Current Scenario of Indian Banking Industry: 2020

Quick Overview of Banking Sector Analysis, 2020

Key Points:

  • The Indian banking system comprises of 20 public sector banks, 22 private sector banks, 44 foreign banks, 44 regional rural banks, 1,542 urban cooperative banks and 94,384 rural cooperative banks in addition to cooperative credit institutions. As of January 31, 2020, the total number of ATMs in India increased to 210,263 and is further expected to increase to 407,000 by 2021.
  • Indian banks are progressively focusing on adopting an integrated approach to risk management. Lately, The NPAs (Non-Performing Assets) of commercial banks has logged a recovery of Rs 400,000 crore (US$ 57.23 billion) in FY19, which is highest in the last four years.
  • RBI has decided to set up Public Credit Registry (PCR), an extensive database of credit information, accessible to all stakeholders.
  • Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) increased to Rs 1.28 lakh crore (US$ 18.16 billion) during the week ended April 8, 2020. As of November 2019, there were a total of 19 million subscribers under Atal Pension Yojna.
  • Rising income is expected to enhance the need for banking services in rural areas, and therefore, drive the growth of the sector.
  • The digital payments revolution will trigger massive changes in the way credit is disbursed in India. Debit cards have radically replaced credit cards as the preferred payment mode in India after demonetization. Transactions through Unified Payments Interface (UPI) stood at 1.24 billion in March 2020, valued at Rs 2.06 lakh crore (US$ 29.47 billion).
  • As per Union Budget 2019-20, the Government proposed a fully automated GST refund module and an electronic invoice system to eliminate the need for a separate e-way bill.

In 2016, Deloitte, a multinational professional service and one of the Big 4’s, studied these fluctuations in financial structure and banking landscape and recently released a report “Banking on the Future: Vision 2020” along with the Confederation of Indian Industry. The report highlighted the role of technology in banking and how technology-oriented innovation will change the market.

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Here are the five crucial changes that will disrupt the Indian banking sector in 2020, according to Deloitte.

  1. Payment banks to pave the way
  2. Role of Artificial Intelligence
  3. Block chain & Distributed Ledger Technology
  4. Cyber Security: Upping the ante
  5. Increasing use-cases of RPA

Is the Banking industry different in 2020???

With the sudden impact of Covid-19, decreased productivity and lockdowns have started to take a toll on the financials of the corporate sector. The key observations are Supply chain disruptions, manufacturing hindrances, and crippled health systems that need a big public fund/stimulus to continue operations smoothly. Income from tourism, entertainment sectors among many others has gone down due to the economic situation. Such factors are all adding up to strain the global economy which might also have its repercussions in the year ahead, 2021.

The COVID-19 pandemic is seen as the “black swan event” which will require extraordinary measures from governments across the globe to help build economic stability. Even when the pandemic will likely come under control, several economic scenarios indicate that the global recession is evident of varying magnitudes. In regard to the Indian economy, the situation has hit at a time when growth has slowed to the lowest in a decade. In the recent past, there were signs of green shoots of recovery in the Indian economy. However, the impending outbreak of the virus is likely to severely impact the recovery process.

The current challenges are likely to translate into high capital infusion requirements for the FIs to maintain both regulatory capitals as well as growth capital.

While the long-term implications of the pandemic for the Indian financial services sector are yet to be discovered, when normalcy returns, banks and NBFCs will likely have learned a few lessons. It may include how to best retain operational resilience when confronted with future pandemics, and possibly how to redesign new operating models such as alternate work arrangements and innovative ways to interact with customers in a remote set-up. Furthermore, the pandemic may further accelerate migration to the infrastructure of the future – digital channels and connectivity.

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