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The Future of
Indian Banking
Vasant Chintaman Joshi

Lalitagauri Kulkarni
The Future of Indian Banking
Vasant Chintaman Joshi
The Future of Indian

Banking
Vasant Chintaman Joshi Lalitagauri Kulkarni
Pune, India Gokhale Institute of Politics and
Economics
Pune, India
ISBN 978-981-16-9561-2 ISBN 978-981-16-9562-9 (eBook)

https://doi.org/10.1007/978-981-16-9562-9
© The Author(s), under exclusive licence to Springer Nature Singapore Pte Ltd. 2022
This work is subject to copyright. All rights are solely and exclusively licensed by the
Publisher, whether the whole or part of the material is concerned, specifically the rights of
translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on
microfilms or in any other physical way, and transmission or information storage and retrieval,
electronic adaptation, computer software, or by similar or dissimilar methodology now
known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this
publication does not imply, even in the absence of a specific statement, that such names are
exempt from the relevant protective laws and regulations and therefore free for general use.
The publisher, the authors and the editors are safe to assume that the advice and information
in this book are believed to be true and accurate at the date of publication. Neither the
publisher nor the authors or the editors give a warranty, expressed or implied, with respect to
the material contained herein or for any errors or omissions that may have been made. The
publisher remains neutral with regard to jurisdictional claims in published maps and
institutional affiliations.
This Palgrave Macmillan imprint is published by the registered company Springer Nature
Singapore Pte Ltd.
The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore
189721, Singapore
We would like to dedicate this book to Mr. Joshi’s wife Sulabha
and Dr. Kulkarni’s parents who have been the guiding spirits
behind this whole effort.
Preface
Completing this assignment of writing a book on a rather complicated

subject is one of the most arduous works undertaken by the authors. No
doubt the earlier two books also had to be completed under the publish-
er’s exacting standards but the last in the list of our committed tasks
turned out to be extremely problematic and difficult.
We began the work with a plan for meeting and interviewing the offi-
cials (past and present) of the Ministry of Finance and even the retired
governors of the Reserve Bank of India. We had as per our plan a few
meetings at Delhi and at Hyderabad. Barely had we met a few dignitaries,
when all travelling was suspended and the senior member of the team was
advised not even to leave his home because of his advancing age. Even the
planned meetings had to be canceled. In fact, some of the meetings were
canceled by others for fear possibly causing trouble to the senior member!!
The other problems arose because of not being able to go to the librar-
ies, training colleges of banks, zonal offices of banks. We must particularly
mention that the editorial team at Palgrave Macmillan persisted with the
project and encouraged us on end to carry on with the work. We are fully
aware of the effects of all such limitations. We tried and succeeded because
of the immense efforts in overcoming the difficulties. Our family members
spared no efforts to overcome the difficulties once it was clear that we
were determined to carry on the work. True it is, that it was like fighting
with one hand tied at the back.
No efforts were spared by us to adhere to the academic standards in
preparing the manuscript. The book starts with the pandemic and evalu-
ates its impact on banking and finance.
vii
viii PREFACE
Consequent to the lockdown a number of changes followed. The cus-

tomers had to use their mobile phones for their routine banking opera-
tions. Banking at any time and from wherever you might have been,
became the new normal. The customers turned to online shopping and to
mobile apps for money transfer and other operations. Credit and debit
cards became the new normal.
The role of branches underwent a major change. The hands of the
clock would not (and could not) be reversed and a new beginning had to
be made with digital banking. Therefore, thinking of a new technology for
banking operations became the prime necessity. In fact, our approach to
human resource management had to take note of work from home, and
digitized HR or even marketing. True it is that during the transition we
had to think of branch operations. But rationalization of structures, busi-
ness models, regulations, and risk management had to take note of the
greater attention paid to cyber risk and hence two chapters get devoted to
this aspect of working model for banks. A basic change in operation modes
and we had to rethink even the business models currently in vogue.
Naturally, newer layouts for banks’ branches became necessary and we had
to think of the possibility of chat bots working alongside humans in sym-
biotic harmony.
In short, a new beginning had to be made. One cannot solve today’s
problems with yesterday’s solutions. We have to open the windows, look
out and allow fresh air to blow away the old and usher in the new. This
according to us is perhaps the only way to face the future. The book is our
contribution to move in that direction.
In this endeavor our families stood by us like rocks and supported us on
end. They undertook and even now are carrying out any number of chores
connected with book writing. The book would not have seen the light of
the day without their unique guidance and untiring zeal. Thanks, and
more thanks, we are grateful to my daughter Achala, my son-in-law
Kirtikumar and my grandson son Sameer, and would like to raise the
power of the word thanks to its nth degree to convey what we feel from
within. My son Vinay and daughter-in-law Neelima too deserve equal or
greater thanks for all they had to put up with and ensure that the book
writing did not stop. God knows what troubles they had to endure and
what lengths they had to go to ensure its smooth flow on a day-to-
day basis.
PREFACE ix
We also owe a sense of gratitude to Dr. Kulkarni’s family for all the
disturbances we caused to their otherwise even tenor and smooth flow of
existence.
We are forever thankful to Mr. P.B. Kulkarni for his most valuable
advice and guidance throughout the course of writing of the book. We
owe special thanks to Mr. D. Tapurkar for his innumerable suggestions
and a constant flow of relevant material on diverse topics dealt with in
the book.
Pune, Maharashtra, India Vasant Chintaman Joshi

Contents
1 The Impact of the Pandemic 1

Part I 2
The Global Scenario 3
Part II 6
Measures in India 6
Part III 7
Bibliography 9
2 State of the Financial System: Strengths and Weaknesses 11

Financial System Structure 12
State of Banks’ Finances 13
Government Infusion of Capital 14
Bank Frauds: A Broad Picture 15
Debt Restructuring and Recovery: The Legal Remedies 17
Regulatory Aspects, Use of Stress Test for Soundness 20
Suggestions and Recommendations for Immediate Response 21
Critical Evaluation of Bankers 22
Conclusion 22
Bibliography 23
3 Socio-Political and Technology Aspects 25

Big Data 26
Big Data Analytics 29
Big Data Implementation: Review of Best Practices 30
xi
xii Contents
Cloud Computing 32
Artificial Intelligence (AI) and Machine Learning (ML) 33
Rise of AI in Financial Services 34
Augmented and Virtual Reality 36
Bibliography 39
4 Reimagining Banking 41
The New Normal: New Business Model for Banks 41
Open Banking 46
Digital Banking 47
Bibliography 49
5 Banking: New Frontiers 51

E-Banking Facilities for Senior Citizens 52
Bibliography 58
6 Cyber Crimes and Laws 59

The Criminals 61
Motivation for Crime 62
Cyber Crimes 62
Precautions at the Scene of Crime 65
Data Protection 65
Data Diddling 66
Data Leakage 66
Data Spying 66
The Laws 68
Bibliography 68
7 Cyber Risk Management 71

Part I 71
State of Cyber Risk 71
Part II 75
Part III 76
Current Developments 76
Part IV 77
The Regulatory Guidance 77
Basel Committee on Banking Supervision 78
Bank of England: CBEST Testing Overview 80
Contents xiii
Conclusion 82
Bibliography 82
8 Digital Marketing 83
Interactive Teller Machines 91
Service Terminals 91
Interactive Digital Walls 91
Bibliography 95
9 HR Digitized 97
Part I 97
Keeping Innovation Engine Running 97
Forces Driving Digitization 97
HR Challenges in Banking 98
Making the Promise Come True 98
Digital HR 99
Innovation Culture in HR 103
Conclusion 106
Part II 106
Digitized HR 106
Unlocking the Potential 111
HR Planning and Development 111
Recruitment and Selection 112
Development of Required Manpower 112
Bibliography 117
10 Risk Management119
Inadequacy of Risk Estimation Models 121
Centralized Approach Towards Risk Management 123
Conclusion 124
Bibliography 124
11 Regulation125
Regulating the Financial Systems 125
Part I: Government Borrowing 127
Part II: Reconsidering the Role of Central Banks 128
Digitalization 131
International Adequacy Standards 133
xiv Contents
Foreign Branches of Indian Banks 133

Plan for Regulators 134
RBI Independence 134
Central Bank Autonomy 135
Politics of Monetary Policy 138
Bibliography 138
Index139
List of Figures
Fig. 1.1 COVID-19 impact. (Source: Authors) 8

Fig. 2.1 Financial system in India. (Source: Author) 16
Fig. 7.1 Cyber security framework. (Source: Cyber Security
Framework CSF) 80
Fig. 8.1 Future digital bank. (Source: Authors) 90
Fig. 8.2 Marketing plan in corporate plans 94
Fig. 9.1 Role of HR. (Source: Authors) 115
xv
List of Tables
Table 2.1 Non-performing assets in banks 14

Table 2.2 Source: RBI website and Lok Sabha questions and answers 15
Table 2.3 Bank frauds – a broad picture 16
Table 2.4 NPA recovery 17
Table 6.1 Impact of attacks of criminal activities 64
Table 6.2 Cyber offenses 64
Table 7.1 Cyber crimes and their effects 72
Table 7.2 Incidents reported to F.C.A. UK 73
Table 7.3 External threats 74
Table 7.4 Fraud prevention and awareness 76
Table 9.1 State of HR and challenges ahead 99
Table 9.2 Traditional HR vs. digital HR 101
Table 9.3 Changes imperative in corporate goals and management 114
Table 9.4 Changes in employee mindset 115
Table 9.5 Future of work 116
xvii
CHAPTER 1
The Impact of the Pandemic
The COVID-19 pandemic has affected virtually all the facets of our exis-
tence. In addition to the immediate medical emergency, the pandemic has
exposed and deepened disparities in income level and the availability of
health and financial services. It has also brought to light the dire harshness
of the lives of migrant laborers at the bottom of the economic pyramid.
The resultant suffering and known/unknown tragedies have certainly left
a terrible scar behind. Therefore, we feel that any discussion about what
the future of banking may hold must begin with a careful assessment of
how the pandemic has affected the banking landscape.
For analytical convenience, the chapter is divided into three parts. In
Parts I and II, we chronicle the steps taken by government agencies, com-
mercial banks, and central banks to deal with the financial emergency
caused by the pandemic. In Part III, we attempt to show how banks can
help bring about a degree of post-pandemic stability.
One is aware that not all those who have lost a job would find another.
In fact, some labor-intensive jobs would be hard to come by. Further,
recouping the losses incurred by the industry would be a matter of great
concern. One can’t forget that the economy is fragile and less innova-
tive, and therefore it would not be easy to adapt to changing
circumstances.
Further, the behavior of the economy is somewhat unpredictable. No
one really knows how long a firm facing zero revenue would be able to
© The Author(s), under exclusive license to Springer Nature 1

Singapore Pte Ltd. 2022
V. C. Joshi, L. Kulkarni, The Future of Indian Banking,
https://doi.org/10.1007/978-981-16-9562-9_1
2 V. C. JOSHI AND L. KULKARNI
survive. A merely illiquid firm can become insolvent. The banks will have
to make a heroic effort in tilting the balance toward stability and under-
take their normal functions of saving and lending.
We now start with the discussion of the efforts made by financial insti-
tutions (FIs). Basically, they are responding to and accepting the situation
as it comes. At the same time, they have to ensure that they do not waver
from the stabilization effort that they have to undertake.
Part I
The chapter very broadly indicates the difficulties and travails experienced
by financial institutions and details the steps taken to alleviate the difficul-
ties. In the analysis of various aspects of banks’ working we had to stop at
the period ending March 2019 and cover with a broad-brush happening
till March 2020. We were considerably handicapped as required particu-
lars (mainly data) were not available. Many factories were closed. A large
number of workers had gone home (to UP, Bihar, etc.). Transport was not
available to send goods or to bring in raw materials.
Estimates about the extent of disruption and the amount of losses
would have to be mere approximations. The impact of all the disturbances
would be enormous but to quantify these was well-nigh impossible.
The relief measures initiated by the government and banks would no
doubt help a large number of units in the small and medium-sized enter-
prises (S&ME) sector. But how many of them have resumed their opera-
tion or to what extent have their operating cycle is working “normally” is
hard to get at. There is a possibility of certain amount of finances being
directed to “zombie” units too. We were told that banks did have commit-
tees to examine and prune such cases.
One had also to reckon with the fact that most of the banks (public
sector and some even in the private sector) had to deal with the problems
of non-performing assets (NPA).
Some banks were barely out of the prompt corrective action blues.
They could not possibly have borne the “reconstruction” burden on their
own. They too are in need of some props as the next chapter brings out.
In suggesting a broad-based plan for the future (say, digitization of
functions or introduction of AI) we had to assume that over a period the
banks would gain the necessary strength and acquire resources to bring
about the required changes.
1 THE IMPACT OF THE PANDEMIC 3
We are aware that banks and financial institutions have to in all likeli-
hood face a huge additional burden of “out of order” accounts and to try
and to bring them “in order”. How soon this would happen is difficult
to guess.
We are per force required to assume the beginning of a “new normal”
and start considering the developments. These are no doubt major disrup-
tions and could lead to differing time lags in reaching the new normal.
There could therefore be “jerky” journeys ahead in the implementation of
the changes suggested by us. Even perceptions at operating levels may
have an impact on the implementation of proposed changes.
One was hoping that the lull in the COVID-19 surge experienced by us
during the last couple of months would be lasting, and that the process of
revival would be underway. However, the current resurgence in the num-
ber of COVID-19 cases belies that hope. Both in the USA and in Europe
the conflict has once again assumed severe proportions and that “lock-
down” has become a “must”.
The only ray of hope is that the preventive vaccine may perhaps be
available if not within the next month (December 2020) or at least in
January 2021 and may help in the prevention of vigorous resurgence of
the pandemic from February 2021.
We could, however, take a cursory review and try undertaking an assess-
ment to review the emerging situation. One undertakes such a study with
the hope that the resurgence may not exasperate the situation at the
“beyond repair” situations. This assumes that the stoppage would not be
long-lasting.
We begin with a review of the wider global picture and against that
background study the remedial steps taken by or proposed by various gov-
ernment regulators.
The Global Scenario

We start with the summary of the conclusion presented by the International
Monetary Fund (IMF) and the World Bank.
he Pandemic Impact
T
The global economic crisis will not be quite as grim as was projected ear-
lier but the GDP growth will touch 4.4% and the damage inflicted would
be felt for years. We quote below a letter from the director of IMF and a
blog by the chief economist at IMF, outlining their concerns about the
likely impact. In a letter to the director of the London School of Economics,

the managing director of the IMF made the following observations:
There is now the risk of severe economic scarring from job losses, bankrupt-
cies and disruption of education…global output may remain well below our
pre-pandemic projections over the medium term. This calamity is far from
overall, the countries now face the long ascent. The path is clouded with
extra ordinary uncertainty. Risks remain very high. These could be from ris-
ing bankruptcies and stretched valuation in financial markets. Many coun-
tries have been extremely vulnerable. The debt levels have increased because
of their fiscal response to the crisis and the heavy output and revenue losses.
(Georgieva, 2020)
he Path Ahead
T
Where the pandemic persists, it is critical to maintain life lines across the
economy. Tax deferrals, credit guarantees, and monetary accommodation
may be helpful to an extent. The whole matter could be put in a wider
perspective by quoting a blog by Ms. Gita Gopinath, chief economist,
IMF: “This is the worst crisis since the Great Depression and it will take
significant innovation on the policy front at both the national and interna-
tional levels to recover from the calamity” (Gopinath, 2020). The diver-
gence in income between advanced economies and developing economies
triggered by this pandemic is likely to worsen. We are upgrading our fore-
cast for advanced economies for 2020 to 5.8% followed by a rebound in
growth to 3.9% into 2021. For emerging markets and developing coun-
tries we have a downgrade with growth projected to −5.7% in 2020 and
then a 5% recovery in 2021. The crisis will leave a scar well into the
medium term as labor markets take time to heal, investment is held back
by uncertainty and balance sheet problems. Lost schooling will impair
human capital. The cumulative loss in output relative to the pre-pandemic
projected path is expected to grow from US $11 trillion in 2021 to $25
trillion in 2025.
World Bank
The COVID-19 pandemic would push 150 million people into extreme
poverty. Eighty-two percent of the extreme poor would be from middle-
income countries where the poverty line includes income from US $3.25
to $5.50 a day. Urban dwellers would be particularly affected.
Amidst such widespread poverty, there are certain regions which suffer
more. This could be because of certain factors. A case in point is the
American Mid-West. A McKinsey study points out a particular case
as under.
Health and economic effects of COVID-19 are exacerbating inequali-
ties between people and places with low-income people either being in
high-contact essential jobs with greater health risks or are facing unem-
ployment. Low-wage earners (earning less than US $40,000 per year)
count for more than 80% of workers vulnerable to lay-offs, furloughs and
reduction in share of income. Equally worrisome is the share of women
and African Americans amongst the sufferers (Manyika et al., 2020).
In addition, we would also refer to the most likely economic conse-
quences that would follow. Such a list is somewhat hypothetical but rea-
sonably plausible.
• The permanence of losses will depend on how soon the losses are
brought under control. How deep will the scars be? In particular,
what will be the impact of unemployment, bad debts, increased pov-
erty and disruption of education?
• There is a likelihood of a vast number of businesses emerging heavily
burdened by debt and many would fail to emerge at all.
• Many economies could end up being smaller and their people poorer
than they otherwise would have been.
• Structural issues. Would we stop traveling for business or stop com-
muting to offices?
• How would we adjust to the virtual world?
• Would governments tend to be more interventionist? Would there
be a Build Back Better movement?
• Would the governments insist on low interest rates for its debts?
• When would fiscal deficits be reduced?
Before we look at the steps taken by central banks/governments we

would also like to draw on conclusions of highly respected observers/
journals like the London Economist about the immediate future and after-
math thereafter.
In 2020 (by the end of it) world economic outlook may be lower by about
8% – the biggest contraction since the World War. In the US, proportion of
Americans (25–54) in the work force fell below 70%, 1/6th of the young
people lost their job, 89% of the people are likely to be pushed into extreme
poverty. School closures may affect people for decades. In Europe 40 mil-
lion people were on government funded schemes. Public borrowing is
soaring. It would be around 132% of GDP. Central Banks have created
debts amounting to trillions of dollars.
Supply chain panic has left a lasting impression. The matter has assumed
importance as never before. Healthcare systems, trade wars, supply chain are
all in a melting pot. (Economist, 2020)
The COVID-19 is a global shock like “no other” involving disruptions

to both supply and demand sides. On the supply side:
• Infections reduced labor supply

• Productivity is adversely affected
• Social distancing affects supplies
On the demand side:
• Lay-off and loss of income prospects

• Reduced household consumption and investment
• The extreme uncertainty about path duration posing a vicious cycle
of dampening business and consumer confidence
Part II
It is against this grim environment that we have to appreciate the various
steps taken by the governments. We briefly touch on the steps taken by the
Federal Reserve in the US and by the European Central Banks.
The Central Banks have adopted a policy of what could have been
described as utterly unconventional but now considered
“CONVENTIONAL”. “Do what it takes” is the new mantra. The Federal
Reserve has cut rates 164 times in 147 days!! The benchmark rate has
been slashed to zero. So has the European Central Bank. The EU has initi-
ated lending scheme for EU member countries.
Measures in India
In India, too there has been an action both by the government and the
Reserve Bank. The government extended guarantees for loans sanctioned
to SMEs and pumped in huge amounts for installment payments to MFIs.

It also extended guarantees and subsidies in specific cases.
A sum of Rs. 500 per month was paid into accounts of PMJDY account
holders. Mudra Loans were granted at a very reasonable rates and sanc-
tioned very promptly.
For the poor, food supplies were made available (25 kg per person)
free. The weekly free supply was to be extended till the end of
November 2020.
The Reserve Bank of India too could be described as being ultra-liberal
in extending loans to the Government of India and would be close to
“Helicopter Money”. They have also been closely monitoring implemen-
tation of state and central government schemes. The RBI support has
been unique and their work along with the Government of India could be
considered exemplary.
Part III
Many bank officials have been informally discussing with us some of their
management issues. They have suggested that we should briefly touch on
the role of bank branches in times to come, the reduction in ATMs, use of
cards and digital operations.
In the same breath they also felt a need to have a sort of composite view
on COVID-19 developments. They realized that the work setup which
was modeled on the factory work (opening and leaving time being fixed)
was becoming anachronistic and that there was a need to change such
rigid operation including “business hours”. New norms for meetings are
in the offing and should be introduced. These are, of course, operational
details and would be soon sorted out.
But their major worry was regarding their views being solicited on
COVID-19 developments. This is quite a done thing. Somehow branch
managers are looked up to and many customers would like to have
their views.
The most important requirement of an official, be it a branch manager,
regional manager or someone still higher in the hierarchy, was to keep a
“cool head”. We are biologically wired to have a “stress response” (flight,
fight or freeze) in the face of volatile environment.
The leaders in the first instance must strictly observe the required rule
in respect of masks and social distancing. More important is the need for
integrative awareness of the changing reality in the world outside. For the
Covid Impact on Financial Govt Response

Market &
& Govt Policies Recovery
Impact on Staff
+ Travel Industry
+ Advances
Work Force
Impact on Trade COVID-19 Cushioning
Impact
Constant Monitoring:
Staff
Impact on Customers
Industry Outsourced Acvies
Fig. 1.1 COVID-19 impact. (Source: Authors)
sake of easy reference, we have made a diagrammatic representation

(Fig. 1.1) and at the branch level the official may find it useful as a source
of reference. To live up to such a leadership role is extremely useful in
today’s troubled time.
A global perspective presented at the beginning is quite useful. A num-
ber of customers in urban/rural areas have children and relatives overseas
and customers here invariably seek information/guidance and more so if
they have banking relationship.
Lastly, there is a need to be informed about likely changes in the post-
pandemic period. We conclude with a somewhat out-of-context authority
(the pope) to comment on the economic system and the environment.
These issues are of a global relevance. In his encyclical, citing aspects like
deregulation, weak labor laws, and privatization, the pope blames neolib-
eral doctrines for pushing people (especially in low-income countries) into
extreme poverty and creating vulnerable health systems. Moreover, the
pope lays the blame for surges in the coronavirus and its disproportionate
effect on poor communities squarely at the feet of neo-capitalism and neo-
liberalism (Francis, 2020).
Bibliography
Francis, F. T. (2020, October 3). Encyclical Letter Fratelli Tutti of the Holy Father
Francis on Fraternity and Social Friendship. Retrieved from Vatican: http://
www.vatican.va/content/francesco/en/encyclicals/documents/papa-
francesco_20201003_enciclica-fratelli-tutti.html
Georgieva, K. (2020, October 8). The Long Ascent: Overcoming the Crisis and
Building a More Resilient Economy. Retrieved from IMF: https://www.imf.
org/en/News/Articles/2020/10/06/sp100620-the-long-ascent-overcoming-
the-crisis-and-building-a-more-resilient-economy
Gopinath, G. (2020, October 13). A Long, Uneven and Uncertain Ascent.
Retrieved from blogs.imf.org: https://blogs.imf.org/2020/10/13/a-
long-uneven-and-uncertain-ascent/
Manyika, J., Pinkus, G., & Tuin, M. (2020, November 12). Rethinking the Future
of American Capitalism. Retrieved from McKinsey Global Institute: https://
www.mckinsey.com/featured-i nsights/long-t erm-c apitalism/rethinking-
the-future-of-american-capitalism#
The Economist. (2020, October 8). Changing Places. The Economist,
Special Edition. https://www.economist.com/special-report/2020/10/08/
changing-places
CHAPTER 2
State of the Financial System: Strengths

and Weaknesses
We have in the first chapter attempted a review of the havoc caused by the
pandemic and efforts made by the Indian authorities to stem the tide. The
financial system had to bear an unimaginable burden. On the one hand,
the banks had to take steps (implementing various government schemes)
to revive economic activities and to ensure that economic losses were min-
imized. Additionally, they were also required to ensure that the average
customers’ need for banking services was met. Even with a meager staff
present, the banks did provide the services to see that the customers’ needs
were met. In the case of small and medium-sized enterprises, banks had to
ensure that the supply chains were restored, staff salaries were being made,
and gradually the amounts of receivables got reduced. In fact, this was a
heroic effort to keep the wheels of commerce and industry churning.
The branches did carry out most of the tasks assigned to them. But
apart from the problems created, there were other weaknesses from which
the system was already suffering. Normally, we should have started our
review with an analysis of financial statements as at the end of 31st March
2020. However, in view of pandemic developments, many of the accounts
were revived though, in fact, they were in the defaulter category earlier.
We have therefore no option but to look at the balance sheets as of 31st
March 2019 to study the strengths and weaknesses of the system as it
existed then. The problems noticed then are still casting their long and
ominous shadows over the system.

https://doi.org/10.1007/978-981-16-9562-9_2
Financial System Structure

At the highest level, financial institutes in India can be divided into two
main groups – banks and non-banks. There are three main types of banks –
commercial banks (these include regional rural banks), co-operative banks,
and payment or small finance banks. The payment or small finance banks
are recent additions.
The non-banks sector is made up of mutual funds, insurance compa-
nies, non-banking financial companies and other institutes like pension
funds, primary dealers.
We now proceed to review what a modern financial system is expected
to carry out. In their report on the future of finance published by the
London School of Economics, Turner, Haldane, and Wooley outline what
the financial system should do (Wooley, 2010). The standard text lists five
main functions:
1. Channeling savings into investments

2. Transferring risks
3. Maturity transformation (including life cycle consumption)
4. Effecting payment
5. Making markets
True it is that it is difficult to see how closely this corresponds to the

stated functions. We also have to critically examine why the system is prone
to boom and bust.
There is one more mechanism that needs to be mentioned. This is a
mechanism which provides contractual certainty and that generates and
verifies the information on which efficient financial intermediation
depends. These include credit rating, accounting and auditing, and finan-
cial analysis as well as the supervisory and regulatory frameworks.
The three components markets, intermediaries, and infrastructure are inex-

tricably intertwined. The various components are expected to work together
to improve the information available to guide the allocation of resources.
High quality information is the raw material for directing resources to their
most efficient use facilitating inter-temporal contract and thus strengthen-
ing growth potential. (Crockett, 2011)
2 STATE OF THE FINANCIAL SYSTEM: STRENGTHS AND WEAKNESSES 13
State of Banks’ Finances

We would start with an examination of the financial strength/weakness of
the major constituent, viz. the banks.
For the last five years and more particularly since 2015, banks have
been plagued by the problem of non-performing assets (NPA). For
the sake of clarity, we would make a slight deviation, and explain the
term non-performing asset. These are known as non-performing
because the debtor is in default or is in arrears. A loan is in arrears
when interest or principal payments are missed or late. A loan is in
default when the lender considers the loan agreement to be broken
and the debtor is not able to meet the obligation. It must however
be added that generally accounts get recorded as NPAs after a pro-
longed period of non-payment by the borrower. NPAs, as would be
seen, are a great burden on the lender.
Dr. Raghuram Rajan during his tenure as governor, undertook very
thorough evaluation of the bank’s credit portfolios and came to some
astonishing conclusions. The position that survey brought out was that
the “portfolios” and consequently the banks’ financial strength had suf-
fered very badly.
In a note submitted to the Estimates Committee of Parliament, Dr.
Rajan comments on the state of financials as under:
A large number of bad loans were originated in the period 2006–2008 when
economic growth was strong and previous infrastructure projects such as
power plants etc. were completed on time and within the budget. It is at
such times that banks make mistakes. They extrapolate growth and perfor-
mance to the future. So, they are willing to accept a higher leverage in proj-
ects and less promoter equity. Indeed, sometimes banks signed up to lend
based on project reports by the promoters’ investment, without doing their
own due diligence.
This is the phenomenon of irrational exuberance common across coun-

tries at such a phase in the cycle. The matter should not be left here but a
more thorough analysis is required.
Strong demand projections for various projects were shown to
be increasingly unrealistic as domestic demand slowed down
(Rajan, 2018).
It would at this stage be useful to get a comprehensive picture with
quantitative dimensions so that not only the scale of the problem but the
Table 2.1 Non-performing assets in banks

Non-performing assets Gross NPA in Amounts provided for bad loans
as of 31st March crores of rupees Amounts transferred from operating profits as
Year provisions for bad loans in crores of rupees
2012 117,000 38,177

2013 164,461 43,102
2014 216,739 63,389
2015 278,877 76,837
2016 539,855 160,303
2017 684,733 168,469
2018 895,600 270,953
2019 73,954
Source: Federation
causal analysis by the select committee can be seen in the right context.
Table 2.1 gives details about the NPA in banks and equally important are
details of the “provisions” (funds allocated from profits to cover up these).
Government Infusion of Capital

Before looking at the debt recovery aspect, we would briefly touch on the
capital infused by the government during the years 2013–2020. The total
amount works out to Rs. 338,099. The breakup is as under (Table 2.2):
Balance sheets can be analyzed in a number of ways – mainly depending
on the purpose for which the user wants it. The user may want it for
investment purposes, the management may use it for their own analysis
while the regulators may subject it to stress test and analyze the soundness
or otherwise. The easiest way to appreciate the relationship among the
elements is the analysis of various ratios. A mere look at the ratios high-
lights the aspect which one is examining (capital to assets) and conformity
to the regulatory standards.
The ratio of non-performing loans to gross total loans was 2.4% in
2011 and went as high as 9.11%. The “provisions” ratio [provisions to
NPA] came down from 52.4% to 44%. For additional ratios, please see
Reserve Bank of India (2019) and India: Financial System Stability
Assessment – Press Release and Statement by the Executive Directory for
India (2017).
Table 2.2 Source: RBI website and Lok Sabha questions and answers
2013–2014 2014–2015 2015–2016 2016–2017 2017–2018 2018–2019 2019–2020
Rupees 15,000 6990 25,000 24,995 99,900 106,100 60,114

in crores
The deteriorating position of NPAs has obviously caused concern.

Briefly stated the causes for the weakening position can be summed up
as under:
The Parliamentary Estimates committee comments as under:
Dr. Rajan aptly and very succinctly describes the causes as under. “At a time
when the economy was booming and business outlook was very positive,
large corporations were granted loans based on their growth and recent
performance. The corporations grew highly leveraged implying that most
financing was through borrowing rather than promotes equity”.
(Rajan, 2018)
The Estimates Committee of Parliament summarized the causes as under:
• Over-optimism
• Slow growth
• Government permissions for certain work related to project and foot
dragging by authorities
• Loss of promoter and banks’ interest
• Frauds
• Malfeasance
• Diligence by bankers was poor
• RBI review of the credit portfolio left much to be desired
Bank Frauds: A Broad Picture

Top 10 frauds with amounts outstanding over Rs. 1000 crores (Table 2.3).
Further information shows that by 29th August 2019, bank frauds had
jumped 74% by value. Fraudulent transactions had risen to Rs.
71,543 crores.
Public sector banks accounted for 90%, i.e. Rs. 64,509 crores, private
banks Rs. 55.5 crores and foreign banks Rs. 955 crores (Answers, 2019).
Table 2.3 Bank frauds – a broad picture

Frauds Rs. 1 Frauds Rs. 50 Frauds Rs.
lakh and above crores and 100 crores
above and above
Year Number Amount Number Amount Number Amount

2014–2015 4639 19,455 77 14,998 1 1648
2015–2016 4693 18,699 82 14,791 1 1265
2016–2017 5076 23,934 104 19,110 3 3792
2017–2018 5916 41,167 121 34,714 4 16,395
2018–2019 6801 71,543 322 61,759 4 6505
2019–2020 4412 113,374 308 105,619 21 44,951
Source: Private circular from the Maharashtra State Bank Employees Federation
Commercial Banks
(including Regional Rural banks)
Banks Co-operave banks
Newer Banks like Payment Banks &

Small Finance Banks
Financial
Development Banks
Institutions (mostly wound up now)
Insurance Companies
Non-Banks Mutual Funds
Non-Banking Financial Companies
Others (e.g., Pension Funds, Primary

Dealers)
Fig. 2.1 Financial system in India. (Source: Author)
It is indeed a sad commentary on the working that 97% of the frauds

relate to the credit portfolio.
These figures speak volumes about the state of banking in particular
and the financial system in general. But a further probe reveals the other
financial weaknesses from which the system suffers (Fig. 2.1).
Table 2.4 NPA recovery

No. of cases Amt. involved Amt. recovered Percentage
Lok Adalat 4,080,987 53,506 2816 5.3

DRT 52,175 306,499 10,574 8.5
SARFAESI 284,312 289,073 41,876 14.5
IBC 1135 166,600 70,819 42.5
Total 126,084
Source: Authors
Debt Restructuring and Recovery: The Legal Remedies

We briefly review the efforts made for recovery through legal channels.
The Debt Recovery Tribunals (DRT) and Securities and Reconstruction
of Financial Assets and Enforcement of Security Interest Act (SARFAESI
Act) in 2002 was passed with the sole object of expediting the recovery
process. The following table shows the recoveries made through various
channels.
NPA recovery through various channels (Table 2.4).
One fails to understand why efforts were not made through the law
ministry to expedite these matters. The negligible response by the bankers
is absolutely unacceptable. The public sector banks should have clamored
to expedite decisions on these matters. A totally wrong message was given
to the borrowers. Dr. Rajan has pointed out that during 2013–2014,
amount recovered from cases in 2013–2014 under DRT was Rs. 30,590
crores while amount involved was Rs. 236,600 crores (Rajan, Speech,
Issues in banking today, 2016).
The recovery was only 13% of the total amount involved. DRT had to
dispose of cases within 6 months. However, the delays had resulted in
cases being disposed of in about 3–4 years. The backlog continued to
grow and did not come down. In India as would be seen from the earlier
analysis, the recovery is through legal proceedings. These proceedings are
dilatory and the delays are totally counter-productive. As a banker one
knows that the documentation, computerized accounting and limitation
statutes etc. are not at all in question. It is indeed difficult to see why such
delays should occur or even allowed by courts.
Such slow recovery meant that defaulters got advantage over lenders.
They use these borrowed moneys without any interest payments. Further
they had a chance to try and see if they could persuade the bank[s] for a
one-time settlement. Dr. Rajan rightly says that “Bank loans in such a
system became equity, with a tough promoter enjoying the upside in good
times and forcing the banks to absorb losses in bad times, even while he
holds onto his equity” (Rajan, Speech, Issues in banking today, 2016).
The system had to be made far more effective. The steps taken were:
1. Collect all the required information on who had lent to borrowers –

Load database was created (CRILC) for all those who had borrowed
more than Rs. 5 crores.
2. Stop “Ever Greening” of Projects (facilitating by not showing these
accounts as NPAs and treating them as fully operative!). Banks’ ability
to restructure was stopped. They had to describe the project as NPA.
3. A scheme was put in place to replace promoters. The scheme was called
strategic debt restructuring. Under the scheme weak borrowers could
be replaced.
he Insolvency and Bankruptcy Code

T
The measures listed above were of some help. Equally important was the
empowerment of banks to refer errant and large borrowers to the process
of insolvency and bankruptcy. Additionally, banks also were empowered to
deal with large errant borrowers through Insolvency and Bankruptcy
Code (IBC).The IBC was aimed at quickly getting NPAs off the books of
banks. The idea was to empower the banks to initiate the IBC process
early. After all, large defaulters were the ones who accounted for a domi-
nant share of NPAs.
Basically, one has to look at three important questions:
• Can the NPAs be recovered in full? Or in a large measure by expro-

priating the assets serving as explicit or implicit collateral for the debt
in question?
• Who would bear the cost of restructuring the cost of unpaid
bank debt?
• Is there a way to ensure that IBC would deter or bring about major
changes so that borrowers exercise greater care and diligence?
So far, we have information on 12 major cases. One is led to conclude

that IBC record is not good enough to make the process, one that which
is particularly useful for recovery from the perspective of the banks and
savings and tax payers.
What actually has emerged is that some large corporates while had
assets were liquidated with adverse effect on workers and/or a few white-
collar employees. True it is that full evidence is not made available in the
public domain. One is not in a position to evaluate the costs and/or the
benefits in that context.
The first case that was decided on by the National Company Law
Tribunal (NCLT), the lenders had to take a haircut of 94%. The number
of cases that have come to light is around 40.
1. One would like to see the reforms for “Debtor in Possession” to

“Creditor in Control” model.
2. The World Bank estimates that it would take about four years for the
process to be completed.
One cannot but help remarking that IBC cannot be a cure for faulty
lending practices of banks and other financial institutions which have
resorted to reckless lending without due diligence and risk mapping to
tackle the situation when corporate borrowers default on the loans. One
has sadly to concur with the observation that IBC may be useful in curing
the symptoms but not the causes.
IBC can never be a panacea for solving all the NPA problems
(Nishank, 2019).
A slight deviation is called for. One would notice that during 2020
most of the PSBs have turned the corner and are showing profits in their
balance sheets. The Government of India has undertaken a massive sup-
port program to revive the economy. Many stressed accounts have now
been regularized and “provisions” made earlier have been reversed. The
result is that most of the banks are no longer in “red”.
The Reserve Bank has advised banks to flag such accounts and to ensure
that under the new dispensation these accounts may be shown to be in
order. They are stressed accounts and have to be treated as such. Additional
“limits” sanctioned are of no consequence. These are the accounts which
could be described as “zombie”. In a slightly different category are
accounts which broadly be described as stand still, i.e. neither active nor
non-performing. (The operations temporarily discontinued.)
Leaving aside the “pandemic” special arrangements, we would turn to
some urgent measures proposed in the “Financial Stability Report –
2019”. The Financial Stability Board (FSB) Report has made a number of
suggestions and also referred to EU Banking Authority Standards. These
guidelines clarify how “default” is to be treated. We would draw attention

to the stress test and sensitivity analysis methods and also suggest adoption
of the EU technical standards in RBI supervisory checks and Banks’ work-
ing. We briefly touch on some of the requirements “The Ought Element”.
• It should cover all the segments of the financial market. Rigor of

regulation must be uniform amongst all segments to avoid regula-
tory arbitrage.
• Special attention will have to be given to systematically impor-
tant segments.
• Large organizations may require coordinated oversight.
• Institutions may be required to set up buffers in good times. These
could then be used in bad times.
• Excessive leverage has in any case to be avoided.
Under any circumstances, the effort should be to avoid emergence of

vulnerable and volatile institutions. Needless to add that the sector must
move in a manner that excessive risk-taking is avoided at all costs.
Regulatory Aspects, Use of Stress Test

for Soundness
We draw mainly on the analysis undertaken in the Financial Stability

Report (Reserve Bank of India, 2019). Of course, simplified ratio analysis
suggested by the IMF would no doubt be of limited use.
The analysis below examines the soundness from two points of view.
1. Performance – Basically, note is taken of deposit and credit growth and

the share of net income. The “required” provisions are also looked at.
2. In addition, the two analytical tools, viz. the “stress test” and “sensitiv-
ity analysis”, are undertaken to analyze the “resilience”.
Macro Stress Test – They start with a baseline scenario and compare it
with assumed deterioration. One can critically review Tier 1 capital and
other capital ratios and see how the banks would withstand the change.
Sensitivity Analysis – The resilience is examined with respect to credit,
interest rate and liquidity risk. If top three borrowers failed to repay, there
would be a considerable adverse impact. Similarly, the impact of deposit

run-off or adverse effect on high quality assets were also looked at.
For a systematic evaluation a reference to urban coops, NBFCs, hous-
ing finance companies, etc., will have to be studied. It would not be wrong
to say that financial system can be visualized as a network if we look at the
bilateral exposure links. FIs do have links with each other for efficiency
gains as also for risk diversification. It must be said that the risks are also
transmitted. Total bilateral exposure amongst entities increased from 31.4
trillion to 36.3 trillion <currency required> by March 2019. In the same
vein, we should note that in the international market, the share of Public
Sector Banks increased substantially from 53.5% to 62.5% (Reserve Bank
of India, 2019).
Suggestions and Recommendations

for Immediate Response
The measures discussed so far cover mainly “short-term” regulatory

impact. Post 2007–2010 crisis, more fundamental views on the way
“banking” should be undertaken have also been articulated. In fact there
have been suggestions that there should be severe restrictions on the way
banks create and lend money. In the following sections we critically review
the theoretical aspects and also suggestions for operational practices that
have been made. We briefly present some of these ideas as our analysis and
suggestions for improvements are to some extent influenced by these the-
oretical developments.
Post financial crisis of 2007–2010 in the US, there has been a flood of
books, research papers, lectures, and seminars to see how a recurrence can
be avoided and the systemic weaknesses are done away with. These are
fundamental propositions on the way “banking” should be conducted.
In the immediate aftermath the three principal players brought out the
books to narrate their experiences of actually handling the crisis.
Subsequently, all the three (Bernanke, Geithner, Paulson) jointly brought
out a work aptly titled “Fire Fighting” (Ben Bernanke, 2019).
These books, in a sense, presented details of how the banks and finan-
cial institutions were saved. The narration was interspersed with the politi-
cal hurdles they had to cross etc. But basically, it also lucidly brought out
how the Fed, Treasury and the New York Reserve Bank all joined hands,
worked in tandem and handled the desperate plan to do what it takes to
save the system.
Critical Evaluation of Bankers

No doubt the system was saved. But in its aftermath the Financial Services
Industry was mercilessly subjected to criticism. The “Bonus” paid by the
banks to their executives was the target for a major attack. Mervyn King,
the then Governor of Bank of England, had the following to say. “God
may have created the universe but we mortals created paper money and
risky banks. They are man-made institutions, important source of innova-
tion, prosperity and material progress but also of greed, corruption, and
crisis” (King, 2016).
Another vehement criticism (vitriolic at times) came from those who
felt that the bankers’ high salaries were totally undeserved. In fact, lectures
by eminent speakers brought out how anomalous the salary structures
were. The conclusion was that the banks indulging in and undertaking
such risky transactions were entirely on account of their greed for bonuses.
The “trading activities” were nothing but taking undue advantage of some
traders who failed to see the risks inherent to certain securities being sold.
Leaving aside for the moment this highly justifiable criticism, far more
serious objections were raised against the way banking business was han-
dled. The criticism was voiced by Lord Turner (Turner, Lionel Robbins
Memorial Lectures, 2010).
Lord Turner objects to the uncontrolled mortgage lending broaching
the level 120% of GDP. He also is in favor of tightening regulatory con-
trols and also his criticism of officials of financial services authority and
their economic ideology and views (Turner, 2015).
Conclusion
The situation is in a flux and major issues regarding role of banking, nature
of competition and social security are also coming to the fore. These will
have an important bearing on the ideas regarding stability and soundness
of banks. As shown in Chap. 1, the “do what it takes” policy and the
impact of this policy (providing monetary support on the required scale)
may last with us for years to come. And at this stage, one can only wait and
see till the future unfolds.
Bibliography
Answers, L. S. (2019). Circular – BU MSBEF. R.B.I.
Ben Bernanke, T. G. (2019). Firefighting: The Financial Crisis and Its Lessons.
Penguin Books.
Crockett, A. (2011, June 26). What Financial System for the Twenty-First Century?
Retrieved from perjacobson.org: http://www.perjacobsson.org/lec-
tures/062611.pdf
Federation, S. B. (n.d.). Performance of Public Sector Banks. Maharashtra.
King, M. (2016). The End of Alchemy: Money, Banking, and the Future of the Global
Economy. Little Brown.
Nishank. (2019, July 23). Report: Insolvency and Bankruptcy Code: Whose Loss,
Whose Gain? Retrieved from cenfa.org: https://www.cenfa.org/national-
financial-i nstitutions/report-i nsolvency-a nd-b ankruptcy-c ode-w hose-
loss-whose-gain/
Rajan, R. (2016, February 11). Speech, Issues in Banking Today. Retrieved from rbi.
org: https://www.rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=992
Rajan, R. (2018, September 11). Note to Parliamentary Estimates Committee on
Bank NPAs. Retrieved from indianexpress.com: https://indianexpress.com/
article/business/banking-and-finance/full-text-of-raghuram-rajans-note-to-
parliamentary-estimates-committee-on-bank-npas-5351153/
Reserve Bank of India. (2019, December). Financial Stability Report Issue No. 20.
Retrieved from rbidocs.rbi.org.in: https://rbidocs.rbi.org.in/rdocs/
PublicationReport/Pdfs/0FSRDECEMBER20198C840246658946159CB
3B94E8516F2EC.PDF
Turner, A. (2010, October 11). Lionel Robbins Memorial Lectures. Retrieved from
lse.ac.uk: https://www.lse.ac.uk/assets/richmedia/channels/publicLecture-
sAndEvents/transcripts/20101011_1830_economicGrowthHuman
WelfareAndInequality_tr.pdf
Turner, A. (2015). Between Debt and the Devil: Money, Credit, and Fixing Global
Finance. Princeton University Press.
Wooley, A. T. (2010). The Future of Finance: The LSE Report. London Publishing
Partnership.
CHAPTER 3
Socio-Political and Technology Aspects
Consequent to the political change in the USA, there is a possibility that

aspects of economic doctrines like “America first”, opting out of environ-
mental pact, etc. are likely be reversed. To what extent, there is a throw-
back to the earlier ways of working will have to be seen.
Banks and FIs should not find it too difficult to change gears and get
back to an earlier era. These changes in the USA did affect the workings
of banks in so far as the dealings with US banks and entities were con-
cerned. Otherwise the earlier liberalized environment continued to be
operative. Pre-trade agreements, WTO, etc. continued to be operated.
The possibility that under new president, USA would once again go back
to the old doctrine, makes for very easy transition for the other countries
and India in particular.
We, therefore, turn to technology. In the Chap. 4 on Banking, we detail
the findings of the Economic Intelligence Unit on “Advanced Technology
and Banking”.
We begin with a listing of the major technology changes that we
would review and then consider each of these in certain detail. We
must, however, add that many of the core functions are still performed
by humans. However, major restructuring required for technology
changes, are yet to take place. The reasons are not far to seek. Lack of
skilled manpower to handle sophisticated and complicated processes is
one. In addition, the following would also have to be reckoned as con-
tributory factors.

https://doi.org/10.1007/978-981-16-9562-9_3
• Shrinking margins
• Underutilization of assets
• Non-availability of skilled manpower
• Lack of revenue growth/earnings
• Burden of non-performing assets
We would like to draw attention to a very pertinent observation by the

Financial Stability Board (FSB) as early as 2017 (FSB, 2017). They point
out a number of potential benefits and risks as listed below for financial
stability as shown below:
• The more efficient use of information and credit decision. These

would obviously contribute to the creation of an efficient finan-
cial system.
• Artificial intelligence and machine learning would help regulators in
ensuring compliance and increased supervisory effectiveness.
• Of course, there will have to be proper care for data security and
adherence to protocols.
• Adequate training and testing for users to ensure that applications
are doing what they are expected to do.
It is against this background that the industry has to build the sinews
and fibers to meet the challenges ahead.
In what follows, we discuss prevailing technology trends like big data,
cloud computing, AI and ML, and AR/VR, and how all of these tech-
nologies can be used by the banks.
Big Data
Financial institutions have one great asset and it would be the cause for
envy for many others (leaving aside Facebook, Google, etc.). It is not sur-
prising that this data bank has come to be known as “big data”. Very
often, there is a criticism that so called “big data” is not quantified. We do
not subscribe to the view that the concept is of little value because it is not
qualified or defined. We frankly do not subscribe to this view. For the sake
of argument let us look at the definition of the word “wind”. Wind is
defined as movement of air, but how much air or at what speed it should
move is not mentioned. Do these omissions affect our understanding
of wind?
3 SOCIO-POLITICAL AND TECHNOLOGY ASPECTS 27
We now indicate some of the sources from which information can be

accessed. The following sources would provide information on at most a
continuous basis:
• ATMs, mobile phones

• Branches and brokerages
• Financial dailies and journals
• Credit/debit cards
• Loans/mortgages and vehicle loans
• Quarterly and annual financial results
• Pre-stock market opening reaction etc.
We must also add the daily feed of Twitter, mail messages and
complaints.
It is essential that collection, dissemination and collation of data is an
important activity and must be assigned to specific groups.
We, however, do appreciate attempts at bringing about certain preci-
sion and turn to a paper aptly titled “Undefined by Data – Big Data
Definitions”. The term is widely used not merely by academics and indus-
try but by media, consultants, marketing people. The tech companies have
tried to define it by looking at the characteristics. Gartner defines it by
referring to volume, variety, and velocity. Oracle, on the other hand, states
that big data is the derivation of value from business data, augmented with
new structured data. On the other hand, Intel defines it with reference to
data created. It is linked to an organization which generates a median 300
terabytes weekly. Microsoft in its definition links it to serious computing
power used in machine learning, often highly complex set of information
(Ward & Baker, 2013).
It is obvious that these attempts are not fully satisfactory. We however
start with the argument that most readers are aware as to what we are
referring to. Any further quibbling and hair splitting would not throw
greater light on this. We are suggesting a very crude measuring rod. The
data analysis team should feel convinced that their requirements for deduc-
ing inferences are met and that analysts are convinced that what they are
dealing with is big data.
Prof. Nate Silver in his renowned work titled “Signal and Noise” has a
very illuminating comment on the subject – “Sheer numbers have no way
of speaking for themselves. We speak for them. We ascribe meaning to
them in self-serving ways that are detached from their objective reality”
(Silver, 2012). The failure of risk models in prediction of the crisis shows
how fragile such models are – part of the problem is we try to find mean-
ing where none exists.
If the quantity of information is increasing by 2.5 quintillion, the
amount of knowledge is certainly not increasing. There may be many
hypotheses to test, many data sets to mine, but a relatively constant
amount of truth. We can never make perfectly objective predictions; the
subjective biases can never be removed.
It is against this, that we should look at big data technology and what
it refers to. Basically, the following four aspects are covered in usage.
• Data storage
• Data processing arrangement
• Data management
• Data analytics
Data analysis comprises:
• Query and reporting

• Data visualization
• Predictive modeling
• Optimization
• Simulation
• Geo spatial analysis
• Natural language test and voice analysis
It would be pertinent to issue a general warning regarding the conclu-

sions that are drawn. We must accept a certain degree of uncertainty and
probability. As planners, we would like the organizations to learn to accept
these two elements in the predictions we tend to make.
We now turn to review the data collected by financial institutions. The
sources for getting data are varied. Directed data is obtained from the
direct gaze of surveillance technology on a place or person. Automated
data is obtained from human activities on digital devices, global position-
ing systems, and photographs. Volunteered data is acquired from individ-
uals who willingly give their information, sometimes through a common
system used by a large number of people on social media.
The data could be structured or unstructured. Much of the data is
obviously created in real-time. After all we need to ensure timeliness of
access to data, data granularity and variety. At this stage, we would turn to
another question that is frequently raised at seminars or at training ses-
sions. Most of the participants are intrigued by the question as to where
exactly does such data gets stored. What happens to the data stored
in cloud?
This data is stored at centers that are built in abandoned mines, beneath
the mountains, and even in underground caverns. Bunkers are becoming
prime spaces for retrofitting data centers. Bunkering data in disaster proof
subterranean centers designed to withstand category 5 hurricanes, electro-
magnetic pulses, and long-lasting storms are becoming increasingly com-
mon. Some organizations require their data to be triple replicated and
distributed in geographically dispersed facilities.
The consumer protection authority in the UK has suggested certain
agreements between the facility providers and their clients. Care has to be
taken to ensure that certain rights which the clients have (when your stor-
age facility is shifted), the client needs to know in advance. Cases of hack-
ing have also come to light and the agreement should be very specific
about the responsibilities of the parties concerned.
At a lecture in Bangalore in December 2016, the author was stopped
and asked to explain the connotation of term “orthogonal” data sets.
These sets are unstructured and could be even in the form of free text.
Big Data Analytics

Big data analytics is a process of examining huge amounts of data. Some
authors categorize it to include even collection, organizing, and critically
analyzing these vast quantities of data. Basically, there are two types –
stream processing and batch processing. In stream processing, the data as
the name suggests, comes in streams and processed as soon as possible in
real time. Storm and Apache Kafka are popular stream processing models.
In batch processing, however, the data is collected and processed/ana-
lyzed at a later time as needed.
Generally, a well-defined system is based on four core attributes.
• Talent – availability plus pipeline

• Capital – seed capital, growth capital, and listed capital
• Policy – regulatory regimes, government programs, taxation policies
• Demand – consumer demand, corporate demand, demand
from other FIs
It must be stated that this data, apart from being used internally, can be
sold. In view of privacy rules, great care needs to be taken in undertaking
such transactions.
We now detail the areas where results from analysis could be of assis-
tance to the users in the organization.
• Customer focused: Credit scoring, uses of bank products and

schemes like mortgages, consumer credits, alerts for the clients, and
new schemes/products arising from specific problems like fluctua-
tions in client’s income.
• Operations focused: Risk management, market impact analysis.
• Regulatory compliance: Particular attention to privacy protection
and laws relating to it.
• Training and portfolio management.
Big Data Implementation: Review of Best Practices

The earlier information systems relied on captured information. The
emphasis was on capturing transactions (physical/economic). Big data
now poses a challenge to enterprises of a different kind. It arises from
configuration of information pools, past and present, structured and
unstructured, formal and informal, social and economic which are con-
stantly evolving in their constant presentation (Bhimani, 2015). Big data
adds an analytics dimension to organizational capabilities and unleashes a
variety of strategic reorientation.
With the way data flows in strategy, structured information paradigm
gets changed. The firm’s strategies are to a large extent predicated on
technological structures. Information systems are involved in the shifting
dynamics of altered information access and use as part of a wider complex
loop of intervention and analysis. We are now able to capture customer
choices.
At this stage, we must add that great attention will have to be paid to
the quality of data. One can’t forget that big data comprises many systemic
biases. Almost 15% of information obtained is based on Twitter feeds,
drawing conclusions from such information has to be done very carefully.
We now shift our attention to problems of adoption. There are four
main features which pertain to the training of staff. These are – Educate,
Explore, Engage, and Execute.
1. Educate – To succeed, considerable investment would be necessary

for training the people. Training will have to be focused on knowl-
edge gathering and market observation.
2. Explore – At higher managerial levels emphasis will have to be on
strategy and road map.
3. Engage – Involving staff members in piloting big data initiatives.
Only then could they realize the value of the data and appreciate
requirements at various levels.
4. Execute – Many a time, the data analysts assume a greater role in
deciding on the information collected. During meetings of bankers
with faculty members of management institutes and technology
consultants far greater attention was paid to the requirements of this
group and others played a very passive role. We are of the view that
potential outcomes should be very clearly stated by people who are
responsible for operational results. Potential Outcomes could be
Customer centric, operational, expected risks, new product require-
ments, employee collaboration (indicative).
In conclusion, we would say that great care needs to be taken in record-

ing, retention, and management of information. Data analysis has to dove-
tail in the context of business requirement. Implementation is primarily a
business decision. We are aware that a considerable amount of interaction
will be involved with all concerned.
Many a person have told us that it is always advisable not to be after
“Big Bang Solution”. The best practice would be to start small, identify-
ing specific high value opportunities. Think Big but Act Small.
The following areas will have to be carefully assessed and decided on.
• Specific Plans for Storage, Retention, Discarding, and

Management of data.
• A constant evaluation of data requirements. Perhaps a small group
entrusted with this task would be of great use.
• One has to remember that data analysts use different languages. Care
therefore has to be taken to see that knowledge is transferred to the
concerned staff members.
• The assumptions underlying and the limitations have to be con-
stantly reviewed and examined.
• Previous investment should be properly utilized and not discarded.
• And lastly, a cultural shift to the data based objective decision making
has to be inculcated amongst the staff members and decision makers.
We must point out to the hurdles which might crop up and prevent the
organization from getting the vast benefits of data analysis. Many a time,
business goals are not clarified properly. One could be hampered by a
shortage of data analysts and operational staff may not quite realize the
difficulties in the use of techniques. There are a number of regulations to
ensure that data in respect of individual customers is very carefully pro-
tected. Important legal issues can come up and strict adherence to such
rules is an absolute must.
Cloud Computing
Despite its many forms, cloud computing services have three distinct char-
acteristics that differentiate them from traditional computing.
1. They are sold on demand, typically by the minute or the hour.

2. They are demand flexible, in that a user can have as much or as little
a service as the user wants.
3. The services and resources are totally managed by the provider. All
that the user needs would be personal computer and internet for
connectivity.
A cloud can be private or public. Vendors in a public cloud can sell it to

anyone and it is a shared resource. A private cloud refers to a proprietary
network or vendor supplied, hosted services to a well-defined set of users.
The goal is to provide easy scalable and secured services.
Recently, Financial Conduct Authority (FCA), UK issued a following
guidelines for the benefit of users and we give below a very brief summary.
(FCA, 2019)
• Customers may (in practice) have a limited scope to tailor the service.
• Provider may move customer data with less visibility and control for
the owner.
• Provider may contract out part of the service provided, without the
customer’s knowledge.
The “Regulated” firms have additionally to worry about the following

aspects.
• Legal and regulatory considerations

• Risk management
• International standards
• Oversight of service providers
• Data security and protection
• Effective access to data
• Access to business premises
• Continuity
We now do an analysis of an equally significant development viz. use of

AI in financial Services.
Artificial Intelligence (AI) and Machine

Learning (ML)
Very broadly AI is aimed at doing things with the help of machines
designed to act intelligently. The contours of AI are not well defined. AI
could broadly be referred to as machines designed to act intelligently and
to mimic human decision making whereas machine learning refers to the
ability of the software to learn and to improve.
One of the scariest of developments in the technology field is the pos-
sibility of machines taking over jobs and robots rendering 24×7 services.
We are aware that some research papers do postulate that unemployment
could be as high as 47–50% in the near future and that this would be the
“normal”.
Leaving aside such apprehensions, AI is a method to find out a pattern.
A pattern is a prediction rule that maps an input to a given output. Simply
put, learning a pattern means fitting a good prediction rule to a good
data set.
We must add that patterns to be discerned in a pretty large data set
(comprising images, texts, and even videos) is radically far more compli-
cated than any pattern that we can imagine. These patterns can then be
put into complicated equations. Lots of data and equations and computa-
tional power would be needed before one can hope for a reliable answer.
The uses to which these technologies can be put have been listed below:
Another random document with
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wait for him until he had completed his business at Rome and then
continue with him the journey to the Philippines. This was the
beginning of a warm friendship between Bishop Brent and ourselves,
and no one can have lived in the Philippines since, or have been
familiar with the affairs of the Islands, without knowing what a
blessing his work and presence have been to the Philippine people,
and how much he has aided the Government in its task.
We engaged passage on the steamship Trave, sailing from New
York to Gibraltar about the middle of May; the day for our departure
was close at hand; many good-byes had been said; and, altogether,
the immediate future was looking bright, when suddenly I found
myself once more within the orbit of my unlucky star. My son Robert
chose this opportune moment to develop a case of scarlet fever. Of
course that left me and the children out of all the plans and I was
compelled to accept a hastily made arrangement which provided for
my remaining behind and following my husband and his interesting
party on a later ship. Fortunately Robert was not with the other
children when he contracted the disease. He was visiting friends in
another part of town and I had him removed immediately to the
Good Samaritan Hospital, then settled down to my vigil which might
be long or short as fortune decreed.
My husband’s mother was in Millbury while all these things were
transpiring and he called her up on the long distance telephone to
tell her about Bobby’s illness and to say good-bye.
“Then Nellie cannot go with you?’ said Mrs. Taft.
“No, I’m sorry to say she can’t,” said my husband.
“But you have now an extra stateroom, have you not?”
“Yes, Mother.”
“Well, Will, I don’t think you ought to make such a trip alone when
you are so far from strong, so I just think I’ll go with you in Nellie’s
place,” said my mother-in-law.
And she did. The intrepid old lady of seventy-four packed her
trunks and was in New York ready to sail within twenty-four hours,
and my husband wrote that she acted altogether with an energy and
an enterprise which filled him with pleasure and pride. On the
steamer, and later at the hotel Quirinal in Rome, she presided with
dignity for more than a month over a table at which daily gathered a
company composed of a Colonial Governor, a Supreme Judge, a
Roman Bishop, an Anglican Bishop and a United States Army officer.
Her activity and fearlessness kept her family and friends in a state
of astonishment a good part of the time. She went wherever she liked
and it never seemed to occur to her that it was unusual for a woman
of her age to travel everywhere with so much self-reliance. She
thought nothing of crossing the American continent every year to
visit her daughter or sister on the Pacific Coast, and out in Manila we
used to laugh at the possibility of her appearing on the scene at any
moment. In fact, she very seriously considered coming at one time. I
was glad that she could go with my husband to Rome because she
really could be a comfort and a help and not at all a responsibility.
Robert was not nearly as ill as we expected he would be and in a
few weeks I was able to make definite plans for joining my husband.
My sister, Mrs. Anderson, was going to Paris so I took advantage of
the opportunity to enjoy her companionship on the voyage and sailed
with her on the fourth of June, landing in France and going by train
to Rome.
That the record of our ill-luck may be quite complete I must add
that on the way across the Atlantic my son Charlie managed to pick
up whooping-cough, and that by the time we reached Rome he had
passed it on to Helen. Her first remark to her father was a plaintive
query: “Papa, why is it we can never go anywhere without catching
something?”
I devoutly hoped that we had caught everything there was to catch
and that we might now venture to predict a period of peace.
I found my party very comfortably bestowed. They were occupying
a whole floor at the Quirinal, the largest hotel then open in the city,
and were keeping what appeared to me to be considerable “state.” It
looked as if they had the entire building to themselves, but that was
because it was midsummer when few tourists visit Rome and when
all Roman society is supposed to flock to its mountain homes and to
northern resorts. However, midsummer though it was, a good many
members of the “Black,” or Vatican division of society, still lingered
in the city and I found them evincing every desire to make our stay
both pleasant and memorable. Before I arrived Mr. Taft had already
“met, called upon, taken tea with and dined with Cardinals, Princes,
counts, marquises, and distinguished Englishmen and Americans
resident in Rome,” to quote from one of his own letters, but he had a
good many things to do over again in my honour. He had also had an
audience with Pope Leo XIII, and was deep in the rather distracting
uncertainties and intricacies of his negotiations.
He did not have the pleasure of seeing the King of Italy whom he
had a great desire to meet, because, even though the American
Ambassador had made all the arrangements, etiquette did not permit
such an audience until his relations with the Vatican had terminated,
and by that time the King had gone to the military manœuvres in
North Italy.
My husband’s position was one of very great delicacy. By the
nature of our national institutions it is not possible for us to send a
representative to the Vatican in a diplomatic capacity no matter what
the emergency may be, and Mr. Roosevelt in sending this
Commission to Rome had no intention that its office should be
construed into a formal recognition of the Vatican, which could not
fail to raise a storm of protest and opposition in this country. So the
instructions given to Mr. Taft by Secretary Root were made very
definite on this point. After reviewing the necessity for taking such
action on the part of our government and covering the favourable
reports on the proposed negotiations submitted by the Philippine
Committees of the House and Senate, the instructions began with
paragraph one:
One of the controlling principles of our government is the complete separation of
church and state, with the entire freedom of each from any control or interference
by the other. This principle is imperative wherever American jurisdiction extends,
and no modification or shading thereof can be a subject of discussion.
Following this in numbered paragraphs, a tentative plan for the
adjustment of the Friar difficulties is outlined and the instructions
end with paragraph nine:
Your errand will not be in any sense or degree diplomatic in its nature, but will
be purely a business matter of negotiation by you as Governor of the Philippines
for the purchase of property from the owners thereof, and the settlement of land
titles in such a manner as to contribute to the best interests of the people of the
Islands.
These instructions were easier to receive than to carry out, since
from the beginning the Vatican made every possible effort to give the
mission a diplomatic aspect and to cast upon it the glamour of great
official solemnity, and Mr. Taft had constantly to keep his mind alert
to the danger of accidental acquiescence in a misinterpretation of his
position. To take a position which would soothe the feelings of
American Catholics and yet not shock the conscience of any
Protestant was something like being ground between the proverbial
millstones. However, Cardinal Rampolla very graciously met the
business-like ideas of the Commission and arranged a private
audience with Pope Leo at which the propositions of the Philippine
government were to be outlined to him.
My husband’s memory of this now historic mission to Rome seems
to include little which was not directly connected with the business in
hand, but Judge Smith displays a more impressionable bent. In
answer to an inquiry as to what he recalls of the visit he wrote Mr.
Taft a most interesting letter. All his memoranda of the trip,
including letters, journals and souvenirs, were destroyed in the San
Francisco fire, but he says:
“After our arrival there was a long wait that arrangements might
be made for an audience with the Holy Father, but finally the date
was fixed and the Commission, at high noon, in evening dress and
top hats, went to the Vatican and passed up the long staircase, lined
with Swiss Guards, which leads to the State apartments. We were
received by the Chamberlain and several other functionaries and
were conducted from one apartment to another until finally we were
ushered into the presence of Leo XIII, to whom you made a
statement of the matters which were to be made the subject of
negotiation.
“This statement had been previously translated into French by
Bishop O’Gorman and Colonel Porter, and you will remember there
were some things about Bishop O’Gorman’s French which did not
meet with the entire approval of Colonel Porter. Whether you
arbitrated the matter and selected the appropriate phrase which
should have been used I do not know, but I do know that at one time
there was danger of the severance of the friendly relations which had
theretofore prevailed between the good Bishop and the good old
Colonel.
“My recollection of the Holy Father is that his face was like
transparent parchment, that he had the brilliant eyes of a young man
and that he was wonderfully alert of mind, although bent over by the
weight of years.
“Of course, none of us could forget Cardinal Rampolla,—tall,
slender, straight, vigorous in both mind and body, impenetrable, and
cold as fate. A man evidently of wonderful intellect and fully equal to
any demands that might be put upon him as the diplomat of the
Vatican.”
I might add that the first part of my husband’s speech, a copy of
which I have, consisted of a few remarks appropriate to the
presentation of a gift from President Roosevelt to the Pope. This gift
was a specially bound set of Mr. Roosevelt’s own works.
When the formal interview was at an end the Pope came down
from the dais on which he sat and indulged in a fifteen or twenty
minute personal conversation with the members of the Commission.
“He asked for the pleasure of shaking my hand,” writes my husband
to his brother Charles, in the usual vein of humour which obtains
between them, adding, “a privilege which I very graciously accorded
him.” He also joked about Mr. Taft’s proportions, saying that he had
understood he had been very ill, but from observation he saw no
reason to suppose that the illness had been serious. He poked gentle
fun at Bishop O’Gorman and made kindly inquiries of Judge Smith
and Major Porter; then he walked with the party to the door and
bowed them out, a courtesy which I believe was unprecedented.
“He had a great deal more vigour of motion,” writes Mr. Taft, “and
a great deal more resonance of voice than I had been led to suppose.
I had thought him little more than a lay figure, but he was full of
lively interest and gesture, and when my address was being read he
smiled and bowed his head in acquiescence.”
“We visited the catacombs,” says Judge Smith, “St. Peter’s, St.
Paul’s beyond the walls, and a few of the basilicas of ancient Rome
now dedicated to Christian worship. The Borghese and various other
art galleries left their impression, as did some of the interesting old
palaces, notably the one which was then threatening to fall into the
Tiber, and the ceiling of which bears the famous fresco of Cupid and
Psyche.
“One day during our first wait we had dinner out at the American
College as guests of Monsignor Kennedy, where you (Mr. Taft) made
a speech which brought much applause from the students in red
cassocks, and everybody was happy. After dinner some of us made a
visit to a villa by the Orsini on the hills overlooking the Campagna,
which villa had recently been purchased by the college as a summer
home.
“You will remember our call on Cardinal Martinelli and the dinner
we had with good old Cardinal Satolli who took such a pride in the
wine produced by his own vineyards, a wine, by the way, which was
not unreservedly approved by the owners of other vineyards. One of
the most delightful experiences of all was our dinner with the good
Episcopal Rector, Dr. Nevin, when ox-tongue done in the Russian
style was served as the piece de resistánce. You cannot forget how
shocked were some of the circles in Rome to find Bishop O’Gorman
and myself at such a festal board under such circumstances, and how
Pope Leo showed his thorough understanding of American
institutions by saying that American Catholics might very properly
do things which would be very much misunderstood if done by
Romans. The Episcopal Rector was a mighty hunter, a great traveller,
and gifted with a fund of anecdote which made him a most delightful
host.”
I found this highly social and sociable party rather impatiently
awaiting a reply to their formal, written proposals to the Vatican
which had been turned over to a Commission of Cardinals. They
were giving a fine imitation of outward leisurely poise, but among
themselves they were expressing very definite opinions of the
seemingly deliberate delays to which they were being subjected. Mr.
Taft was anxious to sail for Manila on the 10th of July, and already
had his passage booked on the Koenig Albert, but the immediate
prospect seemed to be that he would be held in Rome for the rest of
the summer.
He did not have the greatest confidence that he would succeed in
the mission which meant so much to his future course in the Islands,
and, indeed, it was quite evident that he would not succeed without
prolonged effort to be continued after he left Rome. The various
Cardinals lost no opportunity to assure him that the Vatican was in
full sympathy with the proposals made and that he might expect a
very early and satisfactory termination of the business, but he
decided not to believe anything until he should see the signatures to
the contract. The factions and the politics of the Vatican were most
perplexing. The monastic orders were the conservative element in
the negotiations, being willing enough to sell the Friars’ lands at a
valuation to be decided upon by a board of five members, two
representing the church, two representing the United States
government and the fifth to be selected from some other country, but
they were not willing to consent to the withdrawal of the Friars from
the Philippine Islands. Then there were wheels within wheels; Papal
candidates and candidates for Cardinals who thrust into the
negotiations considerations for agreeing or not agreeing which
greatly puzzled the purely business-like representatives of the
American government.
But I was not particularly annoyed by the delay. I found much to
interest me in Rome, and I saw my husband improving in general
health and gaining the strength he needed for a re-encounter with
the difficulties in tropic Manila. Prominent Republican leaders had
aroused his impatience at different times by publicly announcing
that, in all probability, he was “going out to the Philippines to die.”
He wrote to his brother from Rome:
“I dislike being put in such an absurd position before the country
as that of playing the martyr. I’m not asking any favours on account
of health or any other cause, nor am I taking the position that I am
making any sacrifice. I think that a great and unusual opportunity
has been offered me and if I can improve it, all well and good, but I
don’t want any sympathy or emotional support.”
He was easily aroused to resentment on the subject, but, just the
same, it was gratifying to observe him quite rapidly regaining his
normal vigour and buoyancy.
My mother-in-law was having a most wonderful time. She was
comfortably established at the Quirinal in rooms next to ours, and
was enjoying the devoted attention of every man in the party whether
he wore ecclesiastical frock, military uniform or plain citizens’
clothes. She went everywhere and saw everything and was as
indefatigable in her enjoyment as any of us. She met old-time friends
whom she had known when she and Judge Taft were in the
diplomatic corps abroad, and with them she indulged in pleasant
reminiscence. After I arrived she became more energetic than ever
and led me a lively pace at sightseeing and shopping, because, as she
wrote to another daughter-in-law, Mrs. Horace Taft, “Nellie is not at
all timid and as she speaks French we can go anywhere.”
I soon found that in spite of official and personal protest to the
contrary we were considered quite important personages, and the
elaborate hospitality we were offered kept us busy at nearly all hours
when hospitality is at all in order. There were teas and luncheons,
dinners and receptions, and functions of every description, and we
met a great many renowned and interesting people, both Roman and
foreign. Mr. W. T. Stead, the correspondent for the London Times
who was lost on the Titanic, was one of them. Then there was Mr.
Laffan, proprietor of the New York Sun, and Mrs. Laffan, and Dr.
Hillis of Brooklyn who was in Rome with his son. An attractive
personality, who interested us very much and whose hospitality we
enjoyed, was Princess Rospigliosi, the wife of an Italian nobleman,
who lived in an enchanting house. She had a very beautiful daughter
who was at that time keenly interested in the controversy as to
whether or not Catholics should vote in Rome. She was strongly in
favour of their doing so and, with extraordinary directness, carried
her advocacy straight to the Pope and insisted that it was a great
mistake for Catholics not to take advantage of the ballot and by that
means secure the political rights to which they were entitled. Pope
Leo, although very much impressed by what she said, insisted that it
was not yet time to urge the reform suggested, and wound up by
saying, “My good daughter, you go altogether too fast for me!” I don’t
doubt that by this time the young Princess is a warm supporter of
woman’s suffrage.
Also, we were entertained by a Mr. McNutt who had been in our
diplomatic corps at one time in Madrid and Constantinople, at
another time had been tutor to the sons of the Khedive of Egypt, and
was then one of the Papal Chamberlains. He had married a woman of
wealth, a Miss Ogden of New York.
Mr. McNutt had one of the most elaborate and beautiful palaces I
ever saw. He had studied the customs of Roman society in the
picturesque days of the Medicis and the Borgias, had rented the
Pamphili Palace and restored it to its pristine glory, and it was here
that he entertained us at a dinner, with cards afterward.
I felt like an actor in a mediæval pageant whose costume had not
been delivered in time for the performance. Cardinals in their
gorgeous robes, with gold snuff-boxes, gave to the scene a high
colour among the soberer tones of Bishops and Archbishops and
uniformed Ambassadors. Then there were Princes and Princesses
and other nobilities of Roman society, the men displaying gay
ribands and decorations, the women in elaborate costumes, and all
in a “stage setting” as far removed from modernity as a magnificent
old-world palace could be. To make this reproduction of old customs
complete our host made a point of having liveried attendants with
flaming torches to light the Cardinals to and from their carriages.
Before I reached Rome, Mr. Taft and his associates had been
present at a Papal consistory at which the Pope presided over the
College of Cardinals. They were the guests of the Pope and occupied
the Diplomatic Box. I was sorry to miss this exceptional privilege, but
we were given ample opportunities for seeing and hearing several
noteworthy religious festivals both at St. Peter’s and the church of St.
John of Lateran. I was educated in the strictest Presbyterianism,
while my husband’s mother was a Unitarian, and Puritan in her
training and in all her instincts. We could not help feeling that we
had been led into a prominent position in a strange environment.
But, unshaken though we were in our religious affiliations, we
appreciated the real beauty of the ceremonies and knew that we
should rejoice in the unusual privilege accorded us which would
never be ours again.
It was near the end of our stay in Rome that we had our audience
with the Pope,—Mrs. Taft, Robert, Helen and I. I wore a black
afternoon gown with a black veil on my head, while Mrs. Taft wore
her widow’s veil as usual. Helen, I dressed in white and, to her very
great excitement, she wore a white lace veil. Bishop O’Gorman
accompanied us and when we reached the door of the Vatican under
the colonnade at the right of St. Peter’s, we were met by some
members of the Swiss Guard in their curious uniforms, conducted
through endless corridors and rich apartments until we came to a
small waiting-room where we were left for a few moments by
ourselves. We had only time to adjust our veils and compose
ourselves when the door on one side opened and we were
ceremoniously ushered into the presence of Leo XIII who sat on a
low chair under a simple canopy at the far end of the room. He rose
to greet us as we entered, and as we were presented one by one he
extended his hand over which we each bowed as we received his
blessing.
He began speaking to me in French and finding that I could
answer him in that language he talked with me for perhaps half an
hour with a most charmingly graceful manner of comment and
compliment. He spoke of Mr. Roosevelt’s present and wished that he
knew English so that he might read the books. He referred to Mr.
Roosevelt as “President Roomvine” which was as near as he seemed
to be able to get to that very un-Latin name; said that he himself, in
his youth, had been devoted to the chase and would like very much to
read “The Strenuous Life.”
Later he called Robert to his side and gave him a special blessing,
saying that he hoped the little boy would follow in the footsteps of
McKinley and Roosevelt. He asked Bob what he expected to be when
he grew up and my self-confident son replied that he intended to be
Chief Justice of the Supreme Court. I suppose he had heard the Chief
Justiceship talked about by his father until he thought it the only
worthy ambition for a self-respecting citizen to entertain.
When we arose to go, His Holiness escorted us to the door and
bowed us out with a kindly smile in his fine young eyes that I shall
never forget.
Shortly after this I left Rome. It was getting hot and my husband
persuaded me to take the children away, promising to join us for a
short breath of mountain air before he sailed for Manila. It had been
decided that I should remain in Europe for a month or so and I was
to choose the place best suited for recuperation. I went first to
Florence for a week, then to the Grande Albergo Castello de
Aquabella at Vallombrosa. The sonorous name of this hotel should
have been a sufficient warning to me of the expense of living there,
but I was not in a mood to anticipate any kind of unpleasant
experience.
It is a beautiful place reached by a funicular railway from a station
about fifteen miles from Florence, and is where Milton wrote parts of
Paradise Lost. The hotel was an old castle remodelled, and as we
were almost the only guests and were attended by relays of most
obsequious servants we managed to feel quite baronial. We spent our
time being as lazy as we liked, or driving in the dense black forests of
pine which cover the mountains and through vistas of which we
could catch fascinating glimpses of the beautiful, town-dotted valley
of the Arno some thousands of feet below.
On the 20th of July my husband came up and joined us in this
delightful retreat. He had just received his final answer from the
Vatican and, while he was disappointed at not being able to settle the
matter then, he was hopeful that a way had been found which,
though it would entail much future labour, would lead to a
satisfactory solution of the problems. An Apostolic Delegate,
representing the Vatican, was to be sent to Manila to continue the
negotiations on the ground, and Pope Leo assured Mr. Taft that he
would receive instructions to bring about such an adjustment as the
United States desired. This assurance was carried out, but only after
Leo’s long pontificate had come to an end.
The final note was written by Cardinal Rampolla who rendered
“homage to the great courtesy and high capacity” with which Mr. Taft
had filled “the delicate mission,” and closed by declaring his
willingness to concede that “the favourable result” must in a large
measure be attributed to my husband’s “high personal qualities.”
I had hoped to have Mr. Taft with us at Vallombrosa for a week or
so before he sailed, but the time allotted in our plans for this was
taken up by delays in Rome, so that when he did arrive he had only
twenty-four hours to stay. His final audience with the Pope was
arranged for the following Monday, there were a number of minor
details to be attended to, and he was to sail Thursday morning from
Naples on the Princess Irene, to which he had been obliged to
transfer from the Koenig Albert.
The last audience with His Holiness consisted chiefly in an
exchange of compliments and expressions of thanks for courtesies
extended, but it had additional interest in that the Pope chose to
make it the occasion for personally presenting to the members of the
party certain small gifts, or souvenirs, which he had selected for
them. He had previously sent an inquiry through Bishop O’Gorman
as to whether or not the Commissioners would accept decorations,
but Mr. Taft replied that the American constitution forbids the
acceptance of such honours without the consent of Congress, so
nothing more was said about it.
The presents he did receive were a handsome Jubilee medal
displaying a portrait of His Holiness in bas relief, and a gold pen in
the form of a large feather with the papal arms on it. To me the Pope
sent a small piece of old German enamel showing a copy of an
ancient picture of St. Ursula and her virgins, framed in silver and
gold beautifully wrought. Smaller gold medals were given to each of
the other Commissioners, while President Roosevelt received a copy
in mosaic of a picture of a view of Rome from a corner in the Vatican
gardens in which the Pope is seen seated with three or four Cardinals
in attendance. This, together with letters from His Holiness and
Cardinal Rampolla to the President and Mr. Hay, the Secretary of
State, was given to Bishop O’Gorman to be delivered when he arrived
in the United States.
My husband sailed from Naples on the 24th of July, and I, with the
three children and their French governess, started north by Venice
and Vienna to spend a few weeks in the mountains of Switzerland
before returning to Manila.
There were rather terrifying reports of a cholera epidemic raging
in the Philippines and I dreaded the prospects of going into it with
my children, but I knew that heroic efforts were being made to check
it and I felt confident that, in Manila at least, it would have run its
course before I should arrive, so I booked passage on the German
steamer Hamburg and on the 3rd of September sailed for the East
and the tropics once more.
SCENES ATTENDING GOVERNOR TAFT’S ARRIVAL IN

MANILA AFTER HIS FIRST ABSENCE
CHAPTER XII
LAST DAYS IN THE PHILIPPINES
When Mr. Taft reached Manila he found the city en fete and in a
state of intense excitement which had prevailed for two days during
which the people had expected every hour to hear the great siren on
the cold storage plant announce that the little Alava, the government
coastguard boat which had been sent to Singapore to get him, had
been sighted off Corregidor.
When the announcement finally came, everything in the harbour
that could manage to do so steamed down the Bay to meet him, and
when the launch to which he had transferred from the Alava came
up to the mouth of the Pásig River and under the walls of old Fort
Santiago, seventeen guns boomed out a Governor’s salute, while
whistles and bells and sirens all over the bay and river and city filled
the air with a deafening din.
Wherever his eyes rested he saw people,—crowding windows,
roofs, river banks and city walls, all of them cheering wildly and
waving hats or handkerchiefs. And the thing which moved him most
was the fact that the welcoming throng was not just representative of
the wealthy and educated class, but included thousands of the
people, barefooted and in calicoes, who had come in from the
neighbouring and even the far provinces to greet him.
Mrs. Moses asked Mr. Benito Legarda, one of the Filipino
members of the Commission, whether or not there had ever been a
like demonstration in honour of the arrival of a Spanish Governor,
and his answer was:
“Yes, there were demonstrations always, but the government paid
the expenses.”
In this case the very opposite was true. The government had no
money to waste on celebrations and all government buildings, such
as the City Hall, the Post Office and the Ayuntamiento, were
conspicuously bare. Their nakedness was positively eloquent of
economy in the midst of the riot of gay bunting, the flags, the
pennants and the palm leaves in which the rest of the city was
smothered. Then there were extraordinary and elaborate arches
spanning the streets through which the Governor was to be
conducted. One of these, erected by the Partido Federal, displayed a
huge allegorical picture which had a peculiar significance. Filipina, a
lovely lady draped in flowing gauze, was seen, in an attitude which
combined appeal with condescension, presenting to Columbia a
single star, implying that she desired to be accepted as one of the
States of the Union.
I am indebted to the descriptive art of Mrs. Moses, to photographs
and to my own knowledge of the Filipino way of doing things for the
mental picture I have of this celebration.
At the landing near the Custom House my husband found a great
procession in line, ready to escort him to the Ayuntamiento where
the speeches of welcome were to be made. There were regiments of
cavalry, infantry and artillery, as well as platoon after platoon of
native and American police with as many bands as there were
divisions of the procession. Picked men from the volunteer regiments
acted as a special guard for the Governor’s carriage and they must
have added much to the impressive array, because I know of my own
observation that the volunteers were always as fine a looking body of
men as it would be possible to find anywhere.
When Mr. Taft reached the Ayuntamiento he listened to glowing
speeches of tribute and welcome in the Marble Hall, then he stood
for hours shaking hands with the people who, in orderly file, passed
in and out of the building which was large enough to hold only a very
small fraction of them. When this was over and his audience had
settled down he proceeded to tell them in a clear and simple way all
about his experiences in Rome and how far the negotiations with the
Vatican had proceeded. This was a matter of paramount importance
to the Filipinos and they listened with an intensity of interest which
Mr. Taft said seemed to promise serious consequences if the business
could not be carried to a successful conclusion.
However, despite the joy and festivity with which he was greeted
upon his return, the Governor did not find general conditions in the
islands either prosperous or happy.
Everything that could possibly happen to a country had happened
or was happening. The cholera epidemic was still raging, and while it
had abated to a considerable extent in Manila it was at its worst in
Iloilo and other provinces. There had been from seventy to eighty
cases a day in Manila for a long time, and the quarantine regulations
had incensed the ignorant people to a point where force had to be
used to secure obedience. They did not understand sanitary
measures and wanted none of them; they clung to their superstitious
beliefs, and were easily made to accept as truth wild statements to
the effect that the Americans were poisoning the wells and rivers and
had stopped transportation and business with the sole purpose of
starving or otherwise destroying the entire population. Even the
educated ones were not without their time-honoured prejudices in
this regard, for while Mr. Taft was in Rome he receive a cabled
protest from Filipino members of the Commission with a request
that he order the quarantine raised.
When he arrived in Manila the cholera cases had fallen to between
ten and twenty a day and business had been resumed to a certain
extent, but the situation was still critical and a fresh outbreak on
account of polluted water was to be expected at any time. All the
sources of water supply were patrolled by American soldiers day and
night and every precaution was taken; whole sections of the city were
burned in an attempt to stamp out the pestilence, but the disease had
to run its course and it was months before it was completely
eradicated.
While the people were dying of cholera the carabaos, the only
draught and farm animals in the Islands, were dying by thousands of
an epidemic of rinderpest. This scourge, too, was fought with all the
force of both the civil and military arms of the government, but
before it could be checked it had carried off a large majority of the
carabaos in the Archipelago with the result that agriculture and all
other industries dependent upon this mode of transportation were
paralysed. A general drought in China made a rice famine a practical
certainty, even if the people should have money to buy rice, so the
future looked black indeed.
The cholera and rinderpest had greatly reduced government
revenues and many plans for much needed public works had to be
modified or abandoned, while the condition of the currency added to
the general chaos. There was no gold standard and the fluctuations
in the value of silver made it necessary for the Governor to issue a
proclamation about once a week fixing a new rate of exchange. In
this way it was calculated that the government, with insufficient
income at the best, lost a round million dollars gold during a period
of ten months.
To cap all and add exasperation to uneasiness the ladrones had
become increasingly active with hard times and were harrying the
districts around Manila to such an extent that the people were in
constant terror. The ravages of the rinderpest had made the carabao
a very valuable animal and the chief object of the ladrones was to
steal such as were left and drive them off to be sold in distant
provinces. Nor were they at all particular about their highwaymen’s
methods or chary of sacrificing human life. There was a veritable
hotbed of ladronism at Caloocan, a suburb of Manila, which was
augmented by the roughs and toughs from the crowded and
miserable districts in the lower city, while across the Bay in Cavite
province, known as the “mother of insurrection,” there were several
hundred rifles in the hands of marauders who hid away in the hills
and jungles and made conditions such that Mr. Taft was asked by the
Director of Constabulary to suspend the writ of habeas corpus, thus
declaring the province in a practical state of siege. Mr. Taft would not
do this, saying that he thought the only course was to “hammer away
with the constabulary until the abuse was stamped out by the regular
methods of supposedly peaceful times,” but the worst feature of the
situation was that wherever ladronism showed its head there would
be cohorts of “irreconcilables”—posing in everyday life as loyal
citizens—ready, within the limits of personal safety, to encourage and
assist it. Anything to hamper and harass the government.
Shortly after Mr. Taft’s arrival in Manila, the vice-Governor,
General Wright, and Mrs. Wright left the Islands for a well-earned
vacation and my husband wrote that the amount of work which
confronted him was staggering. He took on General Wright’s
department in addition to his own duties, and if it hadn’t been that
he had at least half way learned not to try to “hurry the East” he
probably would not have lasted long.
Among the first steps to be taken was to provide against the
inevitable famine, and to do this it was necessary for the Government
to send to China and Saigon for large quantities of rice to be stored in
public godowns. They bought and brought to Manila something like
forty million pounds of this first of all necessities to an oriental
people, and the intention was to sell it at cost when the market
supply began to run low and prices began to soar beyond the poor
man’s reach. A certain degree of paternalism has always been, is
now, and probably always will be necessary in the government of the
Filipino people.
Mr. Taft besought the United States Congress to appropriate a sum
to be used for the importation of work animals, for the purchase of
rice and the furnishing of work on public improvements. The
animals were not to be given away, but were eventually to be sold at
reasonable prices. Three millions were appropriated and spent.
Congress was also petitioned to establish a gold standard of
currency, and this too was done, to the inexpressible relief of
everybody interested in the Philippine welfare, in the following
January. The currency now is as sound as our own, every silver peso,
which corresponds to the old “dollar Mex,” being worth fifty cents
gold.
When I arrived in Manila in early October I found the situation
more interesting than it had ever been, even though it was
distracting to the men who had to deal with it. My first necessity was,
of course, to settle myself once more at Malacañan. During my
absence the old Palace had been all done over, painted and patched
and cleaned and redecorated until it was quite unlike its quaint, old
dilapidated self. Some of the colours were a shade too pronounced
and some of the decorations ran a little more to “graceful patterns”
than suited my taste, but I was glad of the added comfort and
cleanliness.
It was difficult in the beginning to accustom myself to cholera
conditions. The disease was communicated to very few Americans or
other white foreigners, but safety was secured at the price of eternal
vigilance. Water could not be drunk unless it was boiled under one’s
personal supervision; nothing uncooked could be eaten, not even a
piece of imported fruit, unless it had first been washed in a carbolic
solution, a process, I may say, which added nothing desirable to its
flavour; a good many other precautions were necessary which made
us feel as if we were living always in the lowering shadow of some
dreadful catastrophe, but, even so, we were surprisingly calm about
it—everybody was—and managed to come through the experience
without any visible ill-effects.
There was one new thing for me, and that was a live cow. For two
long years we had manfully striven to make ourselves believe that we
liked canned milk and condensed cream just as much as we liked the
fresh milk we had been used to all our lives. In fact, we were fond of
declaring that we couldn’t tell the difference. But we could. And in
our secret hearts we all welcomed as the most delectable treat an
occasional gift of skimmed milk from a friend who had been a
pioneer in the momentous venture of importing an Australian cow.
The importation of our cow was a real event, and she straightway
took up a position of great dignity and importance in our
establishment. She roamed at will about the grounds of the Palace
and her general conduct was the subject of daily comment in the
family circle. A number of people brought in cows about this time,
but very few of them lived long enough to prove their dairy worth.
Our cow flourished and gave forth large quantities of milk, and this
fact became the subject of what was supposed to be a huge joke.
Mr. Worcester, who was the high chief health authority in the
Islands, decreed that all animals as they were brought in should be
inoculated for rinderpest, tuberculosis, and a number of other things,
—“including prickly heat,” said General Wright,—but it just so
happened that a great majority of these scientifically treated beasts
died almost immediately, and General Wright could always arouse
the wrath of Mr. Worcester—a thing he loved to do—by suggesting
that the only reason our cow lived was because “she had not been
inoculated.”
The presence of the cow having given me a true farmer spirit—at
least, I suppose it was the cow—I decided to have a garden. There
were very few vegetables that the Filipinos knew how to raise at that
time, and our longing for fresh things was constant and intense. I
selected a promising looking spot behind the Palace, had it prepared
for planting, then I bought a supply of fresh American seeds and
carefully buried them in places where I thought they might develop
into something. The result was positively astonishing. The soil was
rich and the sun was hot, and in an incredibly short time we were
having quantities of beans and cauliflower and big red tomatoes and
all kinds of things.
My ambition grew with success and I branched out into poultry.
The first thing anybody knew I had a big screened yard full of
chickens and turkeys little and big, which were a source of great
enjoyment to us all both in their noisy feathered state in the chicken
yard and done up in a variety of Ah Sing styles on our very well
supplied table. I wonder how my cook made up the “squeeze” out of
which he was cheated by my industry and thrift.
But, dwelling on these minor details I am getting far ahead of my
story. There were many things in the meanwhile engaging my
attention, the most important of which, I suppose, was the great
church schism.
Gregorio Aglipay, an Ilocano priest of the Roman Catholic Church,
joined the original insurrection against Spain, or the Friars rather, at
its inception and was excommunicated. He became an insurgent
leader with a reputation for great cruelty, and continued in the field
against Spain, and subsequently against the United States, until
resistance was no longer possible. He was among the last insurrecto
chiefs to surrender in northern Luzon. When peace was restored he
began immediately to solicit the interest and aid of other Filipino
priests, of politicians and influential men in a plan for organising an
Independent Filipino Catholic Church, and his temporary success
must have surprised even him.
ARCH ERECTED BY THE PARTIDO
FEDERAL REPRESENTING FILIPINA
OFFERING ANOTHER STAR TO THE
AMERICAN FLAG
While the people loved catholicism, the failure of the Vatican to

accede to their wishes with respect to the Friars, as expressed by the
American Commission to Rome, added impetus to the rebellious
movement and when the announcement of the new organisation was
made it was found to be based on the strongest kind of support.
Aglipay constituted himself Obispo Maximo, assumed a fine regalia,
and conferred upon fifteen or more of his lieutenants the regular
church dignities and titles of a lesser order. He offered the people the
same ceremonies, the same relief, the same confessional, and the
same faith generally to which they had always been accustomed, so
they found it easy enough to transfer their allegiance, and the new

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The Future of Indian Banking 1st ed.

2022 Edition Vasant Chintaman Joshi

Vasant Chintaman Joshi

The Future of Indian

ISBN 978-981-16-9561-2 ISBN 978-981-16-9562-9 (eBook)

Completing this assignment of writing a book on a rather complicated

Consequent to the lockdown a number of changes followed. The cus-

Pune, Maharashtra, India Vasant Chintaman Joshi

1 The Impact of the Pandemic 1

2 State of the Financial System: Strengths and Weaknesses 11

3 Socio-Political and Technology Aspects 25

5 Banking: New Frontiers 51

6 Cyber Crimes and Laws 59

7 Cyber Risk Management 71

Foreign Branches of Indian Banks 133

Fig. 1.1 COVID-19 impact. (Source: Authors) 8

Table 2.1 Non-performing assets in banks 14

The Impact of the Pandemic

© The Author(s), under exclusive license to Springer Nature 1

The Global Scenario

likely impact. In a letter to the director of the London School of Economics,

Before we look at the steps taken by central banks/governments we

The COVID-19 is a global shock like “no other” involving disruptions

• Infections reduced labor supply

On the demand side:

• Lay-off and loss of income prospects

to SMEs and pumped in huge amounts for installment payments to MFIs.

Covid Impact on Financial Govt Response

Fig. 1.1 COVID-19 impact. (Source: Authors)

sake of easy reference, we have made a diagrammatic representation

State of the Financial System: Strengths

© The Author(s), under exclusive license to Springer Nature 11

Financial System Structure

1. Channeling savings into investments

True it is that it is difficult to see how closely this corresponds to the

The three components markets, intermediaries, and infrastructure are inex-

State of Banks’ Finances

This is the phenomenon of irrational exuberance common across coun-

Table 2.1 Non-performing assets in banks

2012 117,000 38,177

Government Infusion of Capital

Rupees 15,000 6990 25,000 24,995 99,900 106,100 60,114

The deteriorating position of NPAs has obviously caused concern.

The Estimates Committee of Parliament summarized the causes as under:

Bank Frauds: A Broad Picture

Table 2.3 Bank frauds – a broad picture

Year Number Amount Number Amount Number Amount

Banks Co-operave banks

Newer Banks like Payment Banks &

Non-Banks Mutual Funds

Non-Banking Financial Companies

Others (e.g., Pension Funds, Primary

Fig. 2.1 Financial system in India. (Source: Author)

It is indeed a sad commentary on the working that 97% of the frauds

Table 2.4 NPA recovery

Lok Adalat 4,080,987 53,506 2816 5.3

Debt Restructuring and Recovery: The Legal Remedies

1. Collect all the required information on who had lent to borrowers –

 he Insolvency and Bankruptcy Code

• Can the NPAs be recovered in full? Or in a large measure by expro-

So far, we have information on 12 major cases. One is led to conclude

1. One would like to see the reforms for “Debtor in Possession” to

guidelines clarify how “default” is to be treated. We would draw attention

Pune, Maharashtra, India Vasant Chintaman Joshi

1 The Impact of the Pandemic 1

2 State of the Financial System: Strengths and Weaknesses 11

3 Socio-Political and Technology Aspects 25

5 Banking: New Frontiers 51

6 Cyber Crimes and Laws 59

7 Cyber Risk Management 71

Foreign Branches of Indian Banks 133

Fig. 1.1 COVID-19 impact. (Source: Authors) 8

Table 2.1 Non-performing assets in banks 14

Banks Co-operave banks

he Insolvency and Bankruptcy Code