India’s banking sector is undergoing major changes that bode well for business the Indian banking sector is well-regulated and sufficiently capitalised, as per reports suggested by Reserve Bank of India (RBI). The country’s financial and economic conditions are far better than any other country in the world. Studies related to market, credit and liquidity risk show that Indian banks are generally resilient and they have withstood the global downturn well. The Indian banking industry has recently witnessed the roll out of neo and innovative banking models like payments and small financial banking structure. The new measures adopted by RBI will go a long way to help the restructuring of the native banking industry. The digital payment system in India has evolved the most among 25 countries with India’s Immediate Payment Service (IMPS) as it is the only system which is at level 5 in the Faster Payments Innovation Index (FPII).
Nikhil Shah, Associate Director, Business & Financial Services Consulting, Frost & Sullivan.
As the global economy rebounded in the preceding year, its impact will bring a positive trail for the Indian Banking Sector. With the beginning of the end of easy money era, Federal Reserve hiked interest rates thrice in 2017 and the same now stands in a range of 1.25% to 1.5%. 2018 will see three rate hikes and the following year will have two rate hikes as forecasted by the Fed. The rate hike suit by USA will soon be followed by the European Central Bank (ECB). The International Monetary Fund (IMF) also expects the global economy to grow by 3.9% in 2018 and 2019.
The 2017 financial year saw a muted domestic economic growth and the growth of Indian banking sector remained under pressure as well. The credit growth was at 4.7% which was one of the lowest in over a decade. The asset quality review initiated by the central bank resulted in an increased recognition of bad loans. By the end of March 2017, 12.1% of the advances of the banking system were stressed and the Public Sector Banks witnessed most of the deterioration in the asset quality as the gross NPA increased to 13.9% and that of private sector banks was at 5.24%.
After demonetisation and Goods and Services Tax (GST), the Indian economy is now moving towards normalcy and the central bank will continue to monitor inflation numbers and liquidity data to decide on the next course of action in their monetary policy. As per the new RBI directive, once a default has occurred, the bank will have 180 days to come up with a resolution plan. If in case they fail, then they will need to refer the account to Insolvency and Bankruptcy Code (IBC) within fifteen days. The government plans to recapitalise the public sector by 2.11 trillion rupees which will aid these banks to make provisions for bad loans, lend money to the corporate and retail sector which would help them in maintaining their Capital Adequacy Ratio (CAR) above the statutory minimum. With the corporate earnings recovering in financial year 2018, the capacity utilisation levels would inch higher and the private capital expenditure cycle could also pick up moving forward. This eventually would lead to a spurt in the corporate lending by the banks.
As for FDI in the banking sector, recently Emirates NBD, UAE’s second-largest lender, started operations in India with an aim to invest USD 100 million capital into its Indian operations, as stated by the bank. The Mumbai branch is the bank’s fifth international branch outside of its UAE network. The branch will offer a range of services to corporate, SME and institutional clients including trade finance, bilateral and syndicate loans and treasury services in addition to support NRI (Non-resident Indians) customers who look for cross-border wealth management solutions.
As per Shayne Nelson, Group CEO of Emirates NBD, “Emirates NBD is the only UAE-based bank with physical presence across all of India’s important trade corridors from the Middle East and North Africa (MENA) across to Asia and the United Kingdom (UK) and our aim is to be the bank of choice for Indian corporates and individuals looking to invest and do business in the MENA region.”
Indians constitute the largest expatriate community in the UAE and a third of Emirates NBD’s customer base is from India.
“We are delighted to expand our footprint to India, building on the UAE’s strong historic, cultural and commercial ties with the country. As a key trading partner of the UAE and as one of the fastest growing economies in the world, India represents an important and strategic growth market,” Nelson said.
Considering the current flow of the Indian banking sector, we can conclude that it has fruitful prospects in the future. With global investments pouring in the country and recovery of corporate earnings, the capacity utilisation levels would inch higher. India is now rapidly moving towards a digital payments economy with various milestones to enhance the customer’s overall banking experience and to have a competitive edge in the banking industry.
Nikhil Shah is Associate Director, Business & Financial Services Consulting, Frost & Sullivan
Copyright: UMS International Fz LLCTheme