The Indian Banking Industry is governed by
the Banking Regulation Act of India, (1949) and is closely monitored by the
Reserve Bank of India (RBI). According to Govt, and various Credit
rating agencies the domestic banking industry is set for an exponential growth
in coming years with its assets size poised to touch USD 28,500 billion by the
turn of the 2025.
ICRA the credit rating agency analyzed
26 public sector and 15 private sector banks which make up 90% of the credit
and deposit portfolio of banks in India, lowered its estimated gross NPA for
March 2016 to 5%-5.5% from 5.3%-5.9% despite the
fact that stressed assets remained largely unchanged at 10.7% as of September
2015 vs. 10.6% as of March 2015. The
so called 5/25 scheme, allows banks to extend long-term loans of 20-25 years,
while refinancing them every five or seven years
Public sector banks continue to bear the brunt of bad loans as gross NPAs of these banks increased to 5.6% as on September 2015 (vs. 5.0% as on March 2015). In comparison private banks' gross NPAs were 2.2% (vs. 2.0% as on March 2015).
Public sector banks continue to bear the brunt of bad loans as gross NPAs of these banks increased to 5.6% as on September 2015 (vs. 5.0% as on March 2015). In comparison private banks' gross NPAs were 2.2% (vs. 2.0% as on March 2015).
Under ‘Uday Scheme’ the Central Government allowed
the State Govts. which owned DISCOMs to take 75 % of the debts from the lenders
by issuing State Govt Bonds. ICRA has mentioned that if all the states
participated in the scheme the operating profitability of the Banks would decline
and NIM’s would shrink by 7-12 basis points.( One basis point is 0.01 percentage )
"Impact (will be) higher for banks
with higher exposure to DISCOMs (Central Bank of India, Punjab & Sindh
Bank, Vijaya, Oriental Bank of Commerce and UCO Bank), lower for banks with
less exposure to State DISCOMs (State Bank of India, Bank of Baroda),"
ICRA said adding that the scheme will impact credit growth of public sector
banks.
Thus it is quite clear that higher the
NPA level it would impact profitability and restrict credit growth. But this
being the feature for the existing credit portfolio there is ample scope for
credit growth in the Banking sector. Apart from the credit growth the Banks are
now poised for various Para Banking Activities including latest Technological
Products viz. Internet Banking, Mobile Banking, IMP’s, APP’s etc.
Retail banking will be the key growth area
for banks, other areas like Corporate Credit, SME Banking, cross selling of
other financial products and services like Insurance, Mutual Funds, fee-based
sources of income and technological up gradation will also be key growth drivers.
The Govt. has emphasised on developing various payment and settlement systems
in the form of various APP’s. More and
more emphasis is laid on better and optimum usage of this products.The stress is
on expansion of branches and financial inclusion.
Banking, one of the fastest growing
segments of the economy, faces challenges of scarcity of resources and skilled
manpower. Such skilled manpower is not easily available in adequate numbers to
meet the growing requirements of the Banking Industry.
As per the
Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalised
and well-regulated. The financial and economic conditions in the country are
far superior to any other country in the world. Credit, market and liquidity
risk studies suggest that Indian banks are generally resilient and have
withstood the global downturn well.
Indian banking
industry is expected to witness better growth prospects in 2015 as a sense of
optimism stems from the Government’s measures towards revitalizing the industrial
growth in the country. In addition, RBI’s new measures may go a long way in
helping the restructuring of the domestic banking industry.
Standard & Poor’s
estimates that credit growth in India’s banking sector would improve to 12-13
per cent in FY16 from less than 10 per cent in the second half of CY14.
Investments/developments
In the past few
months, there have been many investments and developments in the Indian banking
sector
- Global rating agency
Moody's has upgraded its outlook for the Indian banking system to stable
from negative based on its assessment of five drivers including
improvement in operating environment and stable asset risk and capital
scenario.
- Lok Capital, a private
equity investor backed by US-based non-profit organisation Rockefeller
Foundation, plans to invest up to US$ 15 million in two proposed small
finance banks in India over the next one year.
- The Reserve Bank of India
(RBI) has granted in-principle licences to 10 applicants to open small
finance banks, which will help expanding access to financial services in
rural and semi-urban areas.
- IDFC Bank has become the
latest new bank to start operations with 23 branches, including 15
branches in rural areas of Madhya Pradesh.
- The RBI has given
in-principle approval to 11 applicants to establish payment banks. These
banks can accept deposits and remittances, but are not allowed to extend
any loans.
- The Bank of
Tokyo-Mitsubishi (BTMU), a Japanese financial services group, aims to
double its branch count in India to 10 over the next three years and also
target a 10 per cent credit growth during FY16.
- State Bank of India has
tied up with e-commerce portal Snapdeal and payment gateway Paypal to
finance MSME businesses.
- The United Economic Forum
(UEF), an organisation that works to improve socio-economic status of the
minority community in India, has signed a memorandum of understanding
(MoU) with Indian Overseas Bank (IOB) for financing entrepreneurs from
backward communities to set up businesses in Tamil Nadu
- The RBI has allowed
third-party white label automated teller machines (ATM) to accept
international cards, including international prepaid cards, and said white
label ATMs can now tie up with any commercial bank for cash supply.
- The RBI has allowed
Indian alternative investment funds (AIFs), to invest abroad, in order to
increase the investment opportunities for these funds.
- In order to boost the
infrastructure sector and the banks financing long gestation projects, the
RBI has extended its flexible refinancing and repayment option for
long-term infrastructure projects to existing ones where the total
exposure of lenders is more than Rs 500 crore (US$ 75.1 million).
- RBI governor Mr Raghuram
Rajan and European Central Bank President Mr Mario Draghi have signed an
MoU on cooperation in central banking. “The memorandum of understanding
provides a framework for regular exchange of information, policy dialogue
and technical cooperation between the two institutions. Technical
cooperation may take the form of joint seminars and workshops in areas of
mutual interest in the field of central banking,” RBI said on its website.
- RBL Bank informed that it
would be the anchor investor in Trifecta Capital’s Venture Debt Fund, the
first alternative investment fund (AIF) in India with a commitment of Rs
50 crore (US$ 7.51 million). This move provides RBL Bank the opportunity
to support the emerging venture debt market in India.
- Bandhan Financial
Services raised Rs 1,600 crore (US$ 240.2 million) from two international
institutional investors to help convert its microfinance business into a
full service bank. Bandhan, one of the two entities to get a banking
licence along with IDFC, launched its banking operations in August 2015.
Government Initiatives
The government
and the regulator have undertaken several measures to strengthen the Indian
banking sector.
- The Government of India
is looking to set up a special fund, as a part of National Investment and
Infrastructure Fund (NIIF), to deal with stressed assets of banks. The
special fund will potentially take over assets which are viable but don’t
have additional fresh equity from promoters coming in to complete the
project.
- The Reserve Bank of India
(RBI) plans to soon come out with guidelines, such as common risk-based
know-your-customer (KYC) norms, to reinforce protection for consumers,
especially since a large number of Indians have now been financially
included post the government’s massive drive to open a bank account for
each household.
- To provide relief to the
state electricity distribution companies, Government of India has proposed
to their lenders that 75 per cent of their loans be converted to state
government bonds in two phases by March 2017. This will help several
banks, especially public sector banks, to offload credit to state
electricity distribution companies from their loan book, thereby improving
their asset quality.
- The Reserve Bank of India
(RBI), the Department of Industrial Policy & Promotion (DIPP) and the
Finance Ministry are planning to raise the Foreign Direct Investment (FDI)
limit in private banks sector to 100 per cent from 74 per cent.
- Government of India aims
to extend insurance, pension and credit facilities to those excluded from
these benefits under the Pradhan Mantri Jan Dhan Yojana (PMJDY).<
- The Government of India
announced a capital infusion of Rs 6,990 crore (US$ 1.05 billion) in nine
state run banks, including State Bank of India (SBI) and Punjab National
Bank (PNB). However, the new efficiency parameters would include return on
assets and return on equity. According to the finance ministry, “This
year, the Government of India has adopted new criteria in which the banks
which are more efficient would only be rewarded with extra capital for
their equity so that they can further strengthen their position."
- To facilitate an easy
access to finance by Micro and Small Enterprises (MSEs), the
Government/RBI has launched Credit Guarantee Fund Scheme to provide
guarantee cover for collateral free credit facilities extended to MSEs
upto Rs 1 Crore (US$ 0.15 million). Moreover, Micro Units Development
& Refinance Agency (MUDRA) Ltd. was also established to refinance all
Micro-finance Institutions (MFIs), which are in the business of lending to
micro / small business entities engaged in manufacturing, trading and
services activities upto Rs 10 lakh (US$ 0.015 million).
- The central government
has come out with draft proposals to encourage electronic transactions,
including income tax benefits for payments made through debit or credit
cards.
- The Union cabinet has
approved the establishment of the US$ 100 billion New Development Bank
(NDB) envisaged by the five-member BRICS group as well as the BRICS
“contingent reserve arrangement” (CRA).
- The government has plans
to set up a fund that will provide surety to banks against loans given to
students for higher education.
- On 7th Jan
2016 Cabinet approved ‘Stand Up India’ Scheme and Credit Guarantee Fund to
back Mudra Yojana.
- On 13th Jan
2016 Govt. announced Rs. 17600 cr.Crop Insurance Scheme to
cover loss of crops due to natural Calamities.
- The NDA Govt. has on 16th
Jan 2016 launched PM’s ambitious plan ‘Stand Up India’ for the Start ups,
thereby giving several reliefs to the start ups.
Road Ahead
The Indian
economy is on the brink of a major transformation, with several policy
initiatives set to be implemented shortly. Positive business sentiments,
improved consumer confidence and more controlled inflation are likely to
prop-up the country’s economic growth. Enhanced spending on infrastructure,
speedy implementation of projects and continuation of reforms are expected to
provide further impetus to growth. All these factors suggest that
India’s banking sector is also poised for robust growth as the rapidly growing
business would turn to banks for their credit needs.
Also, the
advancements in technology have brought the mobile and internet banking
services to the fore. The banking sector is laying greater emphasis on
providing improved services to their clients and also upgrading their
technology infrastructure, in order to enhance the customer’s overall
experience as well as give banks a competitive edge.
Many banks,
including SBI’s SBI-INTOUCH, ICICI and AXIS too, have launched contact-less
credit and debit cards and other Banks are exploring to launched in the market
shortly. The cards, which use near field communication (NFC) mechanism,
will allow customers to transact without having to insert or swipe.
Thus it is quite
evident that despite the Banks having large NPA’s Banking Sector will see
growth and will provide large current as well as the future demand for trained
manpower in banking. The banks will require a large number of people trained
not only for specific skills in the banking domain, but more importantly in
customer service skills, selling skill, banking application software skills and
with an infectious positive attitude.
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