Punjab National Bank continues to lead the transformation in the Indian banking sector while focusing on digitalising its services
Due to the pandemic, bank credit growth remained subdued on account of lack of demand. However, there are signs of credit revival alongside green shoots of recovery in economic activity.
On the brighter side, banks are better positioned in managing stress given higher capital buffers, improvement in recoveries and a return to profitability. Further, the government-led amalgamation of Pub-lic Sector Banks (PSBs) has helped them consolidate their market position. The capital to risk-weighted assets ratio (CRAR) of Scheduled Commercial Banks (SCBs) rose to 16 per cent by March-end from 14.7 per cent in March 2020. As per RBI, even under stress, SCBs are sufficiently capitalised both at the aggregate and individual levels.
Despite the impact of Covid-19, the asset quality of SCBs has improved with the Gross Non-Performing Assets (GNPA) ratio declining to 7.5 per cent in March 2021 from 8.4 per cent in March 2020. The recently launched National Asset Reconstruction Company (NARCL) may help support re-coveries in the medium term.
The regulatory moratorium, Covid-19 specific restructuring and state guaranteed Emergency Credit Line and Guarantee Scheme (ECLGS) for MSMEs have played a significant role in reviving the banking sector. RBI has also been incentivising banks to lend to specific sectors and obtain benefits of equivalent amounts through its reverse repo window. There is also an encouraging trend for investments in industry viz. cement, steel, speciality chemical, etc., which are directly linked to increased public investments in infrastructure and healthcare sectors. Higher consumption is also expected to trigger investment.
Going forward, deposit growth is expected to be around 15 per cent and credit growth at 8 per cent. The outlook for FY22 is comparatively better than last year with GDP growth expected at 9.5 per cent.
The retail inflation at 6.26 per cent is margin-ally above the RBI’s inflation target band of two to six per cent on account of inflationary pres-sures in food and oil prices. However, RBI is un-likely to shift its stance from accommodative to neutral or tinker with the rates in the near term given the growth focus. The benchmark bond yields have started rising with an increase in global commodity prices on account of supply constraints in the present pandemic scenario and are expected to increase marginally
CONSOLIDATION OF INDIAN BANKS
The Indian banking industry has witnessed mega consolidation wherein ten PSBs were amalgamated into four and have already com-pleted one financial year, gradually realising the synergy benefits.
The Indian Government has also announced a Disinvestment Policy of not having more than four PSBs in each ‘strategic sector’. The plan for the…