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The year 2019 has been a year of turn around for the Indian Economy. However, to bring in the best out of banking resources, and to improve the credit spur in the Economy, financing authorities took the necessary steps and brought in the required reforms. These steps were brought in to make the banking sector more transparent, secure and convenient for the general public.
Major Reforms in the banking sector in the year 2019
- 10 Public Sector Banks Merged into 4
In the bid to strengthen the role of the public sector banks in the Economy, the Government of India rolled out the third round of Bank merger plan in September. The ministry decided to merge ten public sector banks into a total of four. As per the merger, selected acquirer banks were to take over the allotted Bank(s). Punjab National Bank was decided to merge with Oriental Bank of Commerce, and the United Bank of India; Indian Bank with Allahabad Bank, Canara Bank with Syndicate Bank, and Union Bank of India with Andhra Bank and Corporation Bank.
By merging the PSBs, the Government aimed to reduce the number of Public Sector Banks, which can help fulfill the vision of creating 3-4 global sized banks. Further, the merger could indeed help raise a large capital base for the Economy, as banks would be able to allow more loans with merged capitals. Also, this could make it easier for the authorities to monitor a limited number of banks. The merger comes into effect latest by April 2020.
- Loan Rates came down as RBI reduced Lending Rates
The Reserve Bank of India is the central bank, and thus being the regulatory authority of all banks, RBI took the required steps by changing and revising its charges from time to time throughout the year. In the year 2019, the RBI cut its lending rates six times in a row, by splashing down repo rate, (the rate at which the RBI lends funds to the banks), by 135 basis points bringing it to 5.15% and reverse repo rate (rate at which the central bank borrows money from commercial banks) at 4.90%. Both repo rate and reverse repo rate are essential tools used by RBI to regulate the liquidity and credit availability in the market. A lower repo rate by RBI is an attempt to spur credit growth in the Economy.
Further, to provide more in the Economy, in September 2019, RBI made it compulsory for Banks to link the floating interest rates on loans to RBI’s repo rate or to the other external benchmarks set by RBI by October 1. The interest rates on loans were earlier affected by the MCLR. However, the repo linked interest rate as an effective benchmark is a great move to benefit the customers and to encourage more liquidity in the market, as it will bring in more transparency.
All the measures taken by RBI were set to benefit the loan borrowers as it can help customers save more on their interests.
- Aadhaar and PAN Card Authentication Mandatory to Fill ITR
The authorities introduced the Aadhar Amendment Bill 2019, in June. The bill allows the Aadhaar card to be used as a valid Id Proof for opening a bank account. After this recognition, Aadhaar became a compulsory tool in any financial activity, such as to deposit large cash deposits. Later, Aadhaar linked KYC became a compulsion for existing and new account holders in banks. However, this was ruled out by the Supreme court’s judgment in September 2019, which indeed made Aadhaar a necessary document to fill ITR by emphasizing on PAN cards linked to Aadhaar as the only valid PAN cards. With effect from April 1, 2020, any PAN Card not linked to Aadhaar will be considered invalid and people will not be able to file their income tax returns. The deadline for this has been extended from December 31, 2019, to March 31, 2020.
- Banking became Easier with Digital Options
Digitalization is the talk of the hour, especially when it comes to factors like upgrading and ease. The Indian Banking sector experienced a great uproar in the digital services in the year 2019. Many Banks, including the popular ones like SBI, Kotak Mahindra, and Axis Bank, planned to go onboard with digital services by incorporating artificial intelligence and analytics in their banking mechanism. A majority of banks have started offering almost all of their offline services on online platforms, such as the Public Sector Banks online platform launched in August 2019, ‘psbloansin59minutes’, or Axis Bank’s ‘Express FD’ platform launched in October 2019 to open an FD account online. Indeed, even public sector lenders like India Post went all-digital in the year, by providing a mobile facility for PPFs and Savings account.
Digital moves by the banks to shift towards the cashless Economy, have uplifted the financial sector well, by providing access to easier payments. E-commerce, mobile commerce, and online payments have been successful. The upliftment of UPI (Unified Payments Interface) in the year 2019 is evident in the ease and convenience that digital payments provide users with. UPI transactions crossed around 1 billion transactions in the month of October 2019. Also, the Point of Sale Terminals rose to 3.99 million in June 2019, by 20.5% than the previous June. Thus, the year 2019 contributed well to make the Indian Economy digitalized and cashless.
- Revised ATM Mechanisms for Safe and Secure Transactions
The year began with the reform in ATM transactions. With effect from January 1, 2019, ATM cards without chips were unacceptable, and the chip-based magnetic striped card was brought to effect. This changed the way the ATM cards operated. Earlier the card needed to be swiped once for verification; however, now the card remains inserted in the ATM machine until the transaction completes. This move was initiated to make ATM transactions more secure and safe.
In addition to that, various Banks like SBI, HDFC, Axis, and ICICI revised the number of free transactions to five each month that can be availed with an ATM card after RBI posted a notification in June 2019 to do the same. Charges on exceeding the number of free transactions were increased than the earlier ones and were inclusive of GST. Apart, as per the August notification by RBI, Banks were instructed to treat failed transactions ( failed transactions due to technical reasons or unavailability of the fund in the ATM) not as a part of the available five free transactions. Thus, in total various ATM changes were incorporated in the year 2019.
On a concluding note, though the year 2019 witnessed a slowdown of the financial streams, yet, the Banking sector was improvised with the necessary steps as and when required. The attempted reforms brought in by the respective policymakers and authorities were brought with a vision of a better year ahead. Thus, these reforms could likely lay a foundation for an economically sound 2020.