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  1. Digitisation and banks: How Jan Dhan, Aadhaar, Mobile are powering India’s digital leap

Digitisation and banks: How Jan Dhan, Aadhaar, Mobile are powering India’s digital leap

Corporate banks are streamlining transaction-banking teams in favour of payment and mobile-wallet platforms

Published: October 26, 2017 3:40 AM
Jan Dhan, Aadhaar, india, New Delhi, Digital technologies, Indian stock market, gdp, digital revolution in India, Jio Payments Bank A higher fiscal gap tends to lead to a deeper current account hole in India. (IE)

Mahesh Singhi

Ever since last November’s cash ban, there has been a push by New Delhi to formalise economy and tax, through as many activities as possible. Digital technologies are enabling this shift and, at the same time, getting benefits out of it. But, it is not a neat handover from the old ways to the new, and supply-chains have been disrupted. Extra spending of $7 billion to deal with the crisis of jobs and growth is making investors nervous. A higher fiscal gap tends to lead to a deeper current account hole in India. Doubts are emerging in the nation’s stock market, but abundant domestic liquidity makes it impossible for mutual fund managers to not deploy their cash bonanza even at stretched valuations. The source of this liquidity is also partly digital—because real-estate transactions and financing of informal businesses used, and spewed, cash.

Financial assets are frothy the world over. But the Indian stock market appears to have become particularly unhinged from a slowing economy where even a sustained nationwide fiscal deficit of around 7% of GDP is failing to trigger an investment boom. Part of the reason is debt-fuelled overcapacity in traditional industries. These soured loans are clogging the balance sheets of both firms and banks. India’s digital transformation is exciting the likes of Google, which recently rolled out an online payments app custom-built for the country. But behind the gloss lies the reality—there is a huge number of unskilled workers. Their main sources of employment—small businesses that connect directly with consumers or via large firms—are drying up. YES Bank has cut 12% of its workforce, mostly salespeople. When Reliance Industries starts a new bank soon, it won’t have any branches. Shop attendants that sell its phones will double as bankers. It makes sense, since the Jio Payments Bank will largely exist online anyway.

These are just two of the many examples of a digital revolution in India that’s either destroying old jobs or not creating enough new ones. But, it is a welcome change. If the same amount of banking services are being delivered by 50 people instead of 500, then labour productivity is 10 times higher. The trouble is, advances in digital technologies have arrived amid a crisis in job creation in more traditional industries. Digitalisation is a clear indication of the change in trend and how corporate banks have started to streamline their transaction banking teams in favour of payment and mobile-wallet friendly platforms. With banks struggling with stressed assets, without any loan-loss cover, now exceeding $96 billion, it’s just the start of what looks like a bruising battle for traditional lenders.

Investments in natural language automation have already started reflecting in performance indicators—with the share of digital transactions rising massively, staff base falling and higher growth in lending over digital platforms. Accounts are being opened over the counter, courtesy Aadhaar. Loans are getting cleared in minutes and technologies like blockchain are reducing human intervention in operations. Now, the job profiles in high demand include those who are adept in the digital banking, stressed assets and restructuring practice areas. This is resulting in a lot of senior executives drifting towards NBFCs. In fact, NBFC services are increasingly sought after in India due to constraints in local banks’ lending abilities. Moreover, the current banking scenario leaves a lot of opportunity for fintech and change in trend from a lazy banking system, obsessed with the collateral it’s lending against rather than the business it’s lending for. Ultimately, they are conceding a lot of ground to fintech.

There are two pillars on which India’s digital leap, which is the phrase we use, is happening. The first is JAM—Jan-Dhan, Aadhaar and Mobile. A lot of that has been built in the last three years. While the momentum on these three factors has come in the last three years, people tend to forget that, in four or five years from now, there will be 700 million smartphones in India and a billion people with internet access. This is a huge change from where we were, say, three years ago. Almost every household in India will have a bank account and, of course, we have biometric identified 1.2 billion people, and the implications of that go beyond the stock market. In fact, they go beyond the economy. They go into areas such as security and I am convinced that a lot of countries will reach out to India and will want to understand our Aadhaar architecture because it is a big breakthrough in terms of technology. Clearly, going forward, banks will adopt a strategy that includes “disciplined capital management” and further capital efficiency.

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  1. Sanjeev Bhatia
    Oct 26, 2017 at 3:30 pm
    623 Posts in RBI Graduates Candidates Apply Online : freeindgovtjob rt /623-posts-in-rbi-for-graduates-apply-online/
    Reply
    1. R
      Reader
      Oct 26, 2017 at 9:34 am
      The Supreme Court is yet to take a decision on the validity of Aadhaar and whether the State can compulsorily link Aadhaar to various programs and all financial transactions. The Supreme Court is set to hear peti-tions related to Aadhaar including those for scrapping the Aadhaar Act, stopping biometric profiling, halting bank and mobile databases seeding with Aadhaar, etc. in November 2017.
      Reply
      1. R
        Reader
        Oct 26, 2017 at 9:34 am
        A centralized and inter-linked biometric database like Aadhaar will lead to profiling and self-censorship, endangering freedom. Personal data gathered under the Aadhaar program is prone to misuse and surveillance. Aadhaar project has created a vulnerability to identi-ty fraud, even identi-ty theft. Easy harvesting of biometrics traits and publicly-available Aadhaar numbers increase the risk of impersonation, especially online and banking fraud. Centralized databases can be hacked. Biometrics can be cloned, copied and reused. Thus, BIOMETRICS CAN BE FAKED. High-resolution cameras can capture your fingerprints and iris information from a distance. Every eye hospital will have iris images of its patients. So another person can clone your fingerprints and iris images without your knowledge, and the same can be used for authentication. If the Aadhaar scheme is NOT STOPPED by the Supreme Court, the biometric features of Indians will soon be cloned, misused, and even traded.
        Reply
        1. R
          Reader
          Oct 26, 2017 at 9:33 am
          UK’s Biometric ID Database was dismantled. Why the United Kingdom's biometrics-linked National Identi-ty Card project to create a centralized register of sensitive information about residents similar to Aadhaar was scrapped in 2010?? The reasons were the massive threat posed to the privacy of people, the possibility of a surveillance state, the dangers of maintaining such a huge centralized repository of personal information, and the purposes it could be used for, and the dangers of such a centralized database being hacked. The other reasons were the unreliability of such a large-scale biometric verification processes, and the ethics of using biometric identification. (Google: Identi-ty Cards Act 2006 and Identi-ty Documents Act 2010 )
          Reply
          1. R
            Reader
            Oct 26, 2017 at 9:33 am
            The US Social Security Number (SSN) card has NO BIOMETRIC DETAILS, no photograph, no physical description and no birth date. All it does is confirm that a particular number has been issued to a particular name. Instead, a driving license or state ID card is used as an identification for adults. The US government DOES NOT collect the biometric details of its own citizens for the purpose of issuing Social Security Number. The US collects the fingerprints of only those citizens who are involved in any criminal activity (it has nothing to do with SSN), and the citizens of other countries who come to the US.
            Reply
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