Banking Sector in India

Introduction

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 has recently witnessed the roll out of innovative banking models like payments and small finance banks. RBI’s new measures may go a long way in helping the restructuring of the domestic banking industry.

The digital payments system in India has evolved the most among 25 countries with India’s Immediate Payment Service (IMPS) being the only system at level 5 in the Faster Payments Innovation Index (FPII).*

Market Size

The Indian banking system consists of 18 public sector banks, 22 private sector banks, 46 foreign banks, 53 regional rural banks, 1,542 urban cooperative banks and 94,384 rural cooperative banks as of September 2019. In FY07-18, total lending increased at a CAGR of 10.94 per cent and total deposits increased at a CAGR of 11.66 per cent. India’s retail credit market is the fourth largest in the emerging countries. It increased to US$ 281 billion on December 2017 from US$ 181 billion on December 2014.

Investments/developments

Key investments and developments in India’s banking industry include:

• In October 2019, the Department of Post launched the mobile banking facility for all post office savings account holders of the CBS (core banking solutions) post office.
• Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) stood at Rs 1.06 lakh crore (US$ 15.17 billion
• In October 2019, Government e-Marketplace (GeM) signed a Memorandum of Understanding (MoU) with Union Bank of India to facilitate a cashless, paperless and transparent payment system for an array of services.
• Transactions through Unified Payments Interface (UPI) stood at 1.15 billion in October 2019 worth Rs 1.91 lakh crore (US$ 27.33 billion).
• In August 2019, the government announced the major mergers of public sector banks which included United Bank of India and Oriental Bank of Commerce to be merged with Punjab National Bank, Allahabad Bank will be amalgamated with Indian Bank and Andhra Bank and Corporation Bank will be consolidated with Union Bank of India.
• The NPAs (Non-Performing Assets) of commercial banks has recorded a recovery of Rs 400,000 crore (US$ 57.23 billion) in last four years including record recovery of Rs 156,746 crore (US$ 22.42 billion) in FY19.
• The board of Allahabad bank approved the merger with Indian bank for the consolidation of 10 state-run banks into the large-scale lenders.
• As of September 2018, the Government of India launched India Post Payments Bank (IPPB) and has opened branches across 650 districts to achieve the objective of financial inclusion.
• The total value of mergers and acquisition during 2017 in NBFC diversified financial services and banking was US$ 2,564 billion, US$ 103 million and US$ 79 million respectively @.
• The total equity funding's of microfinance sector grew at the rate of 42 year-on-year to Rs 14,206 crore (US$ 2.03 billion) in 2018-19.

Government Initiatives

• As per Union Budget 2019-20, the government has proposed fully automated GST refund module and an electronic invoice system that will eliminate the need for a separate e-way bill.
• Under the Budget 2019-20, government has proposed Rs 70,000 crore (US$ 10.2 billion) to the public sector bank.
• Government has smoothly carried out consolidation, reducing the number of Public Sector Banks by eight.
• As of September 2018, the Government of India has made the Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme an open ended scheme and has also added more incentives.
• The Government of India is planning to inject Rs 42,000 crore (US$ 5.99 billion) in the public sector banks by March 2019 and will infuse the next tranche of recapitalisation by mid-December 2018.

Achievements

Following are the achievements of the government in the year 2017-18:

• As on March 31, 2019 the number of debit and credit cards issued were 925 million and 47 million, respectively.
• As per RBI, as of October 25, 2019, India recorded foreign exchange reserves of approximately US$ 442.58 billion.
• India ranks among the top seventh economies with a GDP of US$ 2,73 trillion in 2018 and economy is forecasted to grow at 7.3 per cent in 2018.
• To improve infrastructure in villages, 204,000 Point of Sale (PoS) terminals have been sanctioned from the Financial Inclusion Fund by National Bank for Agriculture & Rural Development (NABARD).
• The number of total bank accounts opened under Pradhan Mantri Jan Dhan Yojana (PMJDY) reached 333.8 million as on November 28, 2018.

Road Ahead

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.

India’s digital lending stood at US$ 75 billion in FY18 and is estimated to reach US$ 1 trillion by FY2023 driven by the five-fold increase in the digital disbursements.

Note:Conversion rate used as on September 2019, Re 1 = US$ 0.014019

References: Media Reports, Press releases, Reserve Bank of India, Press Information Bureau, www.pmjdy.gov.in

Notes: * - according to an FIS report, ^# - Microfinances Institution Network, ^@ - EY Annual Report

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.