Tag: banks

Web 3.0 : Financial Service Industry

How will the evolution of the web have an effect on Financial Services? This is a question that puts many financial institutions in peril but is it really something that will put banks out of business? 

What is Web 3.0?

Web 3.0 is a new evolution phase that is coming into reality. The web as we know, is evolving into something more secure with more opportunities and various features. A lot of people don’t understand Web 3.0 and are scared of it. This will be a massive change on how we see the internet and how we will use it. It is going to be a decentralized platform and it will be individualized wherein you can customize your internet browsing experience. 

The Royal Bank of Canada is utilizing millions of data points to train its own AI, resulting in fewer client calls and faster application delivery. Meanwhile, BNY Mellon, the world’s largest cross-border payments service provider, improved its fraud prediction accuracy by 20%. By researching real-time market data within nanoseconds, AI and high-performance computing (HPC) are combining to provide better and faster trading intelligence.

What does this mean for Financial Services?

Web 3.0 is transforming the finance sphere slowly into a decentralized place. Basically, you don’t need a financial institution governing your transaction or authorizing them. The transaction will only be initiated by you and reaches the receiver, in a matter of moments, without any middlemen. Using cryptocurrency, you can make transactions over blockchain that eliminates that bank server from between. Cryptos are digital assets that let users transact directly without a payment service provider in the intermediary, which means that they enable new forms of capital. Although Bitcoin remains comparatively low now, it still may provide effective money governance by preserving and protecting the data or memory of what our money represents. Then there is the unparalleled manipulation of fiat money. We can observe how central banks have significantly extended their balance sheets since the GFC and the ongoing pandemic COVID-19. 

DeFi

DeFi is short for decentralized finance where there are no middlemen between you and the receiver. The transaction will be on the blockchain where the transaction time is reduced from time of hours/days, to moments that you can count on your hands. With DeFi, you can perform all transactions and services that are offered by traditional banks, without the bank in between. Now, you might wait for your transaction to be passed through because your bank should allow it and then it has to pass through the bank’s server. 

DeFi uses cryptocurrency as the main currency because they are programmed using blockchain technology. There is a huge difference between CeFi and DeFi. 

Effect on Financial Services

Undoubtedly, Web 3.0 has opened its doors for infinite opportunities and many FinTechs are utilizing them while traditional institutions are being left behind. These organizations are investing in their technology and its improvement in this rapidly changing market. These FinTechs’ major part of investment is into AI which are being programmed to understand the different problems faced by people and able to give out the solutions in a matter of seconds. This dependance on AIs is being constantly improved which are learning from their own errors and giving better and more efficient solutions. A survey by NVIDIA , according to it, nearly 83% of finance service professionals say that AI is essential for the companies’ success. It is also said that AI can improve company growth by 20%.

Conclusion

Web 3.0 is bringing so many opportunities while improving the present technology and organizations that are utilizing it will not be taking rest anytime soon. This technology is just going to become better and better. Every single day that we see this technology step up just shows that we are not done with technology, it can be better and more efficient and these companies are proving that to use everyday. Web 3.0 is showing more freedom of speech and thoughts than the present restricted web 2.0, decentralization is going to put back the control back in the hand of the User.

“Where there is life, there is growth

Where there is age, there is evolution.”

~Charles Darwin

Thank you so much for reading this article. I have added information from different websites and I thank them for their view on this topic. Do leave comments on different aspects of Web 3.0 that you think will change us.

The links to pages that helped me understand Web 3.0 better:

Financialit.net: How web 3.0 is transforming the financial services industry?

https://www.finextra.com/the-long-read/231/how-ai-is-powering-the-future-of-financial-services

https://n26.com/en-eu/blog/what-is-defi#:~:text=How%20does%20DeFi%20work%3F,are%20secured%20through%20blockchain%20technology.

Web 3.0 : Financial Service Industry

How will the evolution of the web have an effect on Financial Services? This is a question that puts many financial institutions in peril but is it really something that will put banks out of business? 

What is Web 3.0?

Web 3.0 is a new evolution phase that is coming into reality. The web as we know, is evolving into something more secure with more opportunities and various features. A lot of people don’t understand Web 3.0 and are scared of it. This will be a massive change on how we see the internet and how we will use it. It is going to be a decentralized platform and it will be individualized wherein you can customize your internet browsing experience. 

The Royal Bank of Canada is utilizing millions of data points to train its own AI, resulting in fewer client calls and faster application delivery. Meanwhile, BNY Mellon, the world’s largest cross-border payments service provider, improved its fraud prediction accuracy by 20%. By researching real-time market data within nanoseconds, AI and high-performance computing (HPC) are combining to provide better and faster trading intelligence.

What does this mean for Financial Services?

Web 3.0 is transforming the finance sphere slowly into a decentralized place. Basically, you don’t need a financial institution governing your transaction or authorizing them. The transaction will only be initiated by you and reaches the receiver, in a matter of moments, without any middlemen. Using cryptocurrency, you can make transactions over blockchain that eliminates that bank server from between. Cryptos are digital assets that let users transact directly without a payment service provider in the intermediary, which means that they enable new forms of capital. Although Bitcoin remains comparatively low now, it still may provide effective money governance by preserving and protecting the data or memory of what our money represents. Then there is the unparalleled manipulation of fiat money. We can observe how central banks have significantly extended their balance sheets since the GFC and the ongoing pandemic COVID-19. 

DeFi

DeFi is short for decentralized finance where there are no middlemen between you and the receiver. The transaction will be on the blockchain where the transaction time is reduced from time of hours/days, to moments that you can count on your hands. With DeFi, you can perform all transactions and services that are offered by traditional banks, without the bank in between. Now, you might wait for your transaction to be passed through because your bank should allow it and then it has to pass through the bank’s server. 

DeFi uses cryptocurrency as the main currency because they are programmed using blockchain technology. There is a huge difference between CeFi and DeFi. 

Effect on Financial Services

Undoubtedly, Web 3.0 has opened its doors for infinite opportunities and many FinTechs are utilizing them while traditional institutions are being left behind. These organizations are investing in their technology and its improvement in this rapidly changing market. These FinTechs’ major part of investment is into AI which are being programmed to understand the different problems faced by people and able to give out the solutions in a matter of seconds. This dependance on AIs is being constantly improved which are learning from their own errors and giving better and more efficient solutions. A survey by NVIDIA , according to it, nearly 83% of finance service professionals say that AI is essential for the companies’ success. It is also said that AI can improve company growth by 20%.

Conclusion

Web 3.0 is bringing so many opportunities while improving the present technology and organizations that are utilizing it will not be taking rest anytime soon. This technology is just going to become better and better. Every single day that we see this technology step up just shows that we are not done with technology, it can be better and more efficient and these companies are proving that to use everyday. Web 3.0 is showing more freedom of speech and thoughts than the present restricted web 2.0, decentralization is going to put back the control back in the hand of the User.

“Where there is life, there is growth

Where there is age, there is evolution.”

~Charles Darwin

Thank you so much for reading this article. I have added information from different websites and I thank them for their view on this topic. Do leave comments on different aspects of Web 3.0 that you think will change us.

The links to pages that helped me understand Web 3.0 better:

Financialit.net: How web 3.0 is transforming the financial services industry?

https://www.finextra.com/the-long-read/231/how-ai-is-powering-the-future-of-financial-services

https://n26.com/en-eu/blog/what-is-defi#:~:text=How%20does%20DeFi%20work%3F,are%20secured%20through%20blockchain%20technology.

Nationalization of Banks

Despite the provisions, control and regulations of the Reserve Bank of India (RBI) , banks in India except the State Bank of India (SBI), remain owned and operated by private persons. By the 1960s, the banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. The then Prime Minister of India, Indira Gandhi, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled Stray thoughts on Bank Nationalization.

The decision came at the end of a troubled decade. India was buffeted by economic as well as political shocks. There were two wars—with China in 1962 and Pakistan in 1965—that put immense pressure on public finances. Two successive years of drought had not only led to food shortages, but also compromised national security because of the dependence on American food shipments to keep hunger at bay. Fiscal retrenchment through a three-year plan holiday had hurt aggregate demand as public investment was cut.

Thereafter, the Government of India issued the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969 and nationalized the 14 largest commercial banks with effect from the midnight of 19 July 1969. These 14 banks included: Allahabad Bank (now Indian Bank), Bank of Baroda, Bank of India, Bank of Maharashtra, Central Bank of India, Canara Bank, Dena Bank (now Bank of Baroda), Indian Bank, Indian Overseas Bank, Punjab National Bank, Syndicate Bank (now Canara Bank), UCO Bank, Union Bank of India United Bank of India (now Punjab National Bank). These banks contained 85 percent of bank deposits in the country. Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received presidential approval on 9 August 1969.

As a result of this nationalization, it led to an impressive growth of financial intermediation. The share of bank deposits to GDP rose from 13% (1969) to 38% (1991), the gross saving rate rose from 12.8% (1969) to 21.7% (1991). Gross Domestic Savings almost doubled as a percentage of national income in the 1970s. The reach of the banking system also increased and banks were no longer confined to the metropolitans and reached remote areas of the country, thus promoting rapid growth in agriculture, small scale industries and development of these remote and backward areas. The nationalization furthered India’s growth process, particularly during the Green revolution.

There were also some harmful effects of the nationalization. The primary purpose for which the nationalization was done i.e. extending bank facilities to rural areas was also unfulfilled and many areas of the country including Uttar Pradesh, Chhattisgarh and the North Eastern part remain unbanked. It failed to eradicate poverty and scaling down of wealth inequalities. Financial inclusion was only increased post the implementation of the Jan Dhan Yojana. Moreover, multiple public sector banks also suffered due to political interference. Banking was no longer done on professional and ethical grounds. It resulted in lower efficiency and poor profitability. The performance of these banks on the basis of branch expansion and number of deposits never surpassed the numbers shown by private banks.

Bank nationalization was the beginning of a broader political economy strategy in the 1970s- a decade where economic growth barely outpaced population growth. This nationalization did succeed in certain areas such as financial deepening cause of the rapid spread of branches but eventually, it did more harm than good. As of 2021, there are a total of 12 nationalized banks in India.

COMMERCIAL BANKS & CREDIT CREATION PROCESS

COMMERCIAL BANKS

A commercial bank is that financial institution which accepts deposits from the people and offers loans for the purpose of consumption or investment.

The rate if interest charged by the commercial banks(for the loans the offer) is higher the the rate of interest paid by them (for the deposits the accept ).The difference between two rates is called ‘spread’, which is the source of profit for the banks.

BASIC FUNCTION OF COMMERCIAL BANKS

Commercial banks perform two basic function:

1.Aceepting deposits

2. Advancing loans.

CREDIT CREATION PROCESS OF COMMERCIAL BANKS

Commercial banks create credit on the basics of their cash reserve .

Let assume all banks in the economy receive cash deposit of RS.10000. The banks are guided by their historical experience that all the depositors never withdraw their deposits at a single time. Thus, the bank find it safe to keep cash reserve of only 10% of their demand deposit. That is RS. 10000.

Now , the banks can safely advance loans of RS.9000 and earned profit. The banks never offer loan on cash so the loan amount again returned back to banking system of an economy. Now the total deposit of bank is RS.10000+RS.9000= RS.19000.

By keeping 10%of secondary deposit that is RS.9000 of 9000 he again lend RS.8100 and this process is going to continue until all cash balance are not going to exhaust.

With the help of credit multiplier a bank can know maximum of credit creation .

K = 1/RR

RBI revises LFAR norms for banks to improve audit efficacy, risk management

The Reserve Bank on Saturday came up with revised long format audit report (LFAR) norms with a view to improving efficacy of internal audit and risk management systems.

The LFAR, which applies to statutory central auditors (SCA) and branch auditors of banks, has been updated keeping in view the large scale changes in the size, complexities, business model and risks in the banking operations, the RBI said.

The revised LFAR format will be put into operation for the period covering 2020-21 and onwards, the central bank said.

“The overall objective of the LFAR should be to identify and assess the gaps and vulnerable areas in the business operations, risk management, compliance and the efficacy of internal audit and provide an independent opinion on the same to the Board of the bank and provide their observations,” the RBI said.It further said that the LFAR should be placed before the Audit Committee of Board and Local Advisory Board of the bank indicating the action taken or proposed to be taken for rectification of the irregularities.The RBI further said the coverage in the LFAR should be ‘credit risk areas’, ‘market risk areas’, assurance functions and operational risk areas’, ‘capital adequacy’ and ‘going concern and liquidity risk assessment’, among others.