BANKING ON ASSET QUALITY

Even as the regulator is blowing hot, the flagbearers of Indian banking continue to hold sway over Fortune India-Grant Thornton Bharat's 2024 ranking.

- V. KESHAVDEV

IF THERE is one verb that best captures the Reserve Bank of India’s (RBI’s) recent actions, it’s ‘warns.’ In recent times, scheduled commercial banks, cooperative banks, nonbanks, and fintechs have been frequently reprimanded for financial misconduct and regulatory violations.

Indeed, since the start of this calendar year, punitive fines have reached an alltime high of `65.32 crore, exceeding the previous record of `40.39 crore set in 2023. Although the amount is relatively small compared to the overall size of the sector, it underscores a glaring and persistent need to improve compliance standards across the banking spectrum.

Overall, the number of penalties nearly doubled between 2021 and 2023, with non-compliance of central bank directives (32.7%) and know-your-customer/antimoney laundering (22.2%) emerging as the top two violations, states a study by Signzy, a digital banking infrastructure provider (See: An ignominious high). Unsurprisingly, penalties on private and public sector banks accounted for the majority (60%) of total penalties (See: All in the family).

Coincidentally, compliance challenges have paralleled a sharp increase in retail credit, particularly personal loans, which surged from 10% growth in FY21 to 20% in FY23, and over 31% in FY24. This growth has been fuelled by significant digitalisation in the sector, led by credit bureaus enhancing data collation, validation, and decisionmaking processes, along with the rise of e-commerce transactions.

Vivek Iyer, partner at Grant Thornton Bharat and Fortune India’s knowledge partner for the Best Financiers issue, believes that the regulator’s concern isn’t with growth per se, but with the lack of sustainability. “The job of the regulator is to proactively identify themes of unsustainability,” says Iyer.