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Bank accounts opened under the Government’s flagship financial inclusion drive Pradhan Mantri Jan Dhan Yojana (PMJDY) reached 40.05 crore and deposits in Jan Dhan bank accounts stood at more than Rs. 1.30 lakh crore (US$ 18.44 billion).

Banking Sector in India

    Last updated on Oct, 11 2021

Indian Banking Industry Report  (Size: 1.23 MB ) (August, 2021)

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 five in the Faster Payments Innovation Index (FPII).*

Market Size

The Indian banking system consists of 12 public sector banks, 22 private sector banks, 46 foreign banks, 56 regional rural banks, 1485 urban cooperative banks and 96,000 rural cooperative banks in addition to cooperative credit institutions As of November 2020, the total number of ATMs in India increased to 209,282.

Asset of public sector banks stood at Rs. 107.83 lakh crore (US$ 1.52 trillion) in FY20.

During FY16-FY20, bank credit grew at a CAGR of 3.57%. As of FY20, total credit extended surged to US$ 1,698.97 billion. During FY16-FY20, deposits grew at a CAGR of 13.93% and reached US$ 1.93 trillion by FY20.

According to the RBI, bank credit stood at 108.79 trillion (US$ 1.46 trillion) and bank deposits stood at Rs. 155.14 trillion (US$ 2.08 trillion), as of July 16, 2021.

Credit to non-food industries stood at Rs. 107.93 trillion (US$ 1.45 trillion), as of July 16, 2021.

Investments/Developments

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

  • In July 2021, Google Pay for Business has enabled small merchants to access credit through tie-up with the digital lending platform for MSMEs—FlexiLoans.
  • In December 2020, in response to the RBI’s cautionary message, the Digital Lenders’ Association issued a revised code of conduct for digital lending.
  • As of June 23, 2021, the number of bank accounts—opened under the government’s flagship financial inclusion drive ‘Pradhan Mantri Jan Dhan Yojana (PMJDY)’—reached 42.55 crore and deposits in Jan Dhan bank accounts totalled >Rs. 1.44 lakh crore (US$ 19.31 billion).
  • On November 6, 2020, WhatsApp started UPI payments service in India on receiving the National Payments Corporation of India (NPCI) approval to ‘Go Live’ on UPI in a graded manner.
  • In October 2020, HDFC Bank and Apollo Hospitals partnered to launch the ‘HealthyLife Programme’, a holistic healthcare solution that makes healthy living accessible and affordable on Apollo’s digital platform.
  • In 2019, banking and financial services witnessed 32 M&A (merger and acquisition) activities worth US$ 1.72 billion.
  • In March 2020, State Bank of India (SBI), India’s largest lender, raised US$ 100 million in green bonds through private placement.
  • In February 2020, the Cabinet Committee on Economic Affairs gave its approval for continuation of the process of recapitalization of Regional Rural Banks (RRBs) by providing minimum regulatory capital to RRBs for another year beyond 2019-20 - till 2020-21 to those RRBs which are unable to maintain minimum Capital to Risk weighted Assets Ratio (CRAR) of 9% as per the regulatory norms prescribed by RBI.
  • The NPAs (Non-Performing Assets) of commercial banks recorded a recovery of Rs. 400,000 crore (US$ 57.23 billion) in the last four years including record recovery of Rs. 156,746 crore (US$ 22.42 billion) in FY19.

Government Initiatives

  • In August 2021, Prime Minister Mr. Narendra Modi launched e-RUPI, a person and purpose-specific digital payment solution. e-RUPI is a QR code or SMS string-based e-voucher that is sent to the beneficiary’s cell phone. Users of this one-time payment mechanism will be able to redeem the voucher at the service provider without the usage of a card, digital payments app, or internet banking access.
  • As per Union Budget 2021-22, the government will disinvest IDBI Bank and privatise two public sector banks.
  • As per Union Budget 2019-20, the Government proposed fully automated GST refund module and an electronic invoice system that will eliminate the need for a separate e-way bill.
  • Government smoothly carried out consolidation, reducing the number of Public Sector Banks by eight.
  • As of September 2018, the Government of India made Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme an open-ended scheme and added more incentives.
  • The Government of India planned to inject Rs. 42,000 crore (US$ 5.99 billion) in public sector banks by March.

Achievements

Following are the achievements of the Government:

  • In July 2021, Unified Payments Interface (UPI) recorded 3.25 billion transactions worth Rs. 6.06 lakh crore (US$ 81.48 billion).
  • According to the RBI, India’s foreign exchange reserves reached US$ 611.14 billion, as of July 23, 2021.
  • 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 transactions through immediate payment service (IMPS) reached 303.76 million (by volume) and amounted to Rs. 2.84 trillion (US$ 38.07 billion) in June 2021.

Road Ahead

Enhanced spending on infrastructure, speedy implementation of projects and continuation of reforms are expected to provide further impetus to growth in the banking sector. All these factors suggest that India’s banking sector is poised for a robust growth as rapidly growing businesses will turn to banks for their credit needs.

Also, the advancement in technology has brought mobile and internet banking services to the fore. The banking sector is laying greater emphasis on providing improved services to their clients and upgrading their technology infrastructure to enhance 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 FY23 driven by the five-fold increase in the digital disbursements.

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

Note: Conversion rate used in August 2021, Rs. 1 = US$ 0.01345

Note: * - according to an FIS report, # - Microfinances Institution Network

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

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