Adopting to Changes in the Banking Sector.pptx

Change Management

1. INDIAN INSTITUTE OF BANKING & FINANCE Adopting to Changes in the Banking Sector – Anticipate , Assess & Respond to Changes in Technology , Regulation and Competition Prof .( Dr.) Narinder Kumar Bhasin Zonal Head , IIBF. North Zone Former Professor-Banking , Amity University , Noida Former Vice President ,Axis Bank Limited ,New Delhi

2. In this session… INDIAN INSTITUTE OF BANKING & FINANCE 2 Key trends include : Changing Banking Landscape Digital Transformation Changing Customer Expectations, Evolvement of new competitors, Changing regulatory policies and Changing business models Failing to adapt to these trends could lead to losing market share and relevance in the digital age -Competition

3. Introduction The world as we know it is rapidly changing and becoming increasingly digital. This shift has touched almost every industry, and banking is no exception. Today customers expect the same level of convenience and accessibility from the financial services they get from other online services. To meet these demands and stay competitive, banking institutions are facing the need for digital transformation.

4. NATIONALISATION TO PRIVATISATION 14 Banks Nationalized 1969 6 Banks Nationalized – 1980 Financial Sector Reforms -1991 Pvt Sector Banks – 199 3 Consolidation of Public Sector Banks UNIVERSA L BANKING TO DIFFERENTIATED BANKING Payment Banks Small Finance Banks NEO Banks DFIs BANKIN G TO BFSI NBFCs Fi n tech C o m p a n ies Neo Banks PHYSICA L BANKIN G TO DIGITA L BANKING Phygital Banking Virtual Banking Not Banks but Banking Not Products but solutions Not one size fits all CHANGING BANKING LANDSCAPE MONOPOLY OF PSBs TO EMERGENCE OF PVT . SECTOR BANKS Focus on pure business Focus on the Bottom-line Focus on Risk & Compliance INCREASED SUPERVISIO N & REGULATIONS

5. Digitally-enabled customer offerings Comprehensive digital banking for MSMEs (AP1) Banking solutions for Agri value chain (AP2) Digital-only products and services (AP3) Digital marketing for enhanced customer engagement (AP4) Service excellence through digitally-driven customer advocacy and feedback (AP5) Big data and analytics Specialized analytics function (AP6) Analytics-driven customer retention (AP7) Micro-segment strategy and stress- testing (AP8) Digital and analytics driven collections (AP9) Early detection and prevention of frauds (AP10) Modern technology capabilities Customizations in mobile banking for different segments (AP11) Integrated contact centre with other service channels for seamless interactions (AP12) Building cross- functional teams for faster implementation (AP13 Op e n API b a nking for integration with new- age businesses (AP14) Collaborative and d e ve l op m ent- f o cuse d banking Broadening and deepening co-lending partnerships (AP15) Collaborating for adoption of cloud technologies (AP16) Partnering with A c c ount A g g r e g a tors, and enhanced data privacy (AP17) Deepening financial inclusion in rural and semi-urban areas (AP18) Employee development and governance Emplo y e e - c e n t r i c i t y with a focus on satisfaction and engagement (AP19) Employee development through learning excellence (AP20) P romoting g e nd e r diversity (AP21) Leadership development and grooming (AP22) EASE REFORMS 5.0 - THEME BASED AGENDA POINTS

6. EASE 6.0 Present reform,  EASE 6.0  (FY24) is conceptualized with 22 Action points under 4 Themes focused on: Delivering excellence in customer service with digital enablement:  Hassle-free branch banking experience, Seamless call- center experience, intuitive mobile/internet banking, complaint redressal, customer acquisition, retention and relationship deepening and Inclusive near-home service delivery. Digital and analytics-driven business improvement : Comprehensive digital banking for MSMEs, Banking solutions for Agri value chain, Digital marketing for enhanced customer engagement, Digitally-enabled sourcing and servicing of CASA deposit base and Partnership banking. Tech and data enabled capability building : Strengthening specialized analytics function, Increased adoption of cloud technologies, Digital and analytics driven risk management, collections and recovery, strengthening cybersecurity and preventing cyber frauds. Developing people and enhancing HR operations:   Analyze drivers for employee Productivity, promote gender diversity, Strengthening specialization, succession planning and leadership Development, Data-driven manpower planning, role clarity, and target setting.  

7. The Progressing Digital Journey ▶ The rise of Digital Technology and marketing has transformed the way business is done around the globe. ▶ Digitalization offers new opportunities for banks to place the customer at the center of the progress. ▶ The young generations have changed their consumption habits and banks needed to adapt quickly so as not to be overtaken by new players in this sector. ▶ The mobile phone experience is becoming a crucial aspect of digital strategy in banking. INDIAN INSTITUTE OF BANKING & FINANCE

8. The Progressing Digital Journey INDIAN INSTITUTE OF BANKING & FINANCE ▶ Tr a dit i o na l b a n ks wi l l have t o adapt th e ir op e r a t i ng mod el s, to keep up in the fast-changing market. ▶ In particular, change in IT, new products/services, and changing expectations will be key factors going forward. ▶ The Banking sector has proven that it’s not just about opening saving bank accounts, credit cards, investments, wealth management, mutual funds and insurance but with the increasing growth in digital marketing, they have also understood the importance of likes, tweets, apps, content, shares etc. to engage with the young generation.

9. BANK CUSTOMER JOURNEY TRAD I T I ON A L VS. DIGITAL

10. WHAT IS THERE FOR ME?

11. Emerging Market Trends

12. The Emerging Market Trends ▶ Touchpoints such as mobile, video and social media continue to grow in importance, with the underlying need for improved data analytics. ▶ The consumers know the value of their personal information, and they expect their financial institution to know them, look out for them and reward them at all steps of their shopping and purchase journey. ▶ The marketing communications bar is being set by other industries and tech kings such as Google, Amazon and Apple.

13. INDIAN INSTITUTE OF BANKING & FINANCE The Emerging Market Trends ▶ If consumers’ expectations are not met, they will ignore or block your communications, or abandon the relationship with your bank altogether. ▶ Improving the marketing communications process — from the consumer’s perspective — will drive growth, loyalty and profitability. ▶ Managing the marketing process without taking advantage of the technology tools available is becoming more and more difficult.

14. INDIAN INSTITUTE OF BANKING & FINANCE Challenges and Opportunities ▶ Wha t t o d o t o me et t he ch al l en g es a nd ta ke ad v antage o f t he opportunities ?? ▶ Continuously upgrade and embrace new technology ▶ Focus on innovation ▶ Being efficient operationally ▶ Keep managing the change & b ridging t h e k n o w l e dg e & sk i l l g a ps ▶ All this involves- Continuo usly upg ra ding among employees

15. Digital transformation in banking refers to the integration of digital technologies and innovative strategies into the financial services sector to improve operational efficiency, enhance customer experiences, and adapt to the evolving market landscape D

16. INDIAN INSTITUTE OF BANKING & FINANCE Digital Growth 2 Covid- 19 has successfully established a new dimension to the future of digital banking in India. India saw a meteoric rise in digital adoption in that period. The emergence of new digital participation from other financial entities aided transition at the micro level. A global survey by Mastercard reveals Indians as the most willing in the Asia Pacific to embrace emerging digital payment methods. Boston Consulting Group's (BCG) research report further points out that digital growth in India attributes to a 'surplus of capital, maturing infrastructure and favourable underlying customer demographics.’ Indian banking is setting an example as a 'model banking of the future,' paving way for successful UPI payments, and QR codes. This approach should be adopted for lending and data management too.

17. Need & Importance of Digital Transformation A digital transformation is the up-gradation of existing processes or the introduction of new ways of carrying out business activities using digital technologies that enhance a customer’s experience and leads to higher conversion rates for the company. Digital transformation means redefining business processes in this new digital era. The four main areas of digital transformation are process, technology, data, and organizational change. Whereas the 3 main components of digital transformation are rebuilding the operations, rebuilding relations with customers, and rebuilding procedures As stated by  Deloitte , the future of digital banking is placing customers at the center of every digital strategy and banks must instrument these from today to be able to seamlessly integrate by the year 2030. This integration also helps to provide a more hassle-free and engaging customer experience. There is a severe need to digitally  upskill your employees  to keep up with this rapidly changing online space..

18. Factors of Digital Transformation Digital transformation in Indian banking is based on these key factors of growth. Banks while utilising customer awareness build a solid ground for trust. Being a brand, they have a customer base and versatile digital platforms. Existing financial services have given further leverage to their assets.  Banks are providing unique and compelling value propositions in their commercial offerings, owning tech stacks, that are 100% automated, recording a strong digital performance backed by staff agility.  Marketing and credit depend on data and analytics. Risk management in digital banking  is higher and more accountable in the banking sector.

19. Lets see, what’s happening in the Banking B e g i nn i n g o f T e c hn o l og y i n B a n ks Progress in last 6 decades Fa ct o r s dr i v i n g th e T e c hn o l og y i n B a n ks G r o w i n g L is t o f T e c hn o l og y b a s e d P r o du c t s Payment Systems Evolution & Growth of E-Comm Sec u r i t y i n T e c h b a s e d P r o du c t s W a y f o r w a r d INDIAN INSTITUTE OF BANKING & FINANCE 22

20. Timelines of Evolution of Payment Systems • 1980 - Mechanisation of Payment System Processes , Computerization • Standardisation of cheques, Encoders, MICR Implementation and Minimal use of Bank Drafts and Cheues 1990 •1990 Computerization of Branches, Expansion of Products and services, Connectivity with other branches, • Core Banking Systems, ATM`s and Electronic Funds Transfer, On line Banking 2010 2010- • Internet Banking, Mobile Banking, Real Time Gross Settlement, National Electronic Funds Transfer (NEFT) and National Elecronic Clearing Sevices (NECS) 2011 2011• Emerging Financial techology ( Fintech ), E colloboration with Fintech and Adopttion of New Technology, Biometrics and Cheque Truncation Systems 2012 2012-• Rupay and National Automated Clearing House (NACH) Introduced by NPCI. Rupay -An Alternative to Visa and Master 2013 • 2013 Aadhar Enabled Payment System (AEPS) 2014 •2014- *99# USSD Unstructured Supplementary Service Data 2 016 2

21. Timelines of Evolution of Payment Systems 2016- • Unified Payment Interface (UPI), Bhart Bill Payment System (BBPS) , National Electronic Toll Collection System, Bharat interface for Money (BHIM) 2017-• Bharat QR developed by NPCI, Master Card, Visa - Integrated Payment System - Money transferred directly in user`s linked account 2018-• RBI Report of the Working Group on Fintech and Digital Banking and RBI Released draft Enabling Framework for Regulatory Sand Box •2019 RBI Payment System Vision 2019-2021 released 2021 – Positive Pay System (PPS) 2022- RBI Payment System Vision 2025 2023- RBI Guidliness on Digital Lending

22. In India, digital banking started taking shape in the late 1990s with ICICI Bank being the first one to bring the service to their retail clients. Digital banking became mainstream only in 1999 as internet charges were reduced and there was increased awareness and trust concerning the internet. The first ATM in India was set up in 1987 by HSBC in Mumbai. India has topped the list for digital payments and recorded 89.5 million transactions in 2022, according to a report. Interestingly, India's payments are more than the digital payments made in the next four leading countries combined. Ministry of Electronics & Information Technology ( MeitY ), Digital Economy & Digital Payment Division has been entrusted with the responsibility of leading this initiative on “Promotion of Digital Transactions including Digital Payments

23. Digitalization in Banking https://www.youtube.com/watch?v=LOPQ3ycQU30

24. Factors driving Technology in Banks CUSTOMER: Customer complaints to Customer convenience Why spend time for basic financial needs New age Banks & Fintechs understood and created the products BANK: Growing customer base & reach Fulfilling Social responsibility with evolving business potential Stability Competition TECHNOLOGY: Fast development in computing powers T e l e c o m b u r st Internet Always Online & Interconnected World Mimicking the human mind & powers ENVIRONMENT: Ever-expanding Social Networking Entertainment & pass time habits Socially distanced but connected Business to meet new Demand Supply challenges Reach to Global Markets INDIAN INSTITUTE OF BANKING & FINANCE 28

25. Many Benefits of Technology - Banks INDIAN INSTITUTE OF BANKING & FINANCE 29 ▶ Increased operational efficiency ▶ Profitability & productivity ▶ Superior Customer Service ▶ Multi-channel, real-time transaction processing ▶ Better Cross-Selling ability ▶ Improved management / accountability ▶ E ffi c i en t N P A a n d R is k M a n a g emen t ▶ Minimal transaction costs ▶ Improved financial analysis capabilities ▶ Financial Inclusion ▶ Enhancing Customer Experience

26. C ore B anking S ystems Benefits to Customers INDIAN INSTITUTE OF BANKING & FINANCE 30 ▶ A n y t i m e , A n y w h e r e B a n k i ng ▶ Can operate A/cs from any Branch or E-Lobby ▶ C u s t o me r o f a ‘ BANK’ r a th e r tha n C u s t o me r o f a ‘ B R AN C H ’ ▶ Improved & Speedy services and product offerings ▶ 24/7 bank services through customer chosen devices ▶ Lower charges and therefore cheaper banking ▶ Uniformity in products, services, charges, interests etc. ▶ P r o l i f e r a t i o n o f A l te r n a t e De l iv e r y C h a nn e l s ▶ Cards, ATM, , Kiosks, E-Galleries ▶ No discrimination in customers for offerings & treatment ▶ New useful client services such as alerts, notifications, rewards ▶ Backbone for E-Commerce

27. Journey of IT in Banking Industry ASCOTA, Accounti ng, Facit M a c h i n e s A u t o m at e d Electronic Ledger Posting Machines (AELPM) INDIAN INSTITUTE OF BANKING & FINANCE 31 Total Branch Me c h a n i zation (TBM) Multi Branch Ba n k i n g (MBB) Core Banking S o l u t ion (CBS) E v o l vi n g P a y ment Systems Fi n te ch revolut ion

28. A T M s C ards Internet Banking Mobile B a n k i n g E-Wallets Ele c t r o nic Payments E -Ga ll e r i e s IT in Banking Industry INDIAN INSTITUTE OF BANKING & FINANCE 32 Technology Centric

29. Cheque Truncation System https://www.youtube.com/watch?v=7hISKEc5YDw

30. Digital Disruptions Digital disruption is the change that occurs when new digital technologies and business models affect the value proposition of existing goods and services. The rapid increase in the use of mobile devices for personal use and work has increased the potential for digital disruption across many industries. Digital disruption is a transformation that is caused by emerging digital technologies and business models. The term ‘disruption’ is used as the emergence of these new digital products/services/businesses that disrupts the current market and causes the need for re-evaluation. Generally, digital disruption happens after digital innovations, such as  big data,  machine learning,  internet of things

31. Digital Disruptions Vs Digital Transformation Digital innovation then affects how customer expectations and behaviours evolve, causing organizations to shift how they create products and services, produce marketing material and evaluate feedback. This shift in digital strategy can occur on an individual, organizational, industry or societal level. There is a difference between digital transformation and digital disruption: digital disruption refers to the radical change and even dissolution of traditional business processes and models, while digital transformation describes a rather continuous process of change. Digital disruption is driven by external forces and can be seen as a threat to established businesses. Digital transformation is an intentional effort to embrace the opportunities presented by digital technologies and drive innovation from within.

32. Statistics - Digital Transformation In the AI-powered digital age, Banks that fail to make the leap to digital transformation in banking industry will risk being overtaken by competition and deserted by their customers.  The global digital banking market is expected to reach $359.46 billion in 2026 from $78.02 billion in 2022 at a 43.52% CAGR. Unified Payments Interface (UPI) transactions have grown from 92 crore in FY 2017-18 to 8,375 crore in FY 2022-23 at a Compound Annual Growth Rate (CAGR) of 147% in terms of volume. Similarly, the value of UPI transactions has grown from ₹ 1 lakh crore in FY 2017-18 to ₹ 139 lakh crore in FY 2022-23 at a CAGR of 168% Nearly 8 out of 10 digital payments are now done through UPI, claims RBI – Times of India -5 th March , 2024

33. Statistics - Digital Transformation UPI's share in digital payments reached nearly 80% in 2023 and its biggest contributor to the growth of digital payments in India. Retail digital payments in India grew significantly, and UPI transactions are expected to cross 100 crore per day. “ 46% of the digital transactions in the world take place in India “ RBI Governor Mr. Shaktikanta Dass said while speaking at Digital Payment Awareness week at ts headquarter in Mumbai. Cash in circulation increased by 7.8 per cent in FY23, albeit at the slowest pace since FY18.  The value of the currency in circulation in India was ₹33.78-lakh crore at the end of FY23, according to the Reserve Bank of India’s annual report. It was at ₹31.33-lakh crore at the end of FY22.

34. Revolution in Retail Payments and Further Progress Started in 2009 A s u bs i di a r y NI P L l a un c h e d i n Aug 2020 INDIAN INSTITUTE OF BANKING & FINANCE 22

35. Regulations and Compliance

36. Digital Banking Regulatory Compliance The digital age has transformed the way financial transactions are conducted, with an increasing reliance on digital channels. While this has made banking more convenient, it has also increased the risk of fraudulent activities and compromised customer data.  As such, digital banking regulatory compliance has become a critical aspect of financial institutions' operations. Compliance with regulations such as KYC (Know Your Client), AML (Anti-Money Laundering), and data protection laws ensures customer data is protected and helps prevent fraudulent activities.  However, implementing effective digital banking regulatory compliance measures can be complex and requires expert advice to ensure all legal requirements are met. That said, we’ll explore compliance processes, why an expert is crucial to implement them, and recommended tools.  

37. The Reserve Bank of India (RBI) has reported a spike of 68.2% in complaints under its Integrated Ombudsman Scheme (RB-IOS) for the financial year 2023, with figures reaching a staggering 703,000. This leap marks a substantial rise compared to the previous years, where FY22 saw a 9.4% increase and FY21 witnessed a 15.7% hike in complaints. The central bank attributes this sharp increase to its vigorous public awareness initiatives and a streamlined process for lodging complaints, making it easier for the public to voice their concerns and grievances. Nature of complaints Complaints related to Mobile/Electronic Banking dominated the total number of grievances against banks and non-bank payment system participants. In contrast, non-adherence to the Fair Practices Code topped the list of complaints against NBFCs. A significant portion (57.48%) of maintainable complaints was resolved through mutual settlement, conciliation, or mediation. The remaining complaints were either rejected, withdrawn by the complainants, or adjudicated by passing awards.

38. What were the common complaints? The report detailed several common categories of complaints, including unauthorized/fraudulent digital transactions, delay in transaction reversals, lack of clear communication regarding loan terms, issues with pension resolutions, non-maintenance of minimum balance charges, cross-selling/ mis -selling of products, delay in reporting credit information, and non-compliance by recovery agents with regulatory guidelines. Out of the total complaints received, 234,000 were managed by the ombudsman office, while the Centralised Receipt and Processing Centre (CRPC) disposed of 468,000 complaints. The CRPC plays a crucial role in the initial scrutiny and processing of complaints received through physical mode, further enhancing the efficiency of the complaint management system.

39. Frauds - An Overview (No in Actual, Amt in Crores) 18-19 19-20 20-21 21-22   no amt no amt   amt No amt Total Frauds 6798 71534 8703 185468 7363 138422 9103 60414 Of which                58328 ( adv ) Dep 593 148 530 616 504 434 208 362 Card / Internet 1866 71 26777 129 2545 119 1532 60 Cash 274 56 371 63 329 39 245 51 Cheque 189 34 201 39 163 85 107 149 Others 200 244 250 173 278 54  157  47

40. RBI Annual Report 2022-23 – Report on Trend and Progress Number of Frauds Amount Involved 2023-24 (April –SEPT 2024) 13530 30,252 Crore No. 14.483 Amt 2642 crore

41. Compliance Functions Banks need to ensure compliance to all applicable statutory provisions, rules and regulations, various codes of conducts (including the voluntary ones) and their own internal rules, policies and procedures. It is, however, reiterated that compliance is a shared responsibility of the business units and the compliance function. Therefore, adherence to applicable statutory provisions and regulations needs to be the responsibility of each staff member of the bank and it is the work of the compliance function to ensure the same. In some banks, there may be separate departments looking after compliance to different statutory and other requirements while the compliance function may be responsible for monitoring compliance with the regulations, internal policies and procedures and reporting to Management. The concerned departments would hold the prime responsibility for their respective areas, which should be clearly outlined, while compliance function would need to ensure overall oversight. If serious gaps are observed in such compliances, the compliance function should take necessary action to correct the compliance culture. There should also be appropriate mechanisms for co-operation among departments and with the Chief Compliance Officer.

42. On 22 nd May, 2023 RBI Governor Mr. Shaktikanta Dass while talking to the directors of the public sector banks at New Delhi asked banks to further strengthen the governance and assurance functions such as risk management , compliance, ethics and internal audit so that the banks are able to identify and mitigate risks at an early stage. The Governor also emphasized the need for banks to ensure continued financial and operational resilience. He further said that Ethics is extremely important from the bank`s point of view , especially after the Global Financial Crisis .Some reports in the past have highlighted that conduct of financial institutions has them into crisis due to lack of ethics and compliance. Unethical practices like mis-selling have been raised in the previous meetings as well . Interestingly the meeting has come after the RBI`s announcement to withdraw the Rs. 2000 denomination from the bank notes from the circulation.

43. Banks need to ensure compliance to all applicable statutory provisions, rules and regulations, various codes of conducts (including the voluntary ones) and their own internal rules, policies and procedures. It is, however, reiterated that compliance is a shared responsibility of the business units and the compliance function. Therefore, adherence to applicable statutory provisions and regulations needs to be the responsibility of each staff member of the bank and it is the work of the compliance function to ensure the same. In some banks, there may be separate departments looking after compliance to different statutory and other requirements while the compliance function may be responsible for monitoring compliance with the regulations, internal policies and procedures and reporting to Management. The concerned departments would hold the prime responsibility for their respective areas, which should be clearly outlined, while compliance function would need to ensure overall oversight. If serious gaps are observed in such compliances, the compliance function should take necessary action to correct the compliance culture. There should also be appropriate mechanisms for co-operation among departments and with the Chief Compliance Officer. ( Para 2. 1 - ( Ref. No. DoS. CO.PPG/SEC.02/11.01.005/2020-21 dated September 11, 2020 )

44. COMPLIANCE - ( Banking Parlance ) ADHERENCE TO : A SET OF LAWS REGULATION RULES PRACTICES SELF REGULATORY ORGANISATION STANDARDS CODE OF CONDUCT CAN BE GROUPED INTO INTERNAL COMPLIANCE (Applicable To All Employees) REGULATORY COMPLIANCE (Applicable to Bank As a Whole) LEGAL COMPLIANCE (Applicable to Bank As a Whole) June 2, 2024

45. COMPLIANCE (SIGNIFICANCE) -Functions in Banks PROMOTES ORDERLY BEHAVIOUR AND UNIFORMITY IN CONDUCT REDUCES SYSTEMIC VULNERABILITY AND RESULTANT CHAOS IN THE ECONOMY MINIMISES DEVIATIONS BREACHES IDENTIFIED FOR PROMPT CORRECTIVE ACTION THROUGH SYSTEMIC PROCESS IMPROVE CORPORATE GOVERNANCE IN BANKS June 2, 2024

46. Compliance risk The Compliance function is to help bank in managing its compliance risk . Compliance risk can be defined as the risk of legal or regulatory sanctions, financial loss or loss to prominence a bank may suffer on account of its failure to fullfill all applicable laws, regulations , code of conduct and standards of good practice. Compliance risk is sometimes introduced to as integrity risk as the prominence of a bank is connected with its adherence to principles of integrity and fair dealing. The supervisors of banks should be satisfied that effective compliance policies and procedures are followed, and that management takes appropriate corrective action in case where the breach of law, rules, and standards are identified. The Reserve Bank, in a bid to crackdown on the rising number of scams and frauds in the banking sector, has set new norms for the appointment of CCO. The guidelines have been issued with a view to bring uniformity in the approach followed by banks as also to align supervisory expectation on CCOs with best practices. These guidelines cover policy (which has to be reviewed at least once a year), tenor, and appointment of CCO, reporting requirements, duties, and responsibilities of the compliance function, among others.

47. Role of Compliance officer A CCO is a corporate official who is in-charge of overseeing and managing compliance issues within the bank, like if a bank is complying with the regulatory requirements and that the company and its employees are complying with the internal policies and procedures. The bank compliance officers are accountable for conducting audits and inspections to ensure that a bank follows the set internal and external laws. These officers are responsible for entails monitoring and analyzing areas of risk in the operation of the bank to ensure observance of the state and federal laws. The bank compliance officers assess policies or procedures and make sure that they are in line with all regulations on mortgage and customer deposits. They research established banking laws to make sure the non-violation of federal laws. They also implement and adjust to the new regulations passed by the state or by the federal government bodies.

48. COMPLIANCE -(SCOPE ) COMPLIANCE WITH : BR ACT, RBI ACT, FEMA, PMLA ETC REGULATORY GUIDELINES STANDARDS/CODES PRESCRIBED BY BCSBI, IBA, FEDAI, FIMMDA ETC INTERNAL POLICIES FAIR PRACTICES CODE Observing standards of market conduct Managing conflicts of interest Treating customers fairly Render appropriate customer advice Embrace broader standards of integrity/ethical conduct Listing and disclosure requirements -IRDA,SEBI,PFRDA ETC. Approx. , 54 legislations which impact banking business, governance and compliance Extends beyond what is legally binding and embraces broader standards , integrity and ethical conduct. June 2, 2024

49. The Eligibility Criteria For The Appointment As CCO The CCO will be a senior executive of the bank, preferably in the rank of a general manager or an equivalent position and the CCO should be recruited from the market; The candidate identified for appointment as the CCO should not be more than 55 years of age; The CCO is required to have an overall experience of minimum 15 years in banking or financial services, and of which minimum 5 years will be in the Audit/Finance/ Compliance/ Legal/ Risk Management functions; The CCO is required to have a good understanding of industry and risk management, knowledge of regulations, legal framework, and sensitivity to expectations of supervisors; and There should not be any vigilance case or adverse observation from the  Reserve Bank of India [1]  pending against the candidate identified for the appointment as CCO.

50. TOP FIVE COMPLIANCE CHALLENGES IN BFSI 1. Keeping Up With Changing Regulations and Growing Uncertainty - One of the biggest compliance challenges facing the financial services industry is keeping up with changing regulations, especially after the economy rebounded following the pandemic. Financial institutions must ensure that their practices align with the latest regulatory requirements, which can be difficult as these requirements constantly evolve. In addition, keeping up with changing regulations can be especially challenging for smaller financial institutions, which may need more resources to devote to compliance. 2. Improving Risk Control - Financial institutions are required to manage various risks, including credit, liquidity and market risks. Managing all of this can be difficult, as financial institutions must strike a balance between managing these vulnerabilities and maximizing profits. For example, a financial institution may need to dedicate a certain amount of capital to mitigate them. Still, financial institutions could use capital invested in revenue-generating activities better.

51. 3. Ensuring Privacy and Data Security - Ensuring data security is another major compliance challenge facing the financial services industry, especially for fintech companies that maintain extremely sensitive data (i.e. credit card numbers and bank account information) and are required to protect this data from unauthorized access. Ensuring overall privacy and data security can be challenging, as cyber threats are constantly evolving and becoming more sophisticated. 4. Environmental, Social and Governance Issues - In today’s competitive marketplace, financial institutions must not only meet regulatory requirements but also provide transparency and accountability for the products and services that customers, stakeholders and employees expect. The challenge is that the expectations these groups have around transparency and accountability are constantly changing, and financial institutions must stay ahead to remain competitive.  According to ESG reporting , companies can’t delay in taking action on this because the alternative to prioritizing corporate integrity and employee well-being by not taking action could pose severe risks to a company’s brand, market position, customer relations, recruiting ability, culture and more.

52. 5. Preventing Fraud and Instilling Trust According to  McKinsey’s Annual Review , cyberattacks remain a serious risk, and the best banks have a well-protected and future-proof technology infrastructure and superior data security. However, preventing fraud can be challenging, as financial criminals constantly find new ways to evade detection. Consistency of branding is crucial in maintaining trust with customers. Businesses that have the ability to quickly pivot and implement new messaging in the midst of the crisis, such as sharing updated and more compassionate business practices. Their ability to quickly pivot is vital to building back up any lost trust.

53. Dual hatting The RBI has notified that there should not be any dual hatting that means the CCO shall not be given a responsibility, which brings in elements of conflict of interest, especially the role relating to business. Roles that don’t attract direct conflict of interest, such as the role of anti-money laundering officer, etc. can be performed by the CCO in those banks where the principle of proportionality in terms of bank size, complexity, risk management strategy, and structures justify that.

54. Case studies –banking compliance On 24 th April , 2023 The Reserve Bank has imposed penalties totalling Rs 44 lakh on four cooperative banks, including a Rs 16 lakh penalty on Chennai-based The Tamil Nadu State Apex Co-operative Bank, for contravention of various norms. It also failed to report a fraud to NABARD within the prescribed timeline and reported the same with delay. A penalty of Rs 13 lakh has been imposed on Bombay Mercantile Co-operative Bank as it failed to transfer eligible amount to Depositor Education and Awareness Fund (DEAF) within the prescribed period and transferred the same with delay In a separate release, the central bank said a penalty of Rs 13 crore has been imposed on Janata Sahakari Bank, Pune for non-compliance with directions on 'Interest Rate on Deposits'. A monetary penalty of Rs 2 lakh has been imposed on Baran Nagrik Sahkari Bank, Baran, Rajasthan for contravention of certain norms. The penalties are based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the banks with their customers, the RBI said.

55. Recent Case Studies in the Indian Banking System – Failure of Risk Management The Kingfisher Airline Scam of Rs . 9000 Crore from 17 Indian banks, wherein the owner, Mr Vijay Mallaya , was accused of bank fraud and money-laundering in 2016. Mr Vijay Mallaya started the luxury Kingfisher Airline in 2005 and acquired Air Deccan for Rs . 550 Crores in 2008. The airlines never showed a profit and their consolidated debt increased to Rs . 7000 Crore in 2010. The net loss of the airlines was Rs . 822 Crore, and United Bank of India declared Mr Mallaya as a wilful defaulter. He left the country in March 2016, and was declared a proclaimed offender. This case highlights the bank’s failure to identify the credit and operational risks involved in the airlines business, as they kept on disbursing the loan to the Kingfisher Company until it became a NPA.

56. The Punjab National Bank Scam of Rs. 11400 Crore by the partner, Mr Nirav Modi, his wife, Ms Ami Modi, his brother, Mr Nishal Modi, and his uncle, Mr Mehul Choksi, by fraudulent issue of letters of Undertaking (LOUs) for their Diamond Jewellery business in 2018. Investigations into the case revealed that few employees of the bank were involved in the export/import transactions, which were not routed through the bank’s core banking system (CBS). The SWIFT system was working as stand-a-lone software and was not linked to the bank’s CBS. This was a case of the poor management of credit, technology, operations, country, and strategic risk by the bank, resulting in huge losses.

57. The ICICI Bank, Videocon case of Rs. 3000 Crore loan, where the former ICICI bank CEO, Ms Chanda Kochhar, was accused of criminal conspiracy and cheating the bank in 2012; fraud was detected in 2019. It was alleged by the Central Bureau of Investigation that the loan of Rs. 3250 Crore was sanctioned to Mr Deepak Kochhar, the CEO’s husband, through Mr Deepak Kochhar’s firm, NuPower Renewables, where Ms Chanda Kochhar was a member of the committee who cleared the loan. The loan became a non-performing asset for the ICICI Bank, and the matter is still under investigation by the Enforcement Directorate.

58. The Punjab Maharashtra Cooperative (PMC) bank scam of Rs. 7000 Crore, where Mr Rakesh Wadhawan, and his son, Mr Sarang Wadhawan, promoters of the HDIL company, were arrested for the opening of 21,049 bogus accounts and 44 loan accounts. PMC bank’s software was also found to have been altered to non-report to the Reserve Bank of India, and money-laundering transactions were also observed by the Enforcement Directorate during the investigation

59. The Yes Bank Ethical Failure , wherein Mr Rana Kapoor, confounder of Yes Bank, was accused of alleged cheating, criminal conspiracy, and fraudsin the sanctioning of loansto various companies amounting Rs 6000 Crore after having received huge monetary benefits in March 2020. The Reserve Bank of India put the banks under moratorium in March 2020, and placed restrictions on withdrawals by depositors. It was a case of ethical failure and the poor management of credit operational, market, and reputation risk. The impact of this fraud was that the stock of the Yes Bank declined over 49% on the Bombay Stock Exchange (BSE).

60. Anticipate , Assess & Respond to Changes in Technology , Regulation and Competition Customer Experience , Customer Engagement and How Bankers Prepare themselves to Respond to Change

61. Needs of a Customer- “Know your customer’s needs. However good your product or service is, the simple truth is that no-one will buy it if they don't want it or believe they don't  need  it. And you won't persuade anyone that they want or need  to buy what you're offering unless you clearly understand what it is your  customers  really want.” 67

62. Types of Needs 1. Friendliness 2. Understanding and Empathy 3. Fairness 4. Control 5. Options and Alternatives 6. Information 68

63. 70

64. Tips 71

65. Contd……… 72

66. Needs of a Banking Customer 73

67. Moments of Truth 74

68. Definition Any instance when a customer comes in contact with some aspect of your organisation and has an opportunity to form an impression about the quality of service or product you provide is called Moment of Truth (MOT) 75

69. Categories of MOT 76 “ Some moments are nice, some are nicer, some are even worth writing about.”  ―  Charles Bukowski ,  War All the Time

70. The Era of Smart Customers and their ever rising expectations, Customer experience in banking refers to a customer’s collective experience interacting with various touchpoints, including online banking systems, emails, call centers , online advertising, face-to-face interactions, and even social media. Smart Customers Ever Rising Expectations : 1. Enhancing Products & Services with Mobile App Data 2.The Branch of the Future 3.Advising Services 4.Artificial Intelligence 5. Automated On boarding 6. Support for Digitalization and Remote Services 7. “ Humanizing ” Digital 8. Hyper personation 9. Greater Transparency Around Data Usage 10. Proactive Engagement https://global.hitachi-solutions.com/blog/banking-customer-experience-trends/

71. 81

72. 82

73. Indicators 83 Behaviors Exhibited Customer’s Thoughts Customer’s Feelings Casual or Indifferent attitude I am not important Disrespected Curt or rude behavior I am not important Disrespected, Embarrassed Poor knowledge of products and services They (staff) are incompetent Cannot trust, fear of losing money (in case of BFSI) Giving incorrect, incomplete or false information I am being taken for a ride No trust, doubt on capability Giving wrong commitments They don’t know what they are doing, lack of professionalism No trust, disrespect , fear Slow and unresponsive behavior My time is not important Unskilled and untrained

74. 84

75. 85

76. Indicators 86 Behaviors Exhibited Customer’s Thoughts Customer’s Feelings Smiles I am welcome here Respected, sense of belonging Empathy They care Respected, gains trust Polite and courteous behavior I am important Respected Excellent knowledge of products and services They know their business. I am getting my information. Gains trust and confidence Solves the problem They care about me and my time. Respected, service is fast,efiicient service executives Keeps in touch regularly I am valued. Gains trust

77. 87

78. 88

79. 89 Customer delight is going beyond expectation and delivering more than what they expect. Customer delight is all about creating WOW experience

80. 90 A customer recommendation is more powerful than any advertising campaign. Delighted customers keep coming back, generate more business and also bring along new customers for you to delight.

81. Omnichannel To create a seamless omnichannel banking experience, financial institutions must lay a solid foundation; Advanced digital banking software serves as this foundation, empowering financial institutions to execute all banking operations seamlessly across various digital channels. An omnichannel banking approach allows them to switch devices and channels seamlessly to meet their needs and preferences. Some customers may want to visit a branch to open a new account, while others may want to do it using their favorite messaging app. Omnichannel banking is a strategy that involves creating an integrated customer experience across all customer touchpoints, including online, mobile messaging, in-person, phone, email, and video.

82. The Need for Omni-Channel Banking Customer expectations Customers today expect to have the ability to interact with their bank across multiple channels, such as online, mobile, in-branch, and over the phone. They also want to be able to switch between channels without interruption, and expect a consistent and unified experience. According to a  World Retail Banking Report , 2021 by Capgemini, it was discovered that nearly 80% of consumers expect an omni -channel banking experience. This figure implies that customers are now in the front seat and driving banks to improve their systems by adding more options for performing banking activities. This has resulted in an increased need for omnichannel banking and the need for banks to act on it.

83. Omni Channel - Customer Centric Approach INDIAN INSTITUTE OF BANKING & FINANCE 94

84. CBS Solution – Graphical Depiction INDIAN INSTITUTE OF BANKING & FINANCE 29

85. Popular CBS Solutions ▶ Finacle –EdgeVerve (Infosys) ▶ Flexcube – Oracle ▶ Temenos Transact - Temenos ▶ BaNCS – TCS ▶ F i serv DN A - F i serv ▶ In t e l l ec t – In t e l l ec t D es ig n Ar ena ▶ FIS Profile – FIS ▶ Mambu - Mambu ▶ Finastra Fusion Phoenix - Finastra ▶ S i l v er L a k e – J a c k H enr y A ss o c ▶ E-IBS – Datapro ▶ Kastle CBS – 3i Infotech ▶ Omni Enterprise – Infrasoft Source: Global Retail Core Banking Reviews 2022 | Gartner Peer Insights INDIAN INSTITUTE OF BANKING & FINANCE 30

86. INDIAN INSTITUTE OF BANKING & FIN A NCE 35 W h a t ’ s next? E-Banking I DR BT ECS InstaRemit ISSP NPCI AUDIT GBM APPLICATION IN INDIAN BANKING PANORAMA CPSMS S A SCL BTM Mobile Banking NFS C D S L S T A R T O KE N NSDL NGRTGS Mchk Basel-III K I O S K International A M L A A D H A A R

87. https://www.youtube.com/watch?v=5vjY1c8N1rk https://www.youtube.com/watch?v=3CZJVku5ym4

88. https://www.youtube.com/watch?v=3CZJVku5ym4

89. How to Prepare Your Self

90. Be Updated

91. Seek Mentorship 2) Seek Mentorship - Connect with your Seniors

92. Bring Innovation in Your Work -Digitally 3) Bring in Innovations - Digitally in your work

93. Learning Opportunities 4) Learning Opportunities

94. 5) Holistic Development How many of you go to GYM/Yoga? How many go for morning walk/running/cycling/any sports? Any Marathonner here?

95. Network 6) Network – Inside/Outside your workspace

96. 7. Celebrate Small/ Big Achievements 7) Celebrate your Small/Big Achievements

97. Customer Engagement Customer Engagement  is the emotional connection between a  customer  and a brand. Highly engaged  customers  buy more, promote more, and demonstrate more loyalty. Providing a high-quality  customer  experience is an important component in any customer engagement  strategy

98. Importance of Customer Engagement Why Customer Engagement is important?

99. Inbound Customer Engagement

100. Outbound Customer

101. Important Aspects of Customer Engagements Important aspects of Effective Customer Engagement

102. Proper grooming and wearing professional attire

103. Effective Communication skills

104. Understand Customer Profile and Interest U

105. Learning is the key

106. Most Importantly

107. Always Remember Effective Customer Engagement leads to Happy & Delighted Customers

108. Must Read Books Must Reads

109. ? INDIAN INSTITUTE OF BANKING & FINANCE

110. 16 - 06 - 2022 INDIAN INSTITUTE OF BANKING & FINANCE THANKS Prof .( Dr.) Narinder Kumar Bhasin Zonal Head , IIBF. North Zone Former Professor-Banking , Amity University , Noida Former Vice President ,Axis Bank Limited ,New Delhi