Finance and Investment Cell, SRCC interviewed Dr. Madhu Vij , Professor of Finance at the Faculty of Management Studies, University of Delhi for more than three decades and the recipient of Alumni Excellence award from Shri Ram College of Commerce. wherein she shared her opinions on Future Aspects of the Banking and Financial Services in India.

1. According to you, how will the banking sector look like 10 years in the future? The future of banking sector is set to transform boldly and drastically driven by major technological changes, digitally driven experiences, emergence of new business model and changing consumer expectations. Technology will continue to be a driver in the changing business environment and banks will need to embrace and adopt digital transformation initiatives like digitalization, automation and Artificial Intelligence that are changing the way work is done. The pandemic has only accelerated the pace of digitization and with an upsurge in transaction through debit and credit cards, various digital platforms, electronic funds transfer, digital wallet payments system etc. Multiple technology alternatives solution are also helping banks to accelerate their digital business and technology footprints in various end-to-end experiences. Technology has enabled better and accessible banking experiences and the pace is only expected to accelerate in the coming years.

The future of banking and financial services appears to be very optimistic and the years ahead will require substantial transformation and new insights by the sector in areas such as Artificial Intelligence, Machine Learning, Cryptocurrencies, Digital learnings etc. As banks move ahead to compete in a world with increasingly blurred boundaries new business models will emerge and a few trends that will affect the banking landscape are mentioned below.

• Explore and anticipate the digital/business disruptions well in advance that will shape the structure of the banking and financial services industry and seamlessly reorient themselves.

• Rethink and focus on how to bring value to customers, retain customers trust to remain relevant and seek solutions to integrate everything into a single multipurpose platform.

• Ensure transparency in their working.

• Artificial Intelligence, Block-chain, Algorithms, Automated Processes will become the mainstream in the banking and financial services industry and will drive superior customer experiences.

• Robots powered by Artificial Intelligence will be available 24 * 7 to automate, enhance and increase customer trust and experience and minimize human interaction.

• High and quick adaptability to the global financial sector reforms to ensure global inter connectedness at all levels and time.

2. Given the rising trend of the stock market, is the country entering a bubble? What is a bubble and how is it created? Speculative optimism has a tendency to create a bubble. The bubble is a situation when the price of a stock is higher than its fundamental value by a large margin and also when valuations are driven by exuberant behaviour of the market that feeds on itself to push prices even higher. The speculative nature of demand inevitably triggers massive sell-offs, causing prices to decline sharply, generally followed by a crash. Due to the speculative nature of the demand, a stock market bubble is driven by change in expectations. Investors should recognize signs of a bubble to avoid the inherent risk of getting affected by a bubble that can eventually burst. This is possible by carefully evaluating the reasons before choosing a portfolio. Analysts recommend a diversified portfolio of securities to minimize the risk of possible loss if any one investment falters or if the stock markets do not do well.

Why is there a scepticism about a bubble? Why are people worried? This is simply because stock markets have gone up and seem to be disconnected from both the business and macroeconomic fundamentals. Stock markets are rising despite a lot of negative factors like unemployment, inflation, pandemic etc. In my opinion, the country does not seem to be entering a bubble. There are a few factors because of which the stock market is booming and appears to be forward looking. According to RBI, one of the important factor that has contributed to inflated stock prices is that the equity market has received around 37 billion dollars’ worth of inflows from the Foreign Portfolio Investors in 2020-21. The Domestic Institutional Investors have also added Rs 72,000 crores to the stock market in the same period.

Another factor is that with more people becoming financially literate, they are exploring various avenues for investments and the stock market is an easily accessible investment alternative. Indian Companies, both private and Government have been performing well, have huge potential and are attracting a lot of investors.

A word of caution here. Experts are expecting that the market is due for a correction which could happen in the next six month or so. Stock market corrections are sometimes a sign of healthy markets. According to analysts, a correction happens when the stock market dips by about 10 to 15% to avoid a crash. Simply put, the stock markets in India are not bubbled up, but a healthy correction is definitely on the cards.

3.What is your opinion on changing the settlement cycle to T+1? T+1 refers to the settlement cycle in the stock market where settlement of trade will take place in one working day. Transacting in stocks falling under T+1 settlement cycle will get their money or shares delivered in less than 24 hours. The proposal for T+1 settlement will not require large operational changes by the market participants. In fact, the market participants will be benefitted by the move to T+1 settlement, especially during times of high volatility and stressed market scenario.

In my opinion, changing the settlement cycle to T+1 (Trading+ 1 day) is a welcome move, will benefit all the participants in the stock market and make India the fastest stock market in the world to settle equity trades as most of the stock exchanges in developed countries like USA and UK follow the T+2 trade settlement cycle. Ensuring new settlement option ie same-day delivery of shares into the buyer’s account and money into the sellers account is a progressive step and could improve market efficiency. As of now, SEBI has opted for a phased roll- out of the scheme on an optional basis and both the exchanges – NSE and BSE have decided to implement the T+1 settlement scheme in a phased manner.

4. What do you think are the implications of Fintech on the banking industry? Fintech has revolutionized the banking industry and has helped the banks to perform their functions digitally and seamlessly and drive digital transformation across India’s financial and banking services sector. Emerging technological innovations in the banking and financial services sector have played a vital role in the development of new business models, drive the best customer experiences and develop the best products and processes. The pace of digitization of banking in India has accelerated post pandemic and there is a huge potential for Fintech companies to collaborate with the banking sector and use digital tools to transform the way they bank.

Though a large part of the Fintech growth still focuses on the traditional banking industry, the growth of cryptocurrencies like Bitcoin, Artificial Intelligence, specialized digital payments, and algorithms have all helped in Fintech leading India’s banking sector revolution. Fintech has equipped the banking sector with innovative tools like chat-bots that have made the design and delivery of financial services efficient.

Some specific suggestions are:

• In order to survive, banks will need to evolve and adopt this dynamic culture of innovation across their organizations.

• Customer experience and safety will continue to be pivotal for banks.

• Digitization will continue to remain critical and the future of banks will be driven by the use of technology. Technology will continue to be a driver in the changing business environment for banks to survive and grow.

• Cloud computing technologies will become important for the banks in order to enhance their analytics capabilities.

The interview was conducted via email