Covid-19 and its impact on the Banking and Financial Services Sector

Covid-19 pandemic outbreak has impacted the global economy. Banking and financial services were also impacted by coronavirus. Covid-19 created an economic storm which is followed by economic slowdown. Due to prevailing lockdown, banks and financial organizations are expecting a surge in non-performing assets, owing to collapse of cash flow in economy between businesses and consumers.

As per S&P global ratings, the banking sector witnessed an obstruct in their credit cost ratios by 130 basis point and non-performing assets ratio by 1.9% in India, in April 2020. Chinese banking sector witnessed a rise in their non-performing assets ratio by 2% and credit cost ratio to increase by 100 basis points in April 2020. Asia-Pacific Banks anticipated a rise of $300 billion in credit cost. In this prevailing situation, investors started pulling out their investment which leads to a decline in money supply in the economy. Reserve Bank of India reduced the repo rate to 4.40% and also declared to provide $4967.094 million (RS. 3.74 lakh crore) liquidity to banks by conducting targeted long-term repos operations, by reducing cash reserve ratio and by increasing the limit for marginal standing facility up to 3%. On the other hand, slowdown leads to loss in potential jobs and ultimately vanishes the source of income of consumers which causes a stress in bank loan book and leads to a spike in bad loans.

The World Health Organization (WHO) advised to use contactless payment and avoid using bank notes as coronavirus may continue to live on banknotes and may accelerate spread of this novel disease with their use and hence, digital transformation in banking and financial services witnessed a growth in past few months. To address the Covid-19 impact on banking and financial services, financial institution such as accounting and finance software market, personal finance apps, finance and accounting business etc. must craft an immediate, short- and medium-term strategic response by adoption appropriate digital front-end technology enablers and innovations underpinned by agile delivery models. Some of the digital technology enablers include business process re-engineering and automation to ensure availability of digital banking services, analytics and insights solutions to identify for new risk, video banking facilities, artificial intelligence backed tools and conversational platforms to deal with increase in call volumes, finance and accounting business process outsourcing services etc. Digital banking and financial services need to develop a secure open hybrid cloud platform. This will enable financial institutions to run, build and manage workloads in a consistent way.

The current pandemic has forced customers to use personal finance apps and other digital banking platforms.  As a result of Covid-19 crisis, online banking activities increases and trips to brick-and-mortar branches decreases. Due to coronavirus pandemic, Lunar bank launched a digital solution for stock trading, HDFC Bank launched myApps, The Royal Bank of Scotland (RBS) has unveiled an app called Bó, etc. to boost digital payments. In the coming years, consumers are expected to witness more such digital banking apps. Post COVID-19, digital banking and financial services will be of central importance. This requires financial institutions to embrace new technology and rapidly adapt to changes. In the near future, banking and financial services are likely to move away from legacy technologies towards adopting scalable and agile digital technologies such Artificial Intelligence (AI) or machine learning and cloud platforms.

Moreover, Coronavirus has an adverse impact on banking and financial services with respect to liquidity, loan covenant, mortality claims, credit risk assessment, and so on but with the help of government regulations in repo rate and digital front-end technology, it is expected to recover fast at an increasing rate.  But, on contrary, digital banking platforms and other advanced technologies are acting as the game changer in the pandemic situation in term of operation.

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