“In the eventful past few months, the Rs. 80 trillion Indian Banking Industry has witnessed a lot of action. Starting with new banking licenses, wholly owned subsidiaries guidelines, recapitalization and Basel III Norms for capital regulations, the banking industry is in the midst of a changing landscape.”
A World Bank working paper published in 2012, indicated that 65% of adults in India had no access to a Bank account which provides a vast opportunity for our financial sector. The role of the banking industry thus becomes crucial for the growth of the Indian economy.
The economy is today showing revival reflected by the optimism from the prospect of a stable government at the center. However, with a GDP growth of 4.7% during FY14, marginally higher than 4.5% in FY13, areas for concern remain. Lower rainfall would not only fan inflationary pressures but also subdue rural demand. The RBI is trying to balance its course of action with keeping the focus on inflation control. Even as the economy is on the revival path, the banking sector is making a consolidated effort via new policies and technologies to expand coverage and improve performance. The efforts to stabilize the economy and place it on the growth path will be the new government’s key deliverable.
The Central Bank is considering introducing differentiated licenses under which bank operations will be restricted geographically, and in terms of product variety. This will make banks more adaptable to local needs, something recommended by the Nachiket Mor Committee, Indian financial inclusion’s flag bearer. Indian polity is thus slowly but surely shifting focus to the nation’s under-banked using various means at disposal, from digital banking to WOS.
The simultaneous introduction of WOS guidelines and renewed focus on recapitalization for public sector banks thus bodes well towards our efforts to pull the BFSI space out of the low growth it had gone into. Whilst WOS looks to provide a renewed opportunity to the international banks with a presence in India, recapitalization should be able to help solve our NPA woes on the public bank front to a considerable extent, thus enabling them to be in a position to facilitate economic growth.
Apart from the financial role that it plays, banking has a bigger role to play in a more stable economy, as a catalyst towards stable GDP growth, inclusive development and responsible governance.
With the economy slowing down, gross NPAs of the public sector banks have increased from 2.3 per cent in March 2011 to 4.8 per cent in September 2013. There are chances of the NPA cycle bottoming out in the future, especially with expectations of positive growth. The RBI has spoken about implementing Basel III norms and has given the sector four years beginning the 1st of January, 2015 to fully comply with Basel III liquidity requirement which is a forward step and the banking industry has responded positively to the news.
The Indian banking industry is observing a ‘tech’tonic shift as well. Banks have applied renewed focus to their efforts on banking across alternative and new media such as online product availability, mobile apps and greater digital outreach focus. Not only this, big data analysis to understand customers and cloud computing are bringing in massive attention towards the need for new technologies for the industry
Each of these changes by itself is a step that the banking space is taking. Whether we consider international factors such as the Basel norms, aspects related to policy such as WOS, or the renewed focus on inclusion, banking is becoming a game changer in India. We are truly becoming a mature financial space, and should now look to become a regional hub for South Asia in the next few years. In order to reach true potential, we now need to maintain the momentum we have built over these past few months.
