roadmap for digital HR can be drawn up as under:

Managing HR by Customer Experience

1. Train HR in design thinking to establish common ground.

2. Moments that matter for employees, managers, and candidates.
3. Customers should air their grievances (sparring partners).
4. Constant Innovation culture. HR needs a digital agenda that would
focus on a few activities that generate the biggest business value in
the world of work. How and what have to be an integral part of digi-
tal agenda. We have to ensure that this high-risk undertaking is
completed properly and adequately.

 he Future Talent in Banking

T
Any digitization exercise needs to have its eyes firmly focused on work
force evolution. Updating legacy systems would be the immediate task in
hand. Try and improve the operating effectiveness of current systems.
Therefore, banks would need deeper and broader technical expertise.
Intelligent automation would gradually change the workforce needs.
Integrating technical experts in the guts of normal business is a paramount
need. Even tech companies would try and come in there to help the banks.

1. Technology and broader trends do shape the banks’ workers.

2. Banks are at this point in the early stages of workforce transformation.
3. Talents strategy is an extremely critical issue.

Robotics, AI, and Machine Learning are already having a significant

impact on compliance, payment and retail services. HR department will
now have to bring about application of technologies in work processes and
changes in approach would be the new “mantra”. Machines in due course
could take over almost 60% of the work. It is not necessary that the head
count has to change immediately. The bridge could come at middle and
 9 HR DIGITIZED 105

senior management level. Therefore, talent searching becomes extremely

important.
It may even be necessary to have structural review of the organization.
At some levels time will have to be spent on training robots. Bots could
chase humans up the intelligence curves. Cost savings of 30–40% could be
made. Some of the key processes of trade finance, action against money
laundering etc. could be automated. Intelligent automation could then
turn out to be a “killer App”. Experience of companies suggests that there
could be considerable savings.
Career development in a bank is not necessarily a straight-line progres-
sion. We have to stop issuing instructions all the time. Retraining and
reskilling of employees assumes considerable importance. Maintaining
culture, enthusiasm, and engagement through transformation would be a
big challenge. Banks which can execute and scale the change programs
would be the winners. More data scientists, agile developers, and engi-
neers need to be attracted and diversity will have to be encouraged.
In this process, banks have to develop what they have never tried before
viz. project managers. The effort should be for attracting and retaining the
digital talent.
Banks have to show that the activities are not merely mechanical but
that they make fundamental social contribution. The main reason for
changing the legacy systems is because the desired change is difficult to
achieve under the current system. Banks too have interesting contribu-
tions to make and very difficult problems to resolve.
Leading with conviction and humility is important. Business models
have to change. You can succeed only if it is aligned with workforce strat-
egy. Further, internally one must be able to meet many of the require-
ments. In short, absorb the right talent and deploy it. At the same time
ensure that the talented people can be attracted to your organization.
There must be enough scope for them to develop their careers. Banks
must take the following steps to ensure that the changes envisaged above
are implemented.

1. Encourage investment in transformation. Absorb the right talent

and deploy it.
2. Attract and retain technical talent.
3. Encourage talent development.
106 V. C. JOSHI AND L. KULKARNI

Conclusion
HR will be in the forefront of digitization and digitalization efforts. They
would along with IT make sure that the bank wide change is effortlessly
carried out.

Part II

Digitized HR
A very casual and cursory look at bank’s resources shows that they have
basically only two resources to care for (Money) and (Men/Women –
Staff Members). Banks profit and loss (P&L) statements bring out this
aspect in a marked manner. Exclusive of interest costs on deposits the
major debit to P&L is the staff cost (65–75%).
It is therefore natural that banks should pay considerable attention to
human resources. In fact, formal manpower planning and development
efforts in public sector banks commenced from 1970/1971. Even formal
training (particularly short duration need-based courses) started around
that time. Direct recruits went through such courses and were able to
work as “cancellation officers” – first line supervisors almost immediately
on joining.
Another unique feature is the unionization of the staff. The peculiarity
was that since union’s inception the issues that came up, were referred to
tribunals/judges and therefore the management of staff functioning has
“legalistic” overtones. Post nationalization, there was a need for unifor-
mity amongst public sector banks and this was achieved through such
matters being resolved by the personnel sub-committees of the Indian
Banks Association (IBA). Even the wage structure was formalized at the
IBA and the government level.
The arrangement was no doubt legalistic but the advantage was that
strikes, go-slow working etc. was not a normal feature. Even where there
was no formal rule in the settlement, the industrial relations staff inter-
vened and an agreement could be drawn up.
Managers normally opted for an amicable solution and the issues were
resolved and settled. The net result, of course, was that to an extent the
administration was straight-jacketed. Rewards or accelerated promotions
along the career path were not the norm. One occasionally got to “act” as
a manager/supervisor at a place where a higher-grade person was
 9 HR DIGITIZED 107

normally supposed to be working. An allowance for such ‘acting’ was

duly paid.
In the process, a number of staff members exercised their options to
leave as their aggressive career expectations could not be met. The banks
did suffer from the loss of younger, trained, and well-regarded staff mem-
bers. The current staff scene, suffers from these drawbacks mentioned
above and that the weaknesses in the system continued to afflict the overall
management of financial institutions.
A number of changes are considered desirable and we would advocate
their adoption, though the immediate implementation may be difficult.
The attempt here would be to develop a broad road-map which could be
of use at a later date.
In our work on digitized finance (Joshi, 2020), we have described the
process which HR departments could adopt in carrying out functions like
recruitment (mobile interviews, group working and so on). On the one
hand, HR would be transforming their own work process and to an extent
the working of their customers (bank’s departments and sections).
Gradually, they would get used to the HR digital channels.
Before proceeding further, it might be necessary to clearly distinguish
between digitization and digitalization. Digitization is automation of
repetitive processes regardless of the scale at which they occur and facili-
tate the use of data and statistics with business intelligence (BI).
Digitalization ensures access to right tools for any employee and pro-
mote mobility, raise contact opportunities with employees, provide a per-
sonalized and efficient relationship. It also may facilitate creating new
positions implied by such transformations.
We are now proposing that post pandemic working conditions, new
business models and even methods of doing business would have to
undergo many changes. Anyone who is remotely familiar with the pre-­
pandemic workings of personnel departments in banks would realize that
turning back the hands of the clock and restoring the status quo ante
would be well-nigh impossible. It may be useful to refer to a recent meet-
ing of Governors of Central Banks and Supervisory Staff at Vancouver. At
the meeting, the board of Governors of BIS, Prof. Prithviraj Choudhari of
Harvard was invited to talk on work from home and related problems.
Most of the Head Office Personnel departments of Indian Banks would
at this time be busy with implementing the recently concluded wage set-
tlement, arranging the revised fitments, paying the arrears, and smoothen-
ing the creases arising the settlement anomalies. Additionally, a number of
108 V. C. JOSHI AND L. KULKARNI

banks are sorting out their merger problems and have very primary issues
to be resolved. Placement of Category 4–6 officials in the revised organi-
zational setup is already posing a number of difficulties. Add to it, building
up new records, and taking note of housing loan installments, other
deductions etc. and making it part of normal salary statements.
To complete these tasks, and deal with the emerging difficulties caused
by work dislocation, during the last 6–7 months, is already a herculean
task. It might be worth examining, if the bank could take up digitizing the
work at this hour.
Our own experience, of dealing with such problems, though under a
slightly disorganized conditions, the digitization of personnel department,
in fact helps and is far less troublesome than waiting for the whole thing
to be resolved. A select group of HR officials after the initial problems are
sorted out, could start dealing with introduction of digitization processes.
Many of these decisions, get easily resolved in a high-pressure environment.
It would be necessary to spell out some of the major tasks. We would
particularly stress that on an as is where is basis, it is difficult to carry out
the work through a battered workforce but if they know that being the
frontline workers gives them certain advantages and that they would han-
dle the process changes with competence and ease. It would be useful to
start on the project as some of the solutions which are perhaps adopted in
the exigencies of the business would not necessarily be applicable to con-
ditions of the new normal. There would however be, certain activities
which are far more appropriate and would be applicable to new normal.
We would illustrate it as under.
There are a number of accounts with comparatively small balances,
though the required balance is just above the minimum stipulated. These
customers were formerly being attended to by the branch staff. But in the
present circumstances, they were directed to installed machines and cash
dispensing units etc. They adapted themselves without much difficulty
and expensive manual operations were thus dispensed with. In fact, the
branch staff could attend to the customers with special needs and had time
to deal with other marketing areas with the others. The rest of the custom-
ers could on their own, complete their “banking” business at the time
convenient to themselves. We are now in a similar vein suggesting that
bank’s HR department functions could easily be digitized. This could
facilitate completion of a whole lot of routine activities of HR department
(medical bills, leave fare concessions, acting allowances etc.). In fact, many
 9 HR DIGITIZED 109

of the staff members of HR department would then be free to be con-

cerned with more important tasks.
In today’s context, even the competition from technology firms with
deep pockets and loads of information is likely to be intensified. Disruptive
technology is already eating into bank’s profits. In this respect, both small
and big companies have succeeded in making a dent in banks P&L.
Gradually, customers are shifting to organizations like TenCent, Alibaba
and unless banks build up their businesses in a manner that this could be
completed with ease, it would be difficult to retain them. A time was when
a job with a nationalized bank or being selected for a job by the bank, was
considered quite an achievement; in these days it is no longer so. In those
days, the basic tenet of conduct was to be a conformist, be a rule abiding
employee, and be diligent in one’s application. The aim was to continue in
service till the time of retirement. The job of HR department in such cir-
cumstances was primarily to deal with union problems and arrange the
placement and transfer requirements. By and large, the aim in dealing with
unions was “peace with honor” – a face saving formula for both the sides.
Such is a state of HR department even now. Promotions up to middle
management were more or less automatic. Appraisals were almost of a
routine nature and not of much consequence.
It is essential to remember that even now, this is the background and
prevailing conditions surrounding the working of the personnel depart-
ment. Some part of these functions, have been taken over by software
purchased off the shelf. But in terms of assessment of organizational
requirements and/or emerging problems (because of recruitment or stop-
ping of recruitment during certain periods and emergence of bulges/gaps
over a period) have not been systematically dealt with. New problems have
arisen and these need to be carefully reviewed.
The personnel department thus constituted are going to be charged
with tasks never handled by them before. Therefore, as a first step, we had
suggested “digitization” of HR routine in our work in digital finance
(Joshi, 2020). The department is going to be called on to deal with more
complicated questions in times to come. They would now have issues
emanating from digitization at the organizational level – budgetary prob-
lems, data protections, aggressive career expectations of the staff. Equally
important would be the changing attitude of their own customers (viz.
banks various departments). Questions of productivity which the depart-
ment had never considered, costing and quality of services, and bank’s
journey towards a cashless society would also come to the fore.
110 V. C. JOSHI AND L. KULKARNI

As if all this were not enough, they will have to deal with the following
issues on an urgent basis.

1. Data storage and cloud computing.

2. Skill based appraisal system and communication there-of, to
staff members.
3. Appreciation of factors not easily quantifiable (emotive responses
and intelligence guessing).
4. Management of online corporate training.
5. Examining options of recruitment ranging from full time to part
time workers.
6. Gradual weakening of structured decision making.
7. Shift from designated job titles to review of skills.
8. Hybrid Working (Some employees at office and others working
from home).

Additionally, for digitization to be meaningful, HR itself will have to

have radical transformation of its own approach. It will not only be con-
sumer focused but highly objective. HR will have to apply marketing tech-
niques to the execution of tasks it has to complete (team development,
introduction of newer technology etc.).
Along with the changes to be implemented as suggested above, HR
will have to examine, in some depth how AI could become a problem
solver for many of its functions. Technologies help change the business
from inside. Many of the systems, checks and reviews could be redundant.
A large body of people, could over a period of time, be connected to busi-
ness strategy and come in to grips with what could be described as banking
problems. Equally important is the gathering of data to which decision
makers would be privy and would help in talent management exercises.
This would in fact help in strengthening and making use of digitized pro-
cesses. Equally important in times to come, the employees would have to
be keenly aware of banks’ data protection policies and “security” issues.
Some of these are even legally mandated (privacy and protection). At the
same time HR data (certain aspects thereof) would have to become avail-
able to some of the decision makers. The idea is to ensure unlocking of
workforce potential and to develop an enhanced employee experience.
Encouraging the employees to take initiatives for their potential develop-
ment through training, would be a significant part of HR work.
 9 HR DIGITIZED 111

This would in a sense, be the first steps in knowing about skilled man-
power and in assessing the need for reskilling and gradually goading the
staff members to accept skill-based placements. Skill based management
through integrated technology will ensure that the people with right skills
would get automatically promoted to deal with high impact projects and
on solving critical issues. Further the coherence that these changes make
it possible for HR to connect HR strategies to metrics the business cares
about. One must emphasize that such information can assist business
executives to respond to the new needs in a dynamic environment.

Unlocking the Potential

HR departments in many organizations were like a part apart. Their main
job used to be firefighting. Keeping the wheels churning and providing
branches and offices with the sanctioned staff was the be all and end all of
HR functions. With digitization would come the provision of skilled work
force capable of satisfactorily managing the newer “natives/aliens”[digital
alien is a person who is comfortable using the newest internet based tech-
nology, while the natives are the younger generation who have grown up
with the internet as an integral part of their lives] and digitally savvy cus-
tomers “aliens” or otherwise. Digitization would facilitate:

1. Having knowledge about skilled manpower.

2. Having an idea about re-skilling.
3. Having a hand on the pulse to develop a multichannel talent pool
and manage in line with critical skills with business outcomes.

Employees experience can be enhanced to device interface.

Organizations will have to create learning conditions that can be embed-
ded in the flow of work, enabling personal and social learning. Indirectly,
it would also lead to an effective digitized system in making HR efficient
and integral to business development.

HR Planning and Development

Estimating numbers and additional manpower is just the beginning. With
proper data analytics, estimated budgets and gaps in the hierarchy, skill
deficiencies can be identified and necessary improvisation and resource
mobilization can be undertaken to meet the requirements in time.
112 V. C. JOSHI AND L. KULKARNI

Recruitment and Selection

Currently, manpower is available in whatever manner the organization
thinks appropriate. Contract terms mutually agreed would lead to two
part-time employees to fulfill one vacancy.

Development of Required Manpower

Career path planning, promotions and rewards, performance appraisals,
life and work balance are some of the issues that would need to be resolved
over a period of time. Skill based horizontal models were used by some
banks and found useful. The vertical pyramidal structures are not adequate
in the current situation.
HR needs to evolve from a mere administrative functionary to a true
business stakeholder and enabler. Today, we need technology to concen-
trate on employee experience as a whole. Connecting people, to experi-
ence, information, and to each other would be the method of doing it.
Employees must learn to empower each other and to fulfill collabora-
tive ends.
We have so far concentrated on using technology to completing certain
assigned tasks and day-to-day business functions. But there are number of
areas of work that machines cannot handle or undertake. Expertise and
trust are the main competitive advantages in the financial sector. Raw data
needs to be analyzed in a manner which then becomes valuable and turns
into confidential information. This would ensure that digitization then
could become a tool for productivity improvement and quality of service.
There are important elements of life and work balance. They can manage
the working hours and they would never feel that digitization is nothing
but a tool for increasing revenue. Such activities provide the element of
creativity along with expertise, social interaction, and flexibility. It may
lead to changed forms of employment, working time and place, and even
safety issues. Perhaps the employees may get more time for advisory work.
In short, work organization and requirements there-of are not merely
for the present but also for some time in the future which is subject to
change considerably. Automatically the HR functionaries would need to
be adaptive and agile, data driven, open and curious with easy communi-
cation within and across the departments. For the first time, we are able to
know and in fact even monitor how the employees feel. So long as there is
transparency, digital monitoring or listening would be a great way to
 9 HR DIGITIZED 113

improve satisfaction and driving retention. We are headed towards an era

through data scraping, we can get rich insight into employee behavior.
Simple things like employee movement could lead to optimization of
space. Our experience suggests that “nudging” can make employees more
efficient and healthier.
Managers have to ensure that staff working under them is not only
consumer centric and tech savvy but also satisfied with the digitized
environment.
Banks which fail to adapt would find that their hiring costs are going
up, retention is becoming difficult and even productivity is falling. We are
able to measure productivity increases in spite of all the technology devel-
opments around, the expectation of increase in productivity are not get-
ting translated into actual results. This can be seen from income per
employee figures.

• Innovation – innovation could increase economic value.

• Speed – not merely more profits but employee satisfaction at speedy
disposal of work.
• Adaptiveness – In a bank, constant need for adaptation and scalabil-
ity is going to be requirement for the new work force.

In future, along with assessment of digitization, further improvements

and changes could be through AI. Coupled with big data analysis,
Computer Aided Training and other devices referred to earlier, use of AI
would lead to even individually tailored approaches to developing man-
power, evaluation of such candidates, and last but not the least is identifi-
cation of stressed feeling amongst employees.
At this stage we now turn our attention to what the future holds.
Disruptive forces are sharply changing of how we live and work – Creating
an imperative for the enterprises to adapt.
However, organizations find it difficult to keep pace with such change.
New realities of business particularly post pandemic (the new normal)
making it extremely difficult for HR to catch up with the changes.
New business models are likely to emerge. HR has to straddle a legacy
system while planning for the changed future. Perhaps out of this calamity,
an unprecedented opportunity may come up. There would be a new “nor-
mal” in the way enterprises would complete, access talent, adopt new
technology and bring out new products which a newly chastened society
may prefer to what they craved earlier. Perhaps the entire business model
114 V. C. JOSHI AND L. KULKARNI

may undergo a change. Sales, products, leadership, back office functions.

Far more important is the fact that our “values” and value-based needs are
undergoing changes or have already been changed. Enterprises have to
assess these.
The length of careers and life span of some given skills could be much
less. There are in fact three aspects of the problem that need to be borne
in mind (Table 9.3).
To achieve the above employees would naturally have a different mind-
set as shown below (Table 9.4).
The future calls for new capabilities HR must appreciate the impor-
tance of operating with agility and fluidity across organization and silos
need to be done away with. One needs to accept mistakes and learn even
faster. New solutions keep on coming up.
AI, Robotics and cognitive solutions would grow in sophistication.
Typology of work would change job designs, work organization and even
future growth plans would change.
One has to ensure that while the activities and proposed changes are
business centered, equal importance has to be given to:

• Workforce centered design

• Business value creation
• Empowerment
• Brand strengthening
• Experience
• Engagement

Table 9.3 Changes imperative in corporate goals and management

How the future of the Future of the workforce The way work gets done
enterprise is changing

How to become a social Create an inclusive workforce. Reimagine the work

enterprise Non-traditional talent across the enterprise
Drive innovation and Orchestrate the future
agility capabilities
Partnership in the
enterprise eco system

Source: Authors
 9 HR DIGITIZED 115

Table 9.4 Changes in employee mindset

Mindset Focus Lens

Transiting to Driving value Breaking away from traditional HR models in

new trait through customer favor of dynamic ways of working that are
adoptions centric and human appropriate for a purpose to achieve outcomes
To thrive in centric solution and enterprise values and culture that flexes to
the digital age new needs

Source: Authors

Digital Reality

Social / Mobile

Cloud as Platform

Democratizing Data Real Time. Advanced Workforce Analysis

Unified Engagement Platform

Robotics and Automation

Cognitive & A. I.

Internet of Things

Digital Reality

Fig. 9.1 Role of HR. (Source: Authors)

In the process, HR department unlike in the past would be blazing new

trails. These early adoptions of cloud platform solutions, automating and
enhancing with advanced digital solutions that reshape how work is done.
HR is now a pioneer in the use of robotic process automation and use of
AI in the routine HR processes. Introduction of virtual reality, machine
learning, and social collaboration would make the HR reinventing
possible.
The role of HR in the dynamic change has been extremely well cap-
tured in the diagram below (Fig. 9.1).
116 V. C. JOSHI AND L. KULKARNI

Basically, we are bringing HR to the heart of banks’ working. Our work

with HR of a very large Indian Bank had saddled us with the responsibility
for preparing five-year plan and we aggressively pursued the task so that
we had critically looked at both HR and business problems of almost two
third of the branches. We sat at innumerable meetings for the allocation of
manpower exercises and were quite familiar with the business dimensions
and growth prospects etc. The role of HR changed forever and we were
looked on by the field staff as their spoke-persons. Jokingly, a senior zonal
manager once remarked that on a clear day our HR chief knows fully well
what we are up to. Exaggerated no doubt, but there was some element of
truth in it.
This brings us to see what the future holds for HR

• Value creating with agility

• Workforce allocation and solutions
• Diversity and Inclusion and legal compliances
• Management

The future is about achieving business outcomes in the context of the

following (Table 9.5).

• The future of enterprise

• The future of workforce
• The future of the way work gets done

We conclude by briefly reviewing the “navigational” problems. IT

departments will be partners and, in some areas, the “lead partners”. HR
should monitor and report to the top management on budget and start
informing them about a possibility of a budget overrun. Adhere to the
dates of completion of stages indicated in the proposal.

Table 9.5 Future of work

Future of enterprise Future of workforce How work gets done

Mindset Focus Exponential Gaining advantage

Digital traits and HR customer HR Cognitive and digital
behavior centricity Reimaging work automation
group

Source: Authors
 9 HR DIGITIZED 117

A word of warning. Be ready to accept blame for failures, a particular

piece of software not performing as per expectations. If one is ready to face
the music and to inform the board about the delays and failures, you
would be the de facto project leader.
We have to accept that change is always messy. Road blocks appear at
most unexpected levels. Progress could be tardy and somewhat slowed.
We must add that there are not enough employees with right technical
skills. Demand outstrips supply. Perhaps the digital talent gap is widening.
Banks salary, perks and what digital experts get in the market are quite
different. The problem is not one of merely getting them. It is one of
retaining them. Jealously guard the bank’s lending experts and digital
experts.
These techniques lead to networking collaboration. This requires new
version of skill management including predictions of future skill demands,
detection of skills in real time and effective mechanisms to match skills
and tasks.
There is also a need for new leadership culture. A culture in which
direct and indirect management feedback continuously and effortlessly in
the norm.
As HR specialists we are guardians to ensure compliance of laws, equal
pays, inclusion, and diversity rules. A model skill set adds design thinking
and analytics. Design thinking would keep us create innovative services for
better customer satisfaction. We have to be on our toes to innovate re
services and their deliveries. HR experience must be exemplary.
Association/Networking with out of box thinkers.

1. Set and adjust digital HR strategy

2. Manage HR by customer experience
3. Build an HR innovation culture
4. Maximize HR returns

Bibliography
Flock. (2017, November 14). Traditional HR vs Digital HR. Retrieved from
Flock: http://blog.helloflock.com/blog/2017/11/14/traditional-­hr-­vs-
­digital-­hr
Joshi, V. C. (2020). Digital Finance, Bits and Bytes the Road Ahead. Palgrave
Macmillan.
 CHAPTER 10

Risk Management

Indian banks would have in the past experienced flood, fires, and the
writer does remember a volcanic eruption where a large number of bank
branches were badly damaged. But the damage and scale of losses experi-
enced now was unprecedented. Banks and national economies may have
suffered from plague, influenza in a big way. But the current situation was
unprecedented. The writer and a good may surviving chairpersons,
Assistant General Managers and even Branch Managers with 15/20 years
spent in credit department have candidly told the writer that they could
even if they were very close to the scene of action, they would not have
been able to properly evaluate the magnitude if losses and to arrive at sat-
isfactory solution. We might have experienced partial closures, damage to
individual units or even ledgers, vouchers or computers being covered
with mud, records being destroyed.
But the pandemic closing down businesses, transport, total disruption
of the supply chain, the staff marooned at various locations and unable to
reach the places of work was beyond imagination. This was truly a “black
swan” situation. Every industrial unit financed by bank[s] was facing the
same dire situation. For them the future was bleak. The only certainty was
mounting amount of payments that had to be made if one were to expect
a “reopening” at some date in the future.
The only certainty was a closure of activities if no external aid were
forthcoming. Fortunately, the government, the central bank RBI and to
an extent the banks came to the rescue and undertook to:

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Singapore Pte Ltd. 2022
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120 V. C. JOSHI AND L. KULKARNI

(a) Subsidize the units’ operations.

(b) Gave additional facilities.
(c) Guaranteed repayment of the amounts outstanding.

At this point there was a danger that “Zombie” accounts could also be
financed and that good money would be in the proverbial sense thrown
behind bad accounts. However, the RBI took a very significant step. They
appointed a committee to devise method[s] for undertaking financing of
such accounts. The committee under the chairmanship of Shri.
K. V. Kamath (2020) and the committee’s recommendations and sugges-
tions for financing units under review. Further at the Zonal office/Area
offices and at branches committees were formed to review the accounts
money was disbursed.
One review of Kamath Committee’s recommendations shows that it
met the requirements of most the units under review. The borrowers were
also called in for discussions and to “sign” documents for additional funds
sanctioned. The screening made it possible to weed out certain undesir-
able elements and met the genuine needs of the borrowers.
True it is that the banks have assumed an unusually high liabilities. It is
not surprising that the amounts for NPAs have grown considerably. We
quote the relevant portion from the Financial Stability Report. “by all
accounts, policy authorities have been able to restrain the immediate risks
from the destructive macro financial feedback looks of the pandemic.”
Given the unprecedented nature of the crisis, central bank intervention
spanned interest rate reductions, funding liquidity and market liquidity
expansion, asset purchases, credit easing etc.
Further for the revival of the “corporate sector”, there have been sug-
gestions for urgency to act before the underlying strength of the business
sector were eroded. In this connection a reference to Group of Thirty
[2020] report on reviving and restructuring the corporate sector post
covid-19 is worth pursuing. Similarly the IMF Global Stability Report
provides useful information and important suggestions.
As per the latest edition of RBI’s Financial Stability Report, (RBI,
2021) gross bad loans on banks’ balance sheets could increase to 13.5% by
September 30th 2021. Further what is dubbed as “worst case scenario”
the gross bad loans could go as high as 14.8% by the second quarter of
fiscal year 2021–2022. The picture that emerges is indeed worrisome.
Utmost care is required at various levels. The stakes are too high.
 10 RISK MANAGEMENT 121

A totally new approach through an evolving partnership between banks

and corporates has to emerge. Banks would in addition to being financiers
have to assume far more active roles. They have to ensure that the unit
does tide over the current difficult phase. Each unit should be having a
weekly, fortnightly operation plan. Banks would need to have special calls
to review various aspects including staff absentees of workers/supervisors
in key functions. The credit section will have to closely monitor the work-
ing of the units which show signs of faltering.
The banks could try and have weekly meetings of such enterprises and
share experiences, sort out supply chain bottlenecks, arrears in receipts,
payments etc. Perhaps the bankers may have to assume a “guardianship”
role. In present situation addition to the woes of banks would amount to
pouring oil on fire. This then turns out to be a work which needs to be
carried out with a missionary zeal. Save the units financed and save your-
self. There must be better collaboration between risk functionaries (inter-
nal audit, finance). Risks are becoming increasingly complex, interconnected
and unless that is a close collaboration between banks and units, strategic
and operational initiatives may suffer. Banks need to have regular meetings
with customers enjoying facilities of pretty large amounts. These meetings
must be structured and the operations need to be critically evaluated.
Equally important are onsite visits and discussions with operation heads.
Our experience suggests that even “corporates” are not forthcoming
with all the particulars when the journey is through turbulent, choppy
waters. A site visit, talks with account staff, purchase and marketing heads
can be very useful. The credit department should make it a point to be
fully prepared with the facts. The bank account speaks volumes.
The stakes are high. The executives must be extremely careful. Lastly,
at the top management level, investment/borrowing all need to be on the
top management radar screens for risks.
Before closing we would add the RBI guidelines and circulars need to
be followed both letter and in spirit.

Inadequacy of Risk Estimation Models

Bank specific risks can be avoided and managed with efficient application
of risk mitigation techniques. However, a major drawback of risk manage-
ment models is that the techniques are based on assumption of normal
distribution and thus are effective in case of commonly occurring events.
But the events that are rare, have low probability, and thus fall in the tails
122 V. C. JOSHI AND L. KULKARNI

of the distribution are ignored by the conventional risk managers. This

creates a new type of risk called as model risk.
The risk management models help the banks to manage the risk of
default. Thus the lending and asset liability management based on these
models helps the banks to sustain the credit risk, market risk etc. However,
The problem is that the conventional parametric risk management models
are based on the assumption of normal curve. The techniques assume that
the events are distributed normally in a bell shape where 90% of the events
deviate very little (1 standard deviation from eth mean and only 10% of
the events fall away from the mean). These 10% events are at the two tails
of the normal distribution curve. The events at the tails of the normal
curve are the least expected (but still may occur although rarely). The
models do not account for the least expected risks, and focus just on miti-
gating the ‘expected risks’. Thus the risk of models failing to manage the
risks is ‘model risk’. This model risk has proven to be the cause of trouble
for the banks as the risk management models applied by them thus far in
‘normal’ economic environment has failed when the economies under-
went shock. This risk is at the root of systems being fragile and causing a
breakdown on ‘unexpected’ shocks. Thus the events such as pandemic
reveal the need for developing more effective statistical models of estimat-
ing risk taking into account the rare events. Given such views, one of the
strongest risks is concern about the quality of banks’ risk management,
which rose from No. 11 in 2014 to No. 6 in this survey. Although much
work has been done by banks and their regulators to strengthen risk con-
trols, there is a sense that banks have still not adequately addressed not just
the scale of risk but also its changing nature. The changing nature of risk
is summed up by the sharp rise in concern about Criminality (up from No.
9 to No. 2), chiefly because of the alarming spread of cyber-crime in an
increasingly borderless market, particularly data theft. This is closely asso-
ciated with Technology risk (No. 4) where underinvestment and obsoles-
cence, and banks’ growing exposure to competition from fintech
companies, now presents major challenge.
Covariant Risk: Another important aspect of a systemic risk is that most
of the times it is covariant. The entire population is affected by the risk and
hence there is no room for risk diversification. For instance, during an
event like pandemic the banks are facing global risk of default across their
entire portfolio of loans. In normal times the banks may face the risk of
default on a part of loan portfolio, say any one sector of the economy is
undergoing recession then the corporate bankruptcies and loan defaults
can occur. But at the same time some other sector might be doing well and
 10 RISK MANAGEMENT 123

the banks can gain from those portfolios. However, in case of macroeco-
nomic events when entire economies are affected adversely, and slowed
down, there arises a huge risk of simultaneous default from many portfo-
lios. These covariant risks were earlier associated with primarily the agri-
cultural loans where entire geographical regions are affected at a time by a
famine or flood. Today the banks are experiencing similar co variant risk
across corporate loan portfolio due to pandemic and slowdown.

Centralized Approach Towards Risk Management

At the bank level risk management organization structure can be either a
centralized or decentralized. The global trend is towards centralizing risk
management with integrated treasury management function to benefit
from information on aggregate exposure, natural netting of exposures,
economies of scale and easier reporting to top management.
According to the RBI, “The primary responsibility of understanding
the risks run by the bank and ensuring that the risks are appropriately
managed should clearly be vested with the Board of Directors” (RBI, Risk
Management Systems in Banks).
The RBI provides in detail the instruments of Credit Risk Management
to be implemented by the banks. These can be summarized as follows:

1. Credit Approvals: The banks should also evolve multi-tier credit

approving system where the loan proposals are approved by an
‘Approval Grid’ or a ‘Committee’.
2. Prudential Limits: In order to limit the magnitude of credit risk,
prudential limits should be laid down on various aspects of credit
like benchmark current/debt equity and profitability ratios, debt
service coverage ratio or other ratios, with flexibility for deviations
and related conditions for deviations; single/group borrower limits,
which may be lower than the limits prescribed by Reserve Bank to
provide a filtering mechanism; substantial exposure limit; maximum
exposure limits; maturity profile of the loan book, keeping in view
the market risks.
3. Risk Rating: Banks should have a comprehensive risk scoring/rating
system that serves as a single point indicator of diverse risk factors of
a counterparty and for taking credit decisions in a consistent man-
ner. The credit risk assessment exercise should be repeated ­biannually
(or even at shorter intervals for low-quality customers) and should
be delinked invariably from the regular renewal exercise.
124 V. C. JOSHI AND L. KULKARNI

4. Risk Pricing: Risk-return pricing is a fundamental tenet of risk

management. In a risk-return setting, borrowers with weak financial
position and hence placed in high credit risk category should be
priced high.
5. Portfolio Management: Banks should evolve proper systems for
identification of credit weaknesses well in advance. Most of interna-
tional banks have adopted various portfolio management techniques
for gauging asset quality. The CRMD, set up at Head Office should
be assigned the responsibility of periodic monitoring of the portfolio.
6. Loan Review Mechanism (LRM): Banks should, therefore, put in
place proper Loan Review Mechanism for large value accounts with
responsibilities assigned in various areas such as, evaluating the
effectiveness of loan administration, maintaining the integrity of
credit grading process, assessing the loan loss provision, portfolio
quality, etc.

Apart from the management of credit risk, the regulator also seeks elab-
orate risk management by the banks in case of market risk, liquidity risk,
interest rate risk etc.

Conclusion
The banks have assumed unprecedented risks. They are not likely to be
encompassed by models tailored for different set of circumstances. We
have to realize that we are heading towards a new normal and have to
develop a set of rules to fit the emerging conditions. Banks have to be
totally immersed in this exercise because the stakes are too high.

Bibliography
Kamath, K. V. (2020, September 7). Report of Export Committee. Retrieved
from rbi.org.in: https://www.rbi.org.in/Scripts/PublicationReportDetails.
aspx?UrlPage=&ID=1157
RBI. (2021, January 11). Financial Stability Report. Retrieved from rbi.org.in:
https://www.rbi.org.in/Scripts/PublicationRepor tDetails.aspx?Url
Page=&ID=1162
RBI. (n.d.). Risk Management Systems in Banks. Retrieved from rbidocs.rbi.org.in:
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/9492.pdf
 CHAPTER 11

Regulation

Regulating the Financial Systems

During the last few years, there has been an increased focus on use of
technology by the regulators. Earlier we had tried to show how regulators
need to take steps to critically evaluate the risks involved in the use of
FinTech. The time has come when regulatory technology focus on the
more effective and efficient mapping, fulfillment and documentation of
regulatory obligations supported by important technology innovations is
the order of the day. One may define RegTech applications as an aid to
meet regulatory requirements. By and large, these technologies cover
major regulatory requirements and helps in monetary compliance. These
include review of management, automated evaluation of regulatory
requirements, gap analysis and risk management etc. It could also be used
for fraud detection, automated money laundering etc. One must ensure
that the use of such techniques do not lead to further risks.
A profound shift is taking place in our thinking not only about
“Regulation” but even about wider economic issues. The pandemic has
ushered in a new era. On the one hand there is an overriding concern
about the enormous risks that stem from a supervised level of state
intervention in the economy and financial markets. On the other, banks
have to be absolutely vigilant about the way the aided accounts are
operating and to ensure that they do not start gravitating to be
non-performing.

© The Author(s), under exclusive license to Springer Nature 125

Singapore Pte Ltd. 2022
V. C. Joshi, L. Kulkarni, The Future of Indian Banking,
https://doi.org/10.1007/978-981-16-9562-9_11
126 V. C. JOSHI AND L. KULKARNI

In fact, there was a report about some accounts sliding into a stand–still
position. This was a worrisome development. The fear is that such accounts
could turn out to be “zombie” as the Economist described them.
The regulators are/should be concerned about the following some-
what unusual features currently prevalent in banking system, no doubt a
result of the response to Pandemic impact on the economy.

1. It is the jaw dropping rate sale and rate of today’s government bor-
rowing and seemingly limitless potential for yet more.
2. Central banks in USA/EU and in India also have created new
reserve of money in excess of US $3.7 trillion in 2020 i.e. Central
Banks are tacitly financing the stimulus.
3. Curiously state is becoming the chief allocator of capital. The Federal
Reserve is lending directly to everyone from bond dealers to non-
profit hospitals. Fed and Treasury are backstopping 11% of America’s
entire stock.
4. Lastly, there is surprisingly low inflation.

In the Leaders section of their 23 July 2020 issue, the Economist writes
“don’t fool yourself that the role of the state will magically return to nor-
mal once the pandemic passes” (The Economist, 2020). Deficits and
printing money will become the standard tools of policy-making for
a decade.
The Central Banks’ growing role in financial markets reflects the stag-
nation of banks as intermediaries. These observations may seem to be
somewhat exaggerated but it is really difficult to visualize the future oth-
erwise! Particularly for the Central Bankers, and the regulators of yester-
years it is more so.
One must also take note of the prominence of innovation and risk-
hungry shadow banks and Capital Markets. Central Banks would soon
have to get their hands dirty on Dalal Street and elsewhere and act as
mammoth market makers of last resort.
This chapter is divided into two parts. In Part 1, we discuss government
borrowing. Then, in Part 2, we turn our attention to reconsidering the
broadening role of central banks.
 11 REGULATION 127

Part I: Government Borrowing

Normally any discussion of Central Bank regulation would start with
Government Borrowing. It is no surprise that two very important books,
one written by Dr. Urjit Patel, former Governor of Reserve Bank of India
and the other by Dr. Viral Acharya, former Governor RBI dealt with this
subject. Both books share their difficulties and express their dismay at the
impact of the Government’s excessive borrowing and consequent
“Financial Dominance”. No doubt these books came out just prior to the
Pandemic setting in (Acharya V., Quest for Restoring Financial Stability in
India, 2020b; Patel, 2020).
A number of Central Banks around the globe have commended
Acharya’s speeches and have shown great admiration for his effort. Under
normal circumstances, one would have to start with this aspect of RBI’s
major responsibility. At the time of writing one is not sure if that “desired
[ought element] day” would come in 2022 or 2025. We seem to face a
very difficult question. It is rooted in Central Bank performing the
monetary policy operation to smoothen fluctuations in economic activity
without jeopardizing the economy’s nominal anchor.
On the other hand, the Central Bank’s role as Lender of Last Resort
(LOLR) has to be brought into play. They have to exhibit great flexibility
necessary in financial emergencies to “do what it takes”. The problem
comes up as and when they have to sacrifice or reduce emphasis on or the
other aspect of their function- in this case the control of inflation and
excessive money supply.
May be there is a need to redraw theoretical boundaries. In theory, this
compartmentalization does not seem sound enough. LOLR function
must be part of a principled regime. They need to be joined up.
Should the political authority be compelled to seek sanction of the leg-
islative body for exceeding the limits on its borrowing? Should the bound-
ary be made explicit? These questions have been raised in one form or the
other since the 2008–2012 great financial crisis.
Of course, they are not of great relevance in the current crisis. One may
tentatively suggest that there is a need for “understanding” and mere doc-
trinaire approaches may not be useful. To what extent these kinds of doc-
trines are stretched, depends on the way the situation is perceived and
responses would vary accordingly.
Under the present conditions, to think about the new “Normal” or
about the limits on the Government’s borrowing powers would be a
128 V. C. JOSHI AND L. KULKARNI

colossal waste of time. The concerns about “prudent financing” need to

be set aside and to get on with the problems and move on would be a
prudent alternative.
In the same vein, the “Unelected Power” (Tucker, 2018) issues do not
have much relevance in the present situation and may perhaps become
relevant when the question of Central Bank independence can be dis-
cussed in calmer circumstances.

Part II: Reconsidering the Role of Central Banks

We therefore start with the issues which the Banks are grappling with and
that need to be addressed once the current emergency phase is behind
them and provides bankers with some breathing time.
The priority would of course have to be accorded to restoring “nor-
malcy” no doubt under “new normal” conditions. Any number of disrup-
tions from health services to schools, restaurants have to be addressed and
almost everything has to be resolved on a priority basis.
Our own experience in dealing with such situations, no doubt on a
minor scale, is to reactivate the state level bankers’ committee[s] or even
district level groups to assist in the resolutions of problems. One needs to
build a consensus to avoid unnecessary arguments and concerns. The state
and district committees’ involvement ensure that the work does get car-
ried out smoothly. The association of local social workers also helps in
getting local participation on the required scale.
Of course, the bankers need to have adequate coordination right from
the concerned ministries to district level functionaries. No doubt, a degree
of clarity about how to proceed ahead is essential. The full support of the
Chief Minister is a must.
We now turn our attention to RBI’s regulatory and supervisory func-
tions. We have noticed that many participants at seminars equate supervi-
sion with regulation. We therefore begin by distinguishing between these
two terms. Regulations generally deal with formulation of rules that are
on one side part of the legislation and thus approved by the legislative
bodies and on the other side rules that are implemented by administrative
bodies. Supervision on the other hand deals with enforcement of such
rules in the form of controls or ex post in the form of sanctions.
During the last few years the development of “supermarket” financial
services entities has made the tasks of regulators rather difficult. We are
however, forced to advocate a very strong control on operations by the
 11 REGULATION 129

RBI. This may sound strange. “Nudging” and behavioral science-based

inputs may be compatible with market based liberalized environment. But
these should not mislead us into believing that the methods are inviolable
or an absolute must.
We would suggest that the following issues should be taken up and
dealt within a stipulated time period.

• Structural Issues arising from the merger of various banks just prior
to pandemic. Closure of the branches, regional offices along with
placement of officials currently in V–VI grades are of importance
both from cost and administrative streamlining needs.
• Review of Accounts currently under “nursing” (particularly the ones
which are flagged) as suggested by RBI.
• Tightening of rules for banks which were under prompt corrective
action norms.
• Insolvency and Bankruptcy – Instead of haircuts <> “Debtor in pos-
session creditor in control”.

We now turn to the NPA problem. I.B.C. decisions are totally unfavor-
able. The machinery for sanctioning of large advances needs a careful
review. Take away the sanctioning authority for large amounts advances
from the banks and put it to a central board. A Central board could draw
on any number of experts, consultants to guide the Board in a thorough
assessment of the project and required amounts of monies in consonance
with phased development. It is sad to see crores of Rupees going down the
drain merely because a project report was faulty or the promoters did not
have enough resources. The Chairman, General Manager recommending
the proposal should present the proposal. There could be corporate repre-
sentatives from the concerned units to answer queries.
For further monitoring, information would be collected by the banks
and RBI on their own and reported to the central Board. This would
ensure proper release of funds and their utilization on the required scale.
The necessary coordination with Central/State governments could also
be harmonized.
In addition to the change in the modus operandi for high value
advances, the Branches, Regional Offices, Zonal Offices would have to be
very careful with sanctioning, monitoring (regular inspection), modifica-
tions to the terms of sanctions for advances within their authority etc. be
undertaken with due care. The loss on account of NPAs should be viewed
130 V. C. JOSHI AND L. KULKARNI

very seriously. At the operating level, there must be a great concern, and
should be treated as if these were a blot on branch working. There is
urgent need for deciding on matters referred to the courts. The RBI and
the Government must set up a new machinery to deal with financial issues.
It is a shame that borrowers can use public resources as equity without
interest because of such delays.
At this stage, one needs to have a thorough review of the “liberalized/
deregulated working”. At the Vancouver Meeting of BIS Governors, it
was decided not to insist on Basel III norms regarding Capital. Since the
Regulators/Banks consider that the “Trust” in banks emanates from
Government ownership is there a need for indirect measures like Capital
Adequacy and Ratios? A clear-cut decision on such issues along with the
following is required. We list then below in due course expect the following to
be resolved.

• Change in ownership – Privatization as suggested by Economic

Survey 2020. Why should such emotive issues be aired? The advisors
could submit such matters to the concerned authorities and leave it
to the concerned Government to initiate the required steps.
• Recapitalization.
• Tighten up PCA norms.
• Reliance on Market based mechanism to punish borrowers.

We however, are of the view that till the time these issues are not
resolved, we should ensure that rigorous regulations as recommended by
F.S.B. should be adhered to. “Ring Financing” and “stress tests” must
be used.
We therefore, reiterate what has been stated in the publicly released
report. RBI has made substantial progress in the Financial System Stability
Assessment and its implementation. The time has come for Supervisory
Program for Risk and Capital (SPARC) framework to be implemented.
The fact that the pandemic has led to unprecedented absentees or
caused difficulties in normal working should not lead to a situation where
“controls” and “reviews” are given up. These ae vitally important. We
would otherwise in March 2021, have an equally great burden of addi-
tional, NPAs.
The Internal Inspection, Audit functions cannot be relaxed and reduced
to a mere formal observance. In fact, with staff absentees, there could be
a reduction in the staff strength of such departments. It should not lead to
 11 REGULATION 131

laxity and therefore a loss of critical review. At least those accounts which
were flagged or did show signs of stress prior to the pandemic should be
looked at on a continuous basis. The emphasis, all through our writing, is
on avoidance of leakages and losses and creating a culture of utmost care
in avoiding losses.
A question that is often discussed at Seminars relates to “norms” of
either privatization or existing banks or entry of new banks. The Reserve
Bank has appointed an Internal Working Group and the Report of the
Group has been made available. Ever since its publication, and almost
immediately thereafter, reactions from Dr. Raghuram Rajan and Dr. Viral
Acharya have been quite critical. In an opinion printed in the Times of
India, they have vehemently opposed the idea of permitting business and
industrial houses “entry into Banking as promoters” (Acharya, 2020a).
The fears are that such entry would lead to a dilution of standards in lend-
ing money to the promoter and excesses in borrowings would lead to
certain failure.
Expressing a view on such matters rests on “assumptions” and there-
fore based on probabilities. Secondly, many of the Banks prior to nation-
alization were under the direct/indirect control of Industrial Houses. One
wonders, if reversing the direction would in any way be particularly benefi-
cial. The current private sector banks’ working needs to be improved.
Further DBS (Singapore) would enter the financial sector through its
acquisition of LV Bank. We could see to what extent the working changes.
Currently, there is too much market uncertainty for a group to come out
with an IPO and to raise the required moneys. One could, at the oppor-
tune time, be in a better position to evaluate such a proposal.

Digitalization
We have in Chap. 3 of the book referred to AI, mobile phone apps, AR
and VR etc. and suggested that sooner or later banks will have to start
using these in the operation.
We have, however, recommended a unified approach by the Government
Banks. The resources (technical persons) required to successfully imple-
ment installation and to ensure smooth working are scarce, expensive and
hard to get at. The salaries of data analysts are going up 16% every year just
prior to the setting in of the pandemic. There is no need for each bank
spending time and resources on experimenting. Further banks should sub-
mit technology innovations for risk evaluation to RBI. Singapore and
132 V. C. JOSHI AND L. KULKARNI

Hong Kong Monetary authorities are actively engaged in such work and
RBI needs to initiate such changes.
Indian Banks need to avoid unnecessary expenses. Rather, such waste-
ful duplication needs to be avoided. There is a good deal of commonality
and a single research lab with personnel to guide and provide required
solutions would be adequate. There must be no laxity.
We now turn to some newer behavioral science inputs currently used by
regulators. One could well say that regulatory practices are looked at from
the “consumer perspective.” The “average” consumer now looks up to
the Regulators not merely to save him from pitfalls but perhaps guide him
to safer havens.
This, no doubt, reflects on market efficiencies and arises on account of
information asymmetry. The present supervisory arrangement, no doubt
helps in specialized supervisions and guidance. But consumers also expect
a coordinated approach and guidance.
A casual look at the product mix shows that many FI products are
inherently complex for most consumers. There are many products which
involve trade-offs between the present and the future. Often, consumers
make decisions which are against their long-term interests. Persuasion and
social actions play an important role in such decisions.
Further, such decisions are a result of emotional bias or are arrived at as
a result of “friendly” advice on social networks. The regulators could easily
identify the biases and could get the F.I.s to remove the elements that
affect the consumer.
Given below is a brief list of factors taken into account by the regulators:

• Preferences: what do the customers want.

• Beliefs: the consumers’ situation and beliefs.
• Decision making.

In a sense, the consumers are to be guarded against firms which could

take undue advantage of the consumer’s ignorance/biases. The firms tend
to increase non-salient charges (credit card charges). A classic case is the
“exclusions” in the insurance contract.
Bias exploitation no doubt helps firms to attract and retain consumers.
Since “bias” is not readily observable, Regulators have to get pointers
where consumer behavior and firms’ response get reflected in the product
feature.
 11 REGULATION 133

The “ideal” answer would, no doubt, depend on assessment of the

economic function of a product to see if the consumer uses it for the same
purpose. Ultimately, the regulator would have to go into the following
aspects for a critical examination:

• Collection of firsthand information.

• Randomized control trials.
• Analyzing broad context of the market.
• Nature of the market competition.
• Any occasion when there was a market failure.

The Behavioral Economists offer guidance to the regulators on the

lines indicated below:

1. Firms called on for more disclosure.

2. Change the choice environment.
3. Ban specific product feature.
4. Control over product distribution.

International Adequacy Standards

For too long banks were adhering to these “market” norms. How relevant
are these when we seem to be committed “Never to allow a bank to fail.”
Do what it takes to save them is the motto. Following Prof. Harrod, we
too would like to ask if all these hardships arising from adherence to such
standards were necessary. Should we worry about capital and other ratios?
In the final analysis, we tend to depend on the Government and RBI to
rescue the banks. They as owners do the needful (i.e. not let the bank fail
[YES Bank]).

Foreign Branches of Indian Banks

Do we need so many branches overseas? One branch could well take care
of all the needs of Indian banks at places like London, New York, Frankfurt
etc. Many of our branches cannot participate in loan syndication for Indian
entities because our capital is not adequate. A single branch could have all
the advantages.
134 V. C. JOSHI AND L. KULKARNI

Plan for Regulators

It is time indeed when the regulator draws up a plan for its future activi-
ties. Technology, complexity of business, market developments need a
change in the road to be traversed.
Let there be a five-year rolling plan for the RBI. They too need a SWOT
analysis and changes wherever needed!
The regulators need to pay far greater attention to “rural”/agricultural
issues than ever before. Fortunately, banks do have a large workforce
[Agricultural Officers] and the same could be used to look at the special
needs of farmers right from the stage of sanction of crop loans to product
marketing.
New enactments have made major changes and the weaker sections do
need guidance and support. NABARD, banks [both private and Public
sector] and even cooperative credit institutions must join hands to see that
farmers are guided and properly instructed in the new modalities of doing
business right from cultivation to marketing.
Lastly, the Regulators have to take a principled stand on environmental
issues particularly on “industrial lending.” They should follow G-20
guidelines in this behalf. Finally, companies like Microsoft are taking lead
in water management issues. Regulators could certainly seek their guid-
ance. The issues are as important as in the “Bharat Swachha Abhiyan.”
We are aware that the regulatory ambit must be widened to cover the
new realities. There is more to it than monetary financing.

RBI Independence
There has been a common dynamic towards regulatory intervention in
economic and social lives and a common concern about the legitimacy of
delegating so much of states’ activity to agencies that are more or less
independent from day-to-day democratic control.
The upshot is democracies are struggling to practice conceptually with
how just independent agencies fit into a system of accountable govern-
ment. On its own it is unlikely to cause a “crisis of democracy” of that kind
that some got over-excited about during the 1970s. But it is part of a mix
that has revised concerns about government by unaccountable elite under
undemocratic liberalization.
 11 REGULATION 135

The legitimating of independent agencies, forces us to reflect on ideas,

theories, and convictions about the purposes and construction of admin-
istrative state. The review of such delegation is called for.
In the era of liberalization, the state emerges as the insurer of last resort,
there to spread costs of disaster across the living or forward to future gen-
erations, in the interest of preserving welfare and stability today so that the
good things of life, however conceived, can be expected tomorrow.
The state functions in four modes or registers:

• A state provides information, education, perhaps health services, and

binding adjudication of disputes.
• A fiscal state intervenes directly into markets.
• A regulatory state which sets and enforces legally binding rules
(criminal law) on parts of all of community.
• An emergency state which might suspend certain laws in extraordi-
nary circumstances.

Central banks are different. They feature in every functional manifesta-

tion of the state. Their financial operations change the consolidated bal-
ance sheet and are part of the fiscal state. They govern banks through rules
and policies and are part of regulatory state. They publish data and reports,
say on financial stability. As lenders of last resort, they are insurers of last
resort and part of emergency state.

Central Bank Autonomy

(a) The need to agree to Central Bank reshaping the states’ balance
sheets towards certain ends.
(b) To unite rules and make regulatory decisions that the democratic
core of the state may choose to enforce via courts.

Why should these rights be insulated from day-to-day politics?

• The objective of price stability fits with some of the values of RBI
governors and the body of Friedman followers.
• They consider the states’ monopoly power of issuing money
as an abuse.
136 V. C. JOSHI AND L. KULKARNI

• Under fiat money, independence of monetary authority is a corollary

of the higher level of separation of power between the fiscal authority
of the legislature and the elected executive government.
• Central Bank independence is grounded in the values of constitu-
tional government.
• Central Banks are not inherently a fourth branch of government
since they are subordinate in different ways to each of the higher-­
level branches of the state.

Intrinsically, central banks are not guardians of high values or the integ-
rity of the democratic rule of law of the state. In actual fact, quite different
models of Central Banks have prevailed.

(a) Operational arm of government financial policy occupying a dis-

tinct sphere of expertise and authority.
(b) The other regards them as independent authorities, delegated spe-
cific responsibilities Both models rely on expertise but call upon it
in different ways. The functions are determined by technocratic
comparative advantages rooted in its being one of the payments
systems. Know how mindset unique to Central banking.
(c) Post Pandemic when there is a degree of normalcy there could be
a debate on some of these issues.

Under (b), central bank does only such things as are delegated in spite
of its ability to handle other functions. In advanced economy democracies,
the transition from subordinate agent to independent trustee has raised
questions of boundary, sometimes at the cost of welfare.
Central bank authority flows from their being the bankers’ banks and
symbolic power emanates from note issuance. Holding bank notes physi-
cally gives them symbolic power in the “state power.” This is no small
thing. Already an authoritative and powerful citizen statutory indepen-
dence confers modernized legitimacy on trustee-like insulation at the core
of macro-economic policy. The result is a mighty citizen.
A combination of monetary policy with bank supervision and other
functions raises troubling points for central banking. Central Banks are
transnational elites. Regulators meet not merely to exchange views but
forge common policy approaches. The Bank for International settlements
is a veritable home away from home. It provides a forum for exchanges of
 11 REGULATION 137

views, training, standard setting, policy cooperation and occasionally pol-

icy coordination as well as emotional refuge for battered or bewildered
governors.
One can’t keep feeling that gradual and cumulative internationalization
of policy making could unobtrusively hand over the reality of power to a
new transnational meritocratic elite.
The failure of Herstat on the dollar leg of foreign exchange transac-
tions, the costs of failure leaped across the nations. The response was to
create a shared framework for stability. The Basel supervisory committee
was created and it set it in motion a process of convergence in bank regula-
tory standards and supervision that continue to this day.
The current view is that no nation can act alone to make its system safe.
In fact, under the current global dispensation, banks must carry more
capital and liquidity with minimum requirements ratcheting up for banks
whose failure would unambiguously have systemic consequences. The
current rules are broadly in vogue:

• Unless there were to be a shift in financial authority, stability policy

must be, to a large degree, internationally made.
• “Unelected officials” draw international standards and are indepen-
dent in their home jurisdiction.
• Compliance has to be faithful and consistent across the world.
• Criticism internationally must be accepted though it has a flavor of
intrusion.

Complete national control over the minimum standards of financial

systems standard policy, international financial integration, domestic
financial stability cannot be financial trilemma.
If the world opts for financial integration and financial stability then
democratic nations may not have autonomy over policies on the financial
systems. People won’t accept recurrent instability. The apparent choices are:

I. To give up financial globalization and have domestic control.

II. To retain financial integration and relocate democracy to the
global plane.
III. Maintain international financial integration, set financial policy
globally, and accept dilution of democracy.
138 V. C. JOSHI AND L. KULKARNI

Politics of Monetary Policy

The story of Central Bank independence revolves around a potent mix of
ideas and interests. It must be said that in the bank it is necessary for mak-
ing monetary decisions by committee.
Bill Clinton and Tony Blair had proclaimed their allegiance to a third
way which proposed that the grand ideological disputes of the Cold War
had come to an end. If the clashes of abstraction were over, all that
remained were practical questions which were less subjects of political
choice and more objects of expert analysis. If history was over, what good
politicians?
Only by building political capital could Greenspan protect Fed’s
prerogatives.
In conclusion we would say that the times warrant action on a very
broad front. Not only the banks but the regulators also have to make
changes. The main approach plank of this book viz. “You can’t solve
today’s problems with yesterday’s solutions” becomes applicable to a
range of problems under the following heads (regulators, regulation,
supervision, and the regulated). It is in this belief that we have suggested
action on the various planned activities which would include not merely
immediate future which would cover the next three to five years. By then
the system could well adjust to a new normal.

Bibliography
Acharya, R. R. (2020a, November 25). RBI Drops a Bombshell: Proposal to
Allow Business Houses into Banking Is Fraught with Risk for Financial System.
Times of India.
Acharya, V. (2020b). Quest for Restoring Financial Stability in India. Sage
Publications.
Patel, D. U. (2020). Overdraft: Saving the Indian Saver. Harper India.
The Economist. (2020, July 23). Free Money. The Economist.
Tucker, P. (2018). Unelected Power: The Quest for Legitimacy in Central Banking
and the Regulatory State. Princeton University Press.
 Index

A Big data
Acharya, Viral, 127, 131 analytics, 29–30
APIs, 46 defined, 26, 27
Artificial intelligence (AI), 2, features of, 28
26, 33–34 implementation, 30–32
use in financial services, 34–36 sources of
ATM, 7 information, 27
Augmented Reality (AR), 36–39 Black swan situation, 119
Automated data, 28 Blair, Tony, 138
Bunkering data, 29
Business hours of banks, 7
B
Banks/banking sector in India
commercial, 12 C
co-operative, 12 Change agent, 41
debt restructuring and Clinton, Bill, 138
recovery, 17–18 Cloud computing, 26
financial strength and features of, 32
weakness, 13–14 goal of, 32
frauds in, 15–16 Cook, Tim, 48
non-performing assets Corporate planning, 87
(NPA), 13, 14 Corporate sector, 120
payment or small finance banks, 12 Covariant risk, 122, 123

© The Author(s), under exclusive license to Springer Nature 139

Singapore Pte Ltd. 2022
V. C. Joshi, L. Kulkarni, The Future of Indian Banking,
https://doi.org/10.1007/978-981-16-9562-9
140 INDEX

COVID-19 pandemic Data protection bill (personal data

branch centered banking protection bill)
operations, 51 features of, 65
customer driven banking Data spying, 66–68
operations, 51 Debt Recovery Tribunals (DRT), 17
services to customers during, 55–57 Denial of service, 63
global economic crisis due to, 1, Digital banking/marketing
3–5, 7; measures taken in India, services, 47–49
6–7; path ahead, 4 begins with cloud computing and
Credit approvals, 123 storage, 88
Customer convenience, 55 consumer view of, 89
Cyber crimes, 46, 54, 59–68 during Covid-19 pandemic, 83–85
defined, 62 equipment and devices to be
impact of, 63, 64 available at branches, 91
reasons for, 62 features of, 84
under information future of, 87, 90
technology act, 67 marketing plan in corporate plans, 94
Cyber risk management, 71–82 and millennials, 88, 89
assessment of, 75 and pressure on Indian banks, 87
Basel Committee on Banking as public relations, 87
Supervision, 78–80 at regional and area level, 86
CBEST testing overview of Bank of roadmap to develop, 86
England, 80–82 Directed data, 28
maturity, 75
present development, 76–77
RBI Guidelines for Managing Risk E
in Outsourcing of Financial E-banking facilities for senior
Services by Co-operative Banks citizens, 52–58
(2021), 82 Estimates Committee of
regulatory measures, 78 Parliament, 13–16
risk profile, 75 Expected risks, 122
Cyber security, 47, 60, 61
threats in India, 60
Cyber space F
defined, 59 Financial institutions (FIs), 2, 3
Financial stability
benefits of, 26
D Financial Stability Board (FSB)
Data analysis, 28 2017, 26
Data diddling, 66 Financial Stability Board (FSB) Report
Data leakage, 66 2019, 19
 INDEX 141

Financial Stability Report, 120 KPI decision on cost and budget

Financial system initiative, 103
banks (see Banks/banking sector making promise come true, 98–99
in India) managing by customer experience,
components of, 12 104, 117
critical evaluation of bankers, 22 planning and development, 111
functions of, 12 post Covid-19 pandemic, 99
mechanism, 12 recruitment and selection of
non-banks (see Non-banking sector manpower, 112
in India) role in dynamic change, 115
suggestions and recommendations setting up of HR strategy, 104
for immediate response, 21 technology tools, 103
use of stress test for transformation from traditional to
soundness, 20–21 digital, 100–102
FinTechs, 53, 57, 58 unlocking potential of, 110, 111

G I
Gopinath, Gita, 4 Inclusive finance, 41
Graphical User Interface (GUI), 37 Insolvency and Bankruptcy Code
Great Depression, 4 (IBC), 18–20
International Monetary Fund (IMF), 3
International Telecommunication
H Union (ITU), 60
Helicopter Money, 7
HR digitized/digitization, 106–111
agile service design, 102, 103 K
application and machine Kamath, K. V., 120
intelligence, 103
challenges in banking, 98–99
changes imperative in corporate L
goals and management, 114 Loan Review Mechanism (LRM), 124
changes in employee mindset, 115
customer experience, 102–103
development of required M
manpower, 112–117 Machine learning (ML), 26, 33–34
forces driving, 97–98 Micro-finance institutions (MFIs), 41,
future of work, 116 42, 44–46
future talent in banking, 104–105 Model risks, 122
innovation culture in, 103–105 Mudra Loans, 7
142 INDEX

N Risk management models

NABARD, 58 centralised approach
National Company Law Tribunal towards, 123–124
(NCLT), 19 drawback of, 121
National Security Coordination Risk rating, 123
(NCSC), 60 Risk-return pricing, 124
Non-banking sector in India, 12
Non-performing assets (NPA), 2
S
Scavenging, 66
O Securities and Reconstruction of
Open banking, 46–47 Financial Assets and Enforcement
of Security Interest Act
(SARFAESI Act) 2002, 17
P Small and medium sized enterprises
Patel, Urjit, 127 (S&ME) sector, 2
Phishing, 62
PMJDY, 7, 43
Portfolio management, 124 T
Prudential limits, 123 Ten Lessons for a post-pandemic world
PSU banks, merger of, 55 (Fareed Zakaria), 47
Third party providers (TPP), 46
Training of staff, features for, 30
R
Rajan, Raghuram, 13, 15, 131
RBI, 7 U
role as lender of last resort Unexpected shocks, 122
(LOLR), 127
Real time settlements (RTS), 46
Regulation of financial V
systems, 125–126 Virtual Reality (VR), 36–39
central bank autonomy, 135–137 Volunteered data, 28
on digitalization, 131–133
foreign branches of Indian banks, 133
government borrowing, 126–128 W
international adequacy World Bank, 3
standards, 133 estimation on COVID-19 pandemic
plan for regulators, 134 impact, 4–6
politics of monetary policy, 138
RBI independence, 134–135
to reconsider role of central banks, Z
126, 128–131 Zombie units, 2