Indian Express

6-October-2023

1) Evolution of the Indian Banking Sector

Context:

• The government’s policies and governance structures have brought about tremendous changes in the banking and financial sector.
• This article will discuss the various changes brought about and also the challenges which need to be addressed.

World events which affected India’s banking and financial sector:

The past 25 years have seen high growth and stability, notwithstanding several episodes of stress:

• Dotcom bubble: The dot-com bubble was a period during which rampant speculation and bullish investment led to the overvaluation (and subsequent crash) of the young internet technology industry on Wall Street. The impact of the dot-com bubble on the economy was quite severe. Not only did it lead to a mild recession, but it also shook confidence in the new internet industry. It went so far that even larger and more successful companies were affected.
• September 11 attacks
• 2008 Financial crisis
• European Debt Crisis
• Covid-19 Pandemic
• Russia-Ukraine war

How banking in India matured to a vibrant sector?

India’s banking industry has developed into a thriving industry during the past 75 years. A key facilitator has been the reforms over the past 30 years.

• The financial sector has become more inclusive and diverse as a result of:
  • consolidation in the public sector banking sector,
  • the growth of private banks,
  • specialist non-banking financial businesses (NBFCs), and
  • the developing fintech ecosystem.
  • The historical problems of non-performing assets (NPAs) have been resolved,
  • banks have survived the majority of exogenous shocks.
  • Accruals from within the company are now a source of expansion capital.
  • It is anticipated that loan growth would be solid in the upcoming years as credit costs have reached their bottom.

Role of technology in upliftment of banking sector:

• In contrast to the bricks-and-mortar model, banks in India are now at the forefront of adopting new technology.
• Finance has changed as a result of increasing adoption of banking through Jan Dhan and the widespread use of technology to supply financial services through digital channels.
• Traditional branch banking has been changed by products including:
  • mobile banking applications,
  • retail electronic financial transfers,
  • UPI,
  • Aadhaar e-KYC,
  • Bharat Bill Payment System,
  • scan and pay,
  • digital pre-paid instruments.

The development of public financial platforms will provide banking services even more momentum.

How AI can be helpful?

• AI and cognitive computing are currently enabling the Indian financial industry to transition to a knowledge-based regime across all business operations and procedures.
• Banks’ ability to gain a deeper understanding of their clients and to customise consumer engagement can both be improved by the deployment of AI-enabled capabilities.

Challenges posed by technological advancement:

• Digitalization has given rise to new ways of providing financial services and differentiating products, but it has also raised a number of issues, including:
  • the proliferation of unregulated digital lending apps,
  • cryptocurrencies,
  • cyberattacks,
  • Climate change

The convenience of banking now comes with an increased responsibility to guarantee the availability of vital support infrastructure for ATMs, internet/mobile banking, dealing with cybersecurity risks, and resolving customer complaints.

• All of these ensure that banking services continue without interruption.

How important is quality of human resources?

The talent gap is growing in light of the environment’s dynamic and quick change. Banks and other financial organisations need to recruit, develop, and retain personnel to address this.

• Employees need to be flexible, nimble, receptive to new technology, and proactive in picking up new skills so they can stay useful.
• Therefore, reskilling and upskilling human resources is a requirement to meet the new difficulties.

How will capacity building play a major role in financial sector?

• For seamless service delivery and hyper-personalized goods, the financial services industry must engage in research and be open to accepting and developing unconventional ideas.
• Banks and other financial institutions will need to think about using sandbox settings or internal data science labs to test out novel concepts.

Way Forward:

• Initiatives like Insolvency and Bankruptcy Code, NaBFID and NARCL, and other recent government policy initiatives have addressed market failures by establishing institutions that, over time, would stabilise the banking industry.
• The journey towards an Atmanirbhar Bharat, for sustainable and equitable growth that benefits all, is being led by the banking industry.
• This is comparable to the achievement of India’s Chandrayaan-3, which represents the thoughtful fusion of creativity and technical excellence for the good of humankind.

2) Effects of Internet shutdown

Context:

• Over the past few years, the Indian government has increasingly been trying to control law and order by shutting down access to the Internet.
• The recent internet shutdown due to the ongoing Manipur conflict or the 552 days internet shutdown in Jammu and Kashmir after abrogation of article 370 in August 2019 paints a shady picture.
• This article will discuss the effects of such steps by the government.

What is it Internet Shutdown?

• Any interruption in the use of internet services, the majority of which deal with mobile internet, is referred to as an internet shutdown.
• Objectives: While many shutdowns are required to avoid racial tensions, civil war, riots, and other unrest-related events, they must be reasonable.
• Types:
  • Shutdowns that are implemented in advance of an incident are referred to as preventive shutdowns. For instance, there was a closure in preparation for a riot after a video of a tailor being beheaded in Udaipur went viral.
  • Reactive shutdowns: The simplest method for containing an escalating law and order problem is to impose a reactive shutdown after an event has occurred.

Data on internet shutdowns:

• 60% of Internet outages worldwide between 2016 and 2022 occurred in India.
• In India, there were around 84 shutdowns in 2022.
• There have been 738 shutdowns in India since 2012, according to The Internet Shutdowns Tracker run by the Software Freedom Law Centre.

Reasons for Internet outages include:

Shutting down the Internet is done for a variety of reasons.

• Community tensions are listed as the official cause for about 40–50% of them.
• They are used in response to protests, religious processions, and many other circumstances.

What are the impacts of internet shutdown? 

• Impact on Human Rights:Internet shutdowns have deep implications on various human rights, with the most immediate impact being on freedom of expression and access to information. These rights serve as cornerstones of free and democratic societies, and they are crucial for the holistic development of individuals. 
• Economic impact: The frequent internet shutdowns are harming sectors primarily dependent on internet services such as e-commerce, tourism, and I.T. services. Shutdowns may lead to the disruption of financial transactions, commerce, industry, labour markets and the availability of platforms for the delivery of services. Moreover, shutdowns create a climate of uncertainty for investment, which can prove disastrous for companies and for start-up ecosystems. 
• Disproportionate impact on marginalized communities: According to a joint report by Human Rights Watch and Internet Freedom Foundation, marginalized communities have become particularly vulnerable during internet shutdowns. This is because under “Digital India”,internet has become essential for access to government welfare schemes for social protection, including NREGA, and public distribution system under the Food Security Act, and for e-governance in rural areas. For example, ration shops now require internet for Aadhaar authentication before providing subsidized food grains under the National Food Security Act. 
• Social impacts:It becomes harder for citizens to contact family members and friends in other parts of the country, or in other countries. The efforts of first responders and healthcare providers can also be hindered if a shutdown prevents their ability to effectively coordinate and communicate in the event of an emergency or natural disaster. 
• Political impacts:Governments frequently resort to internet shutdowns as a means to stifle dissent, control information, and restrict political opposition. Additionally, shutdowns profoundly impact the work of the media and journalists. 
• Misinformation: Experts believe that in the absence of credible information sources like news outlets, rumours can actually end up spreading even more during internet shutdowns. For example, without access to the internet to verify facts, Manipur has seen widespread rumours, hate-mongering, and fake news. 

Arbitrary Internet shutdowns are not only an attack on the civil liberties and the constitutional rights of the citizens, by the State, but they have grave economic consequences too, with businesses and working professionals losing out on sales and job days. 

People can’t work, access telemedicine, study, or even eat, since so many of our delivery services need the Internet and an OTP (one-time password). 

Moreover, it is doubtful whether these shutdowns help in achieving the stated goals of maintaining law and order.

What needs to be done?

A number of proposals have been made in this regard by the Standing Committee on Communications and Information Technology. Among them are:

• To define what constitutes a public emergency and public safety, precise guidelines must be created. Additionally, a strong system should be put in place to assess the value of shutting down the internet.
• The review committees should be expanded to include non-official individuals, such as retired judges and members of the public.
• Internet shutdowns as they currently exist prevent access to all online information and services. Instead of outright outlawing the internet, the government could create a policy that selectively restricts the usage of specific services. This will minimise any disturbance to the general population while also achieving goals like reducing disinformation.   
• The effects of internet outages and how well they handle public emergencies and safety should be the subject of research. The government should also research the guidelines for internet shutdown in other democracies and apply the best international practises that are appropriate for India’s particular situation.  

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