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Banking Sector in India

October, 2014


India’s banking sector is constantly growing. Since the turn of the century, there has been a noticeable upsurge in transactions through ATMs, and also internet and mobile banking.

Following the passing of the Banking Laws (Amendment) Bill by the Indian Parliament in 2012, the landscape of the banking industry began to change. The bill allows the Reserve Bank of India (RBI) to make final guidelines on issuing new licenses, which could lead to a bigger number of banks in the country. Some banks have already received licences from the government, and the RBI's new norms will provide incentives to banks to spot bad loans and take requisite action to keep rogue borrowers in check.

Over the next decade, the banking sector is projected to create up to two million new jobs, driven by the efforts of the RBI and the Government of India to integrate financial services into rural areas. Also, the traditional way of operations will slowly give way to modern technology.

Market size

Total banking assets in India touched US$ 1.8 trillion in FY13 and are anticipated to cross US$ 28.5 trillion in FY25.

Bank deposits have grown at a compound annual growth rate (CAGR) of 21.2 per cent over FY06–13. Total deposits in FY13 were US$ 1,274.3 billion.

Total banking sector credit is anticipated to grow at a CAGR of 18.1 per cent (in terms of INR) to reach US$ 2.4 trillion by 2017.

In FY14, private sector lenders witnessed discernable growth in credit cards and personal loan businesses. ICICI Bank witnessed 141.6 per cent growth in personal loan disbursement in FY14, as per a report by Emkay Global Financial Services. Axis Bank's personal loan business also rose 49.8 per cent and its credit card business expanded by 31.1 per cent.


Bengaluru-based software services exporter Mphasis Ltd has bagged a five-year contract from Punjab National Bank (PNB) to set up the bank’s contact centres in Mangalore and Noida (UP). Mphasis will provide support for all banking products and services, including deposits operations, lending services, banking processes, internet banking, and account and card-related services. The company will also offer services in multiple languages.

HDFC Bank Ltd has emerged as the No. 1 brand with a worth of US$ 9.4 billion in the list of India’s 50 most valuable brands, in the first-ever BrandZ ranking which was commissioned by WPP Plc, the world’s top communications services group. Bharti Airtel Ltd was ranked No. 2 followed by the State Bank of India (SBI).

HDFC Bank also plans to open 24 new branches in Odisha by the end of FY15, according to a bank official. "HDFC Bank is operating with 97 branches in the state at present. By the end of the financial year, there will be 121 branches in the state with addition of 24 new branches," as per Mr Debashish Senapati, zonal head, Odisha, HDFC Bank.

Saving accounts of more than 1.4 million labourers of the unorganised sector will be opened in various banks under Pradhan Mantri Jan Dhan Yojana in the state of Chhattisgarh.

Microfinance companies have committed to setting up at least 30 million bank accounts within a year through tie-ups with banks, as part of the Indian government’s financial inclusion plan. The commitment was made at a meeting of representatives of 25 large microfinance companies and banks and government representatives, which included financial services secretary Mr GS Sandhu.

Export-Import Bank of India (Exim Bank) will increase its focus on supporting project exports from India to South Asia, Africa and Latin America, as per Mr Yaduvendra Mathur, Chairman and MD, Exim Bank. The bank has moved up the value chain by supporting project exports so that India earns foreign exchange. In 2012–13, Exim Bank lent support to 85 project export contracts worth Rs 24,255 crore (US$ 3.96 billion) secured by 47 companies in 23 countries.

Government Initiatives

The RBI has given banks greater flexibility to refinance current long-gestation project loans worth Rs 1,000 crore (US$ 163.42 million) and more, and has allowed partial buyout of such loans by other financial institutions as standard practice. The earlier stipulation was that buyers should purchase at least 50 per cent of the loan from the existing banks. Now, they get as low as 25 per cent of the loan value and the loan will still be treated as ‘standard’.

The RBI has also relaxed norms for mortgage guarantee companies (MGC) enabling these firms to use contingency reserves to cover for the losses suffered by the mortgage guarantee holders, without the approval of the apex bank. However, such a measure can only be initiated if there is no single option left to recoup the losses.

SBI is planning to launch a contact-less or tap-and-go card facility to make payments in India. Contact-less payment is a technology that has been adopted in several countries, including Australia, Canada and the UK, where customers can simply tap or wave their card over a reader at a point-of-sale terminal, which reads the card and allows transactions.

SBI and its five associate banks also plan to empower account holders at the bottom of the social pyramid with a customer call facility. The proposed facility will help customers get an update on available balance, last five transactions and cheque book request on their mobile phones.

Road Ahead

India is yet to tap into the potential of mobile banking and digital financial services. Forty-seven per cent of the populace have bank accounts, of which half lie dormant due to reliance on cash transactions, as per a report. Still, the industry holds a lot of promise.

India's banking sector could become the fifth largest banking sector in the world by 2020 and the third largest by 2025. These days, Indian banks are turning their focus to servicing clients and enhancing their technology infrastructure, which can help improve customer experience as well as give banks a competitive edge.

Exchange Rate Used: INR 1 = US$ 0.0163 as on October 28, 2014

References: Media Reports, Press releases, RBI Documents