Trade Analytics
Banking
Total credit extended in India reached US$ 1.3 trillion in Oct-Dec 2017.

Banking Sector in India

Latest update: June, 2018

  • Credit off-take has been surging ahead over the past decade, aided by strong economic growth, rising disposable incomes, increasing consumerism & easier access to credit
  • As of Q3 FY18, total credit extended surged to US$ 1,288.1 billion.
  • Credit to non-food industries increased by 9.53 per cent reaching US$ 1,120.42 billion in January 2018 from US$ 1,022.98 billion during the previous financial year.
  • Demand has grown for both corporate & retail loans; particularly the services, real estate, consumer durables & agriculture allied sectors have led the growth in credit.
  • The digital payments revolution will trigger massive changes in the way credit is disbursed in India.^
Growth

Notes: CAGR - Compounded Annual Growth Rate, * - FY18 data upto December 2017, ^ - according to Mr Amitabh Kant, CEO of NITI Aayog
Source: Reserve Bank of India (RBI), Aranca Research;

Last Updated: June, 2018

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 27 public sector banks, 22 private sector banks, 44 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks, in addition to cooperative credit institutions. Bank credit grew at 12.64 per cent year-on-year to Rs 85.511 lakh crore (US$ 1,326.78 billion) on May 11, 2018 from Rs 75.91 lakh crore (US$ 1,131.47) on May 12, 2017.

Investments/developments

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

  • The bank recapitalisation plan by Government of India is expected to push credit growth in the country to 15 per cent and as a result help the GDP grow by 7 per cent in FY19 ^.
  • Public sector banks are lining up to raise funds via qualified institutional placements (QIP), backed by better investor sentiment after the Government of India's bank recapitalisation plan and an upgrade in India's sovereign rating by Moody's Investor Service.
  • The total value of mergers and acquisition during FY17 in NBFC diversified financial services and banking was US$ 2,564 billion, US$ 103 million and US$ 79 million respectively @.
  • The biggest merger deal of FY17 was in the microfinance segment of IndusInd Bank Limited and Bharat Financial Inclusion Limited of US$ 2.4 billion @.
  • In May 2018, total equity funding's of microfinance sector grew at the rate of 39.88 to Rs 96.31 billion (Rs 4.49 billion) in 2017-18 from Rs 68.85 billion (US$ 1.03 billion) #.

Government Initiatives

  • A new portal named 'Udyami Mitra' has been launched by the Small Industries Development Bank of India (SIDBI) with the aim of improving credit availability to Micro, Small and Medium Enterprises' (MSMEs) in the country.
  • Mr Arun Jaitley, Minister of Finance, Government of India, introduced 'The Banking Regulation (Amendment) Bill,2017', which will replace the Banking Regulation (Amendment) Ordinance, 2017, to allow the Reserve Bank of India (RBI) to guide banks for resolving the problems of stressed assets.
  • Under the Union Budget 2018-19, the government has allocated Rs 3 trillion (US$ 46.34 billion) towards the Mudra Scheme and Rs 3,794 crore (US$ 586.04 million) towards credit support, capital and interest subsidy to MSMEs.
  • In March 2018, the Government of India launched Pradhan Mantri Vaya Vandana Yojna (PMVVY) to provide elderly people Rs 10,000 (US$ 155.16) pension per month. This scheme has an investment limit of Rs 15 lakh (US$ 23,273.86).
  • In May 2018, the Government of India provided Rs 6 trillion (US$ 93.1 billion) loans to 120 million beneficiaries under Mudra scheme.
  • As on January 4, 2018, the Lok Sabha has approved recapitalisation bonds worth Rs 80,000 crore (US$ 12.62 billion) for public sector banks, which will be accompanied by a series of reforms.

The government and the regulator have undertaken several measures to strengthen the Indian banking sector.

  • A two-year plan to strengthen the public sector banks through reforms and capital infusion of Rs 2.11 lakh crore (US$ 32.5 billion), has been unveiled by the Government of India that will enable these banks to play a much larger role in the financial system and give a boost to the MSME sector. In this regard, the Lok Sabha has approved recapitalisation bonds worth Rs 80,000 crore (US$ 12.62 billion) for public sector banks, which will be accompanied by a series of reforms, according to Mr Arun Jaitley, Minister of Finance, Government of India.
  • The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 Bill has been passed by Rajya Sabha and is expected to strengthen the banking sector.

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.

Many banks, including HDFC, ICICI and AXIS are exploring the option to launch contact-less credit and debit cards in the market shortly. The cards, which use near field communication (NFC) mechanism, will allow customers to transact without having to insert or swipe.

Mr Bill Gates, Co-founder of Microsoft Corp, has stated that India will move quite rapidly to a digital payments economy in as little as seven years, based on the introduction of digital payment banks combined with other things like direct benefit transfers, universal payments interface and Aadhaar.

Exchange Rate Used: INR 1 = US$ 0.016 as on FY2018.

References: Media Reports, Press releases, Reserve Bank of India, Press Information Bureau, www.pmjdy.gov.in, Union Budget 2017-18

Notes: ^ - according to a report by Ambit Capita,* - 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.

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