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Business News/ Industry / Banking/  Events like QE will always have a bearing on banking industry: S.S. Mundra
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Events like QE will always have a bearing on banking industry: S.S. Mundra

Regulators are going to be more intrusive and more demanding in future, warns deputy RBI governor

S.S. Mundra, deputy governor of the Reserve Bank of India, delivering his keynote address at Mint Annual Banking Conclave 2015 in Mumbai. Photo: Abhijit Bhatlekar/MintPremium
S.S. Mundra, deputy governor of the Reserve Bank of India, delivering his keynote address at Mint Annual Banking Conclave 2015 in Mumbai. Photo: Abhijit Bhatlekar/Mint

How global events like quantitative easing unfold will always have significant bearing on the Indian banking industry, because of the country’s global integration, S.S. Mundra, deputy governor of the Reserve Bank of India (RBI), said at Mint’s annual banking conclave on Thursday.

“There are a few things which are happening or which are going to happen, and which will have a very significant bearing on the banking industry. For example, Quantitative easing, or QE. Whether it continues or is rolled back, it is going to impact the banking industry," Mundra said in his keynote address.

QE refers to an expansionary monetary tool used by the US Federal Reserve to buy trillions of dollars of bonds to infuse liquidity and lower interest rates to stimulate the economy. The central banks of Europe and Japan have announced their own version of QE to stimulate their economies.

Events like the possibility of Russia getting excluded from the SWIFT banking transaction network, or big global banks terminating their banking arrangements with emerging markets on customer identity concerns, could potentially cripple the banking industry in emerging markets. SWIFT is short for the Society for Worldwide Interbank Financial Telecommunication.

“ ...if this trend has to become wider, how are banks in emerging markets going to deal with this," Mundra said.

Such global events, though, are only one aspect of a number of challenges that banks are going to face and will have to overcome to survive and remain relevant in a rapidly changing world, he said in his presentation.

Mundra questioned the relevance of banks in a changing global financial order. Several sources of funding will likely emerge in the future, making the present banking model obsolete.

For example, he asked whether large corporations still would need to come to banks for their funding needs, if markets develop from where companies can easily raise funds. Crowd-sourcing and peer-to-peer lending, both quite small now but will likely rise in the future, may diminish the roles of banks of the future, he said.

“About $1.3 billion was lent through crowd-funding in 2011 and the number is expected to rise to $6 billion in 2015. We have to see what impact that will have on banks and what will be the role of banks (of the future)," he said.

The mean age of the Indian population is expected to remain between 30 and 35 years in 2030. This demography will require a totally different kind of banking. Mundra asked how long Indian banks can remain retail loan focused in this changing world.

With new technology emerging, what will happen to the investments made in ATM networks, or what will be the status of plastic money (cards) be if mobile banking succeeds? With new kind of banks coming into existence, the competition is going to heat up for Indian banks. Like mobile number portability, bank accounts may also become portable one day.

“There is no account portability in banking right now. If mobile numbers can become portable, why not bank accounts? If that happens it will be a big disruption and every bank has to be cautious and watchful about it," he said.

Banks will have to face increased regulatory scrutiny in the future, too, with regulators extracting more penalties from erring banks.

“Between 2009 and 2014, in Europe and US, banks paid $230 billion in penalties and legal costs and another $70 billion is likely in the next two years which makes it $300 billion in seven years. Compared to that you can say that regulators in India are very benign because we do not hear of such numbers here," he said. However, “regulators are going to be more intrusive and more demanding", he warned.

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Published: 30 Jan 2015, 12:16 AM IST
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