Question

Hello

Please help me with the following

What is the future of banking industry in India?

Regards

Nikita

Answer 1

The banking sector plays a crucial role in the economic development of a country. After decades of rigorous control, the Indian banking industry is opening up in a big way.
India as the distinction of a long history of both banks and capital market. The economic history of India narrates how both have been vibrant in many important cities, though Mumbai did dominate all others. However, slowly and steadily, especially in the last twenty-five years or so after the financial sector reforms, the banking sector has emerged as The source for investment funding.

The Indian banking sector is at a critical juncture in its evolution. It is now clear that the slump in credit growth and increase in stressed assets has affected the profitability of all banks, and threatens the very survival of some of them.

The core challenge is that many of the public sector banks (PSBs) are undifferentiated, sub-scale, and with limited capabilities to be full universal banks. About 80% of them own only 25% of the assets. They also operate in virtually every market segment with very limited sector or vertical-focused specialization.

Here are some of the big trends occurred in the 2017-18 era, I copied it from a website.

i) Asset Quality Deterioration Continues: The asset quality deterioration continues with the farm loan waiver in certain states is creating a moral hazard issue.

2) Low Credit Offtake: The credit offtake is still low at around 70 percent.

iii) The new Bankruptcy Code: The biggest change came from the new bankruptcy code that provides for a faster resolution of stressed assets in a time-bound manner. Bankers are hopeful of clearing the stock of bad debts with some gains in the books.

iv) Fresh Capital via recap bonds: The PSBs started of capital will soon be getting fresh capital through the recap bonds..

v) New payments and small finance banks: More and more new payments banks and small finance banks are launching their operations.

vi) Use of bots and artificial intelligence - the adoption of AI and bots is gradually taking place in the banking industry.

vii) New areas like consumer durable and microfinance; Some two decades ago, the retail banking spread from home loans to other unsecured loans in a big way. The new growth segments are now microloans and consumer durable financing. Banks are developing these new businesses for future growth.

Thank You.