Mobile technology will make banking services accessible to very small habitations where setting up a branch is unfeasible, according to Dun & Bradstreet

Business information provider Dun & Bradstreet (D&B) says it expects mobile technology to drive the next leg of banking sector growth, which in turn would support the Reserve Bank of India's thrust on financial inclusion.

In a report on the outlook for Indian banking sector in 2011, D&B, says, "Mobile technology is expected to widen the reach of the banking network on one side along with providing for ease of transactions on the other. Corroborated with the business correspondent model and UID, the same is expected to making banking services accessible to very small habitations by utilising mobile technology where setting up a branch is unfeasible."

There were around 525.9 million mobile connections as of November 2010, compared with around 69,160 bank branches and 60,153 ATMs across the country. According to the Reserve Bank of India (RBI), around 90% of public sector branches have been updated with core banking software, while around 97.8% of public sector banks' branches have been fully computerised. The trend of transactions is also seen to be shifting from paper-based to electronic. In FY10, the share of electronic transactions to total transactions stood at around 89% in value terms and around 40% in volume terms, the information provider said.

About the coverage by the Indian banking sector, D&B says that the RBI has issued a directive to public sector banks to ensure that all villages with a population of above 2,000 are brought under the formal banking net by 2012, and this will bring in an additional 145 million customers into the banking network. There are about 72,315 villages with a population of over 2,000 (2001 census) that are yet unbanked and that need to be brought into the banking net. Currently, only around 40% of the Indian population is connected to the banking system.

D&B says that the Indian banking sector has witnessed consolidation over the past couple of years. The report says mergers and acquisitions will help banks meet capital adequacy requirements and to finance large transactions and investments made by the Indian corporate sector. A minimum capital of more than Rs1,000 crore is one of the options RBI is contemplating as a requirement for new bank licences. Given that around eight domestic banks still have a net worth lower than Rs1,000 crore in FY10, there is scope for consolidation.

The business information provider says bank credit would continue to grow at a healthy rate in 2011, as it expects the overall economy to grow at around 8.8% for FY11, and services and industry to grow at a faster pace of around 10.3% and 9.5%, respectively.

Banking sector business has grown at a compound annual growth rate (CAGR) of around 23% between FY05 and FY10. On account of lower capital expenditure by the industry, coupled with the apprehension of the banking sector to issue credit, it saw a slightly modest growth of 16.7% year-on-year (y-o-y) in FY10. This has picked up in the current financial year, with a growth of about 20% y-o-y as of October 2010.