Sector Spotlight: Investment Opportunities in the Banking Industry

Banks are changing fast with new ideas. These changes help them work better and serve people easily. Let’s see how banks are improving and creating new chances for investors.

1. AI-Driven Transformation and Automation in Banking

Artificial Intelligence (AI) is changing how banks work. It helps banks do tasks faster and with fewer mistakes. For example, AI can check if a loan is safe to give or if a transaction is fake. It can also help customers by answering questions quickly. Because of AI, banks can save money and offer better services. This makes banks more efficient and helps them grow.

Example: Umang’s Bank Uses AI

Umang is a 12-year-old boy who started a small bank for his friends. He used AI to make his bank better. Here is how AI helped him:

Umang's bank became faster and smarter with AI. His friends were happy, and his bank grew. This shows how AI can help banks do better.

2. Sustainable Finance and ESG Integration

Sustainable finance means using money in ways that are good for the environment and people, as well as for how companies run. ESG stands for Environmental, Social, and Governance. Banks and investors look at these factors before giving loans or investing. This helps support clean energy, fair jobs, and honest business practices. It also helps reduce risks and build a better future.

Read More – What is Merchant Banking? Meaning, Functions & Services in India
 

Example: Kriti’s Eco-Friendly Bank

Kriti is a 23-year-old girl who started a small bank for her community. She wanted to help the environment and people. She used ESG rules to decide who gets loans. Here is how her bank worked:

Kriti's bank helped the environment and made people happy. This shows how ESG can make banking better.

3. Embedded Finance and Fintech Collaborations

Embedded finance means adding banking services – like payments, loans, or insurance – into non-bank platforms such as shopping apps or ride services. This helps people use financial services easily without going to a bank. 

Fintech companies work with banks to make this possible. For example, in India, companies like Cred and MobiKwik have partnered with banks to offer digital wallets and loans.

Example: Paras's Digital Store

Paras is a 24-year-old boy who runs an online store selling handmade crafts. He wanted to make it easy for customers to pay and get refunds. So, he partnered with a fintech company to add payment and refund services directly to his website. Here is how it helped:

By using embedded finance, Paras made shopping easier for his customers, leading to more sales and happier buyers.

4. RegTech and Enhanced Compliance

As rules and regulations in the banking sector keep getting more complicated, banks are now using something called Regulatory Technology, or RegTech, to make following these rules easier. With the help of AI and machine learning, these tools can keep an eye on everything in real-time and make sure banks are staying within legal limits. This not only helps avoid risks but also saves a lot of money and effort.

Let’s understand with a story of Justin

Justin is a young banker who wants to make his bank safer and smarter. He learns about RegTech, a technology that helps banks follow rules easily and quickly.

Before RegTech, Justin's bank spent ₹50,00,000 each year checking if transactions followed the rules. They had 10,000 alerts to review, and many were false alarms.

After using RegTech, the bank's costs dropped to ₹30,00,000. The number of alerts stayed the same, but false alarms reduced by 50%. Now, only 5,000 alerts need checking, saving time and money.

Here is a simple table showing the change:

Justin is happy because RegTech makes his job easier, saves money, and helps the bank follow rules better.

5. Capitalising on Market Volatility

Global events like new tariffs have made markets unstable. Banks like Standard Chartered and Barclays made good profits by smartly handling this chaos, showing that such banks can be smart picks for investors.

Mayank is a young investor who wants to make smart choices during market ups and downs. He learns about a strategy called "buying the dip," which means buying stocks when their prices go down.

In January, Mayank bought 10 shares of a company at ₹100 each. In March, the stock price dropped to ₹80, so he bought 10 more shares. By May, the stock price went up to ₹120. Now, he has 20 shares, and the average price he paid is ₹90.

Also Read  - What is a Payment Gateway? Meaning, Types & How It Works in E-commerce
 

Here is a simple table to show how this works:

By buying more shares when prices were lower, Mayank reduced his average cost per share. This strategy helped him make a profit when the stock price increased. It is a simple way to take advantage of market volatility.

Remember, investing regularly and staying informed can help you make the most of market changes.

Conclusion

AI helps banks work faster and smarter. Sustainable finance supports green projects. Fintech makes payments easy. RegTech follows rules cheaply. Smart investing earns more in volatile markets. Banks grow with these ideas.

FAQs

1. How does AI help banks?

AI makes banking faster, reduces mistakes, and saves money.

2. What is sustainable finance?

It means banks support eco-friendly projects and fair businesses.

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LoansJagat Team

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