BANKS IN INDIA have taken great strides in improving their reach and performance in the past few years. As a result, not only has the sector emerged from the overhang on non-performing assets and the shadow of Covid-19, but it is also well-placed to scale at a rapid pace today.
A robust banking sector is critical for the sustained economic growth of the country. This column captures the 10 major trends that may shape the banking sector in the year/s ahead and the impact they would create.
1. Scale Matters Scale and reach matter in banking. Consolidation of the public sector banks and the recently announced merger of HDFC Bank and HDFC Ltd has created banks with large economies of scale. This is likely to exert pressure on the other players to look for potential M&A options and shape potential strategic consolidation in the private sector in the year/s ahead.
2. Improvement in Asset Quality The banking sector has seen significant improvement in its asset quality. According to the Reserve Bank of India’s (RBI) financial stability report, gross NPAs of the banks stood at 5.9 per cent as of March 2022, whereas net NPAs stood at 1.7 per cent. This is a significant decline from the peak gross NPAs of 11.5 per cent seen in March 2018. A focus on recoveries, settlements, invoking the Insolvency and Bankruptcy code (IBC) process and improvement in collections have enabled banks to substantially improve their asset quality.
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