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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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MCLR (Marginal Cost of Funds based Lending Rate)


1. New Lending Rate effective from April 2016.​
2. To improve the efficiency of monetary policy transmission.​
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Following are the main components of MCLR - 

 1. Marginal cost of funds;​
2. Negative carry on account of CRR;​
3. Operating costs;​
4. Tenor premium.​
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The main components of base rate system are - 
• Cost of funds (interest rates offered by banks on deposits)​
• Operating expenses to run the bank.​
• Minimum Rate of return ie margin or profit​
• Cost of maintaining CRR (Cash Reserve Ratio).​
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Marginal Cost of funds (MCF): The marginal cost that is the novel element of the MCLR. It has 2 components 
(a) Marginal cost of Borrowings 
(b) Return on Networth​

 Negative carry on account of CRR is the cost that the banks have to incur while keeping reserves with the RBI. The RBI is not giving an interest for CRR held by the banks. The cost of such funds kept idle can be charged from loans given to the people.​

 Operating cost: is the operating expenses incurred by the banks​

 Tenor premium: denotes that higher interest can be charged from long term loans​
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As per the new guidelines, banks have to set five benchmark rates for different tenure or time periods ranging from overnight (one day) rates to one year i.e overnight, one month, three month, six month and one year.​

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