Even as India is going about the implementation of 75 fully digital banking branches throughout the country, including making allocations for rural areas in the 2022-2023 budget, Kerala claims it has emerged as the first state in India to go fully digital in its banking services.

Kerala Chief Minister Pinarayi Viyajan made the announcement on January 7 at an event in Thiruvananthapuram, and emphasised how this development would spur the economy at the state level, although how exactly Kerala is “the first fully digital banking state in the country” was not immediately made clear.

Would it be a a similar digital banking push to what the Indian government was attempting at the federal level? The State Bank of India (SBI) first mooted the idea of digital-first bank branches nearly a decade ago, with the aim of boosting financial inclusion amongst the massive population across the sprawling subcontinent. 

India on the wrong side of financial inclusion divide

A World Bank report last year flagged that India was one of seven countries that was home to half the world’s 1.4 billion adults that did not have access to formal banking. While the Global Findex Report of 2017 reported that India possessed the second largest unbanked population by country at 190 million people.

Traditional banking was challenged by the vast expanse of the country and the significant rural population, so providing adequate infrastructure along with the necessary education on using financial services were difficult to be implemented centrally. 

Over half (52%) of the respondents of the All India Rural Financial Inclusion Survey 2016-17 conducted by NABARD (National Bank for Agriculture and Rural Development) said they preferred to stash their savings at home rather than in a traditional bank, and even rural financial inclusion schemes such as Pradhan Mantri Jan Dhan Yojana (PMJDY) to encourage opening of bank accounts did not translate to continued usage in rural areas, owing to the lack of financial literacy and distrust of unfamiliar concepts.

The government followed up its financial inclusion scheme with the proposed establishment of digital banking units (DBUs) across 75 districts in India. Each DBU would operate 24 hours a day with minimal human involvement and customers would interact with self-service units to open bank accounts, print pass books, avail themselves of loans, and more. Customers could also talk to a remotely-situated banker via video link, and in the daytime there would be human bank officials to assist.

“DBUs will enable customers who do not have a PC, laptop, or smartphone to access banking services. They can do it digitally,”

declared Finance Minister Nirmala Sitharaman when the DBUs were launched in the final quarter of 2022. 

“DBU is a big step in the direction of ease of living for the common citizens,” chimed in Prime Minister Narendra Modi at the same event. A similar reach at the state level could be what Kerala was striving for, although no mention of anything akin to the DBUs were mentioned at the event last Saturday.

More than just scaling digital banking across India

“I would like to congratulate everyone who worked behind this and declare Kerala as the first fully digital banking state in the country,”

Vijayan said, noting that quicker pace of progress in the state was only made possible thanks to the coordination and collaboration of multiple state-level governing institutions, innovation advances in the digital banking space, and modernisation works across infrastructure in Kerala.

Part of those crucial infrastructure developments included the establishment of the Kerala Fiber Optic Network (K-FON) in July 2022, an ambitious IT infrastructure project to provide statewide connectivity across Kerala – which will also make Kerala the first Indian state to have its own internet service when it is completed. The network would be a major asset for any wide-scale digital banking plans, which as mentioned have yet to be made clear. 

Vijayan stated that the K-FON is about 90 percent completed, and besides supposedly powering digital banking connectivity across the state, the fiber network is expected to play a key role to help Kerala bridge the digital gap that is present across much of the country.

“In order to make the digital services universally accessible, we need to ensure that the digital divide is completely eliminated,”

the Chief Minister added.

“The K-FON will ensure internet facility to everyone in the state and 17,155 KM-long optic fibre cable network has been laid.”

“Once the project gets completed, internet will be available to everyone in the state either for a cheaper price or for free-of-cost,” Vijayan summarised. The innovative digital initiatives saw the state become the recipient of three Digital India awards at the same event as the digital banking announcement, as Kerala has made noticeable progress in the digital arena.

But Chief Minister Vijayan also warned his constituents to be wary about rising cyber crimes, especially as cybercriminals will be more drawn to a newly-digitised financial services sector. 

To raise awareness of the issue and to combat it, “the government has created an Economic Offences Wing in the state police to tackle such cyber crimes,” he concluded.

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