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NEO Banking - A Future Digital Banking, Development Scope, Threat and Challenges

What is Neo Banking? NEO banks are the banks which has no physical branches. NEO Banks are digital only financial institutions that operate exclusively online through websites and mobile apps.  The financial services industry has undergone massive transformations from manual to Core Banking and now digital without any physical branch. the evolution of banking has been marked by innovations aimed at making financial services more accessible, convenient, and efficient.   NEO Banks offers services like below: Account Management: Account Opening, Checking, Savings, and Money Transfers Loan Services: Quick and seamless loan approvals Low Fees: Minimal or no fees due to lower operational costs Tech Features: Budget tools, instant payments, and real-time alerts Why Are Neo Banks becoming popular now? Convenience : 24/7 mobile banking—no waiting in lines. Lower Fees : No hidden charges, free international transfers, and zero maintenance fees. User-Friendly Apps : Seamless, f...
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RISK IN BANKING - PART 1

Risk in Banking - Part 2

 Banking Book - Deposits and Landing and Some Investment required for Statuary Requirement
Banking Book exposed to
1) Liquidity Risk
2) Defaulter Credit Risk
3) Interest Rate Risk
4) Operational Risk

Off Balance Sheet Exposure-
- Contingent in nature
- Not involve immediate funding but become fund based obligations.Subject to certain contingencies.
Example- Guarantee, Derivatives like swaps, Futures, Forward contract, Options.

 Off Balance Sheet Exposed to
1) Liquidity Risk
2) Interest Rate Risk
3) Market Risk
4) Credit Risk
5) Operational Risk

 Sources of Risks in Banks-
1) Corporate Finance
2) Trading and Sales
3) Retail Banking
4) Private Banking
5) Commercial Banking
6) Payment and Settlement
7) Agency  Services
8) Asset Management
9) Retail Brokerage

 Banking book exposed to-

 Liquidity Risk, Defaulter Credit Risk, Interest Rate Risk, Operational Risk

 Trading Book Exposed to-

 Market Risk, Liquidation Risk, Market Liquidity Risk, Default or Credit Risk, Operation Risk

 Credit or Default Risk- 

 Credit Risk - Potential of a borrower or counter party failing to meet obligation.

 Counter Party Risk - Is a credit risk generally associated with a trading transaction.
Country or Sovereign Risk - In case of cross country.

 Market Risk - Also known as price risk, adverse mark to market risk and arises due to movement in prices of interest rate instrument, equity, commodity and currency.
Forex Risk or Exchange Risk - market liquidity risk.

 Operational Risk - Risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.
  • Fraud Risk (internal or external)
  • Model Risk
  • Compliance Risk
  • Regulatory Risk
  • Technology/System Risk
  • Legal risk
Other Risks - 
  • Strategic Risk
  • Reputation Risk
  • Political Risk
  • Environment Risk
  • Natural Calamities Risk etc.
Interest Rate Risk - Risk to interest income due to adverse interest rate movement.



Interest Rate Movement Impact-
  • Earning of bank     
  • Economic value of equity
  • Off balance sheet exposures like derivatives.


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