In the first segment, RBI has planned to take care of large Indian banks with a domestic and international presence.
The Indian banking industry is facing tough competition from fintech companies and large technology companies which are entering into the financial services industry in a big way. To give banks a cutting edge over these new emerging companies, RBI has introduced a 4-step long-term plan in its March 2020 bulletin. The Reserve Bank has considered a top-to-bottom approach to strengthening the banking industry. Recently, various banks of India had to go through a rough phase.
- Large Banks
In the first segment, the Reserve Bank has planned to take care of large Indian banks with a domestic and international presence. This process may also involve the further merger of PSU banks.
- Mid-sized banking institutions
The second step is targeted towards several mid-sized banking institutions including niche banks with economy-wide presence.
- Small banks
After this, the RBI is set to go for smaller private sector banks, small finance banks, regional rural banks, and co-operative banks, that give loans to small borrowers in the unorganised sector in rural and local areas.
- Digital players
RBI said that its fourth segment in this plan may consist of digital players who may act as service providers directly to customers or through banks by acting as their agents or associates.
Some BigTechs are venturing into payments, money management, insurance, and lending activities. Given their size and reach, their entry into financial services has the potential to bring about the rapid transformation of the financial sector landscape. It may, of course, bring many potential benefits, such as the assessment of the riskiness of borrowers, reducing the need for collateral, etc.
“These developments pose a challenge to banks as well as banking regulators. Banks have to imbibe these new technology and business practices to remain competitive,” RBI said.