Day 40/100 of Exploring the Banking Industry

Good Morning, Everyone! 🌞

“Don’t Wish for it, work for it”

Let's continue our journey in understanding institutional investors—specialized financial institutions that collectively manage the savings of small investors and allocate funds into a diversified portfolio of assets. There are many different types of institutional investors, which can be classified as follows:

So what’s the role of Institutional Investors?

The role of institutional investors in the financial markets:

• Provide liquidity in the market due their active trading policies leading to higher efficiency and lower transcation -cost.
• Enhancing Price Efficiency – Through research and active trading, they help ensure that asset prices reflect true market value.
• Influencing Corporate Governance – As major shareholders, they push for transparency, accountability, and long-term value creation.
• Stabilizing Markets – Their long-term investment horizon helps mitigate market shocks and financial crises.

News for the Day!

1. Microfinance Regulations Tighten: Stricter regulations in Indian microfinance will slow lender growth and reduce risks for overleveraged borrowers, says S&P Global Ratings. Analyst Shinoy Varghese warns this may impact asset quality as many rely on new loans to repay old ones.
2. Yes Bank Gets ₹2,209 Cr Tax Notice: Yes Bank received a ₹2,209 crore tax demand for FY 2019-20 after the income-tax department reopened the assessment in April 2023.
3. Bank Loans Rise, Led by Personal Lending: Banks issued ₹15.3 lakh crore in fresh loans in 11 months, growing total lending by 9.3% to ₹175.56 lakh crore. Personal loans dominated, while home loans (17%) surpassed business lending.

10 Trends in Financial Services to Watch in 2025

2024 brought significant challenges for the banking sector and the global economy. From major elections in India, the UK, and the US to rising geopolitical tensions and surging oil and food prices, financial institutions had to navigate an increasingly complex landscape. Climate change continued to create new risks for banks and insurers, while asset managers faced evolving and sometimes conflicting ESG regulations. Meanwhile, rapid advancements in AI reshaped how businesses operate.

With Trump back in power, he is expected to introduce major policy changes—impacting trade, sustainable finance, and cryptocurrency, so the financial sector will need to stay agile. Many of last year’s trends will continue, but they are set to accelerate in 2025.

Here are 10 key trends to keep an eye on:

1. Shifting Sanctions

Wars, elections, and global politics continue to reshape trade rules and financial sanctions. Banks must swiftly adapt to avoid penalties. For example, the UK has introduced new sanctions targeting human traffickers, while the US is expected to impose stricter trade restrictions in 2025. Compliance teams will face increasing pressure to keep up with these changes.

2. Tighter Anti-Money Laundering (AML) Regulations

Governments are cracking down harder on financial crime. Banks are facing record fines for failing to prevent money laundering and sanctions violations. The EU is launching a new regulatory body to monitor banks more closely, and stricter AML enforcement is expected to continue worldwide.

3. Payments Innovation Brings New Risks

Digital wallets, open banking, and real-time payments are transforming how money moves. The UK and EU are updating payment rules to improve financial data access, while the US is expanding support for open banking. However, fraud risks are rising, with some governments requiring banks to reimburse scam victims, while others place the burden on consumers.

4. Stronger Consumer Protections in Finance

Regulators are prioritizing consumer safety. In the UK, US, and EU, legal frameworks are evolving to make it easier for consumers to take action against banks. In some regions, financial institutions are required to compensate fraud victims, while in others, customers are responsible for their financial security.

5. The ESG Debate Intensifies

Banks and asset managers must comply with various ESG reporting rules, but opinions on sustainability regulations remain divided. Some governments are pushing for stricter ESG policies, while others argue they harm business. This could lead to fragmented regulations across different countries, creating compliance challenges for financial firms operating globally.

6. Increased Oversight of Private Capital

Hedge funds, private equity firms, and other non-bank lenders are playing a bigger role in financial markets. Regulators worry about the risks these institutions pose and are introducing new rules to monitor them more closely. In 2025, the EU and other global regulators are expected to tighten oversight on private capital markets.

7. Greater Scrutiny of Senior Executives

Regulators are expanding their focus on executive behavior, both inside and outside the workplace. The UK is leading the way by investigating whether misconduct—whether personal or professional—should disqualify individuals from holding senior roles in finance. Other countries may follow, pushing firms to strengthen workplace culture and compliance standards.

8. A Shift Toward Deregulation in Some Markets

Some countries, including the US and the UK, are moving towards financial deregulation to boost economic growth and competitiveness. New political leadership may reduce banking regulations, potentially encouraging more mergers and risk-taking. However, other regions, such as Asia, are maintaining strict financial controls.

9. The AI Boom Continues, But Regulations Are Catching Up

Banks are embracing AI to improve efficiency, reduce costs, and enhance decision-making. However, regulators are keen to ensure that AI is used responsibly. The EU is leading efforts to introduce AI regulations based on risk levels, and other regions may follow suit to ensure fairness and prevent misuse.

10. Is This the Breakthrough Year for Crypto?

2025 could be a turning point for cryptocurrency. The Trump administration is expected to adopt a more supportive stance toward crypto, making it easier for businesses to operate in the US. The EU has already established clear regulations, while the UK and parts of Asia are still developing their frameworks.

Today's recommended includes a speech by Professor Aswath Damodaran sir, where he breaks down the fundamentals of company valuation. He explains how to value a company at different stages of its business cycle and highlights the importance of connecting stories with numbers.

Banking Term of the Day

Beneficiary: A person who is entitled to receive the benefits or proceeds of a will, trust, insurance policy, retirement plan, annuity, or other contract.

That’s all for today! Thank you for reading — keep smiling, stay happy, and never stop learning!

Thank you! 😊