Indian Banks Urged to Curb Reliance on Smartphone Transactions
Indian Banks Urged to Curb Reliance on Smartphone Transactions
In response to recent global banking crises, Indian regulators push for stricter liquidity standards, targeting mobile banking users.
In the past year, over 600 Indian banks processed $2.5 trillion, equivalent to 80% of the gross domestic product, through customer accounts primarily via smartphones. This widespread adoption of mobile banking, featuring payments through mobile numbers and QR codes, has now led to regulatory scrutiny.
Despite India’s significant success in instant money transfers, the Reserve Bank of India (RBI) aims to penalize banks for their overreliance on technology. The RBI announced new liquidity norms, effective April 1, requiring banks to maintain higher liquid assets, such as cash and government securities. These standards increase the run-off factor for retail deposits with internet and mobile banking from 5% to 10%, mandating banks to hold more high-quality assets to meet potential outflows.
This move follows the collapse of Silicon Valley Bank (SVB) in the U.S., where rapid digital transactions led to a sudden withdrawal of $42 billion in a single day. To prevent such scenarios in India, where less than half of deposit values are insured, the RBI is taking proactive steps. The new rules aim to mitigate risks posed by the growing number of internet users engaging in digital banking.
Out of 820 million active internet users in India, 370 million utilized digital banking last year. However, traditional banking preferences among older demographics and the tendency for women to prefer cash transactions offer some stability. The RBI’s measures seek to ensure that banks remain resilient in the face of potential liquidity challenges.
Banks now face the task of meeting these new standards while navigating a competitive environment for deposits. Interest rates, driven by persistent inflation, add to the complexity as banks strive to attract savers. The recent merger of Housing Development Finance Corp. with HDFC Bank Ltd. has further intensified the demand for deposits.
In this evolving landscape, Indian banks must balance technological advancements with the need to cater to their less tech-savvy customers. Encouraging traditional banking practices among older customers may be crucial for maintaining growth and profitability amidst regulatory changes.
