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Indian Banking Industry Analysis

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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 five in the Faster Payments Innovation Index (FPII). *

Market Size

The Indian banking system consists 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 on 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.

Public sector banks’ assets stood at Rs 72.59 lakh crore (US$ 1,038.76 billion) in FY19.

During FY16-FY20, credit off-take grew at a CAGR of 13.93 per cent. As of FY20, total credit extended surged to US$ 1,936.29 billion.

During FY16-FY20, deposits grew at a CAGR of 6.81 per cent and reached US$ 1.90 trillion by FY20. Credit to non-food industries increased 3.3 per cent y-o-y, reaching US$ 1.26 trillion on February 28, 2020 and US$ 1.42 trillion on March 13, 2020.

Banking Infographic June 2020 - Indian Banking Industry Analysis


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

  • In 2019, banking and financial services witnessed 32 M&A (merger and acquisition) activities worth US4 1.72 billion.
  • In March 2020, State Bank of India (SBI), India’s largest lender, raised US$ 100 million in green bonds through private placement.
  • In February 2020, the Cabinet Committee on Economic Affairs gave its approval for continuation of the process of recapitalization of Regional Rural Banks (RRBs) by providing minimum regulatory capital to RRBs for another year beyond 2019-20 – till 2020-21 to those RRBs which are unable to maintain minimum Capital to Risk weighted Assets Ratio (CRAR) of 9 per cent as per the regulatory norms prescribed by RBI.
  • In October 2019, Department of Post launched the mobile banking facility for all post office savings account holders of CBS (core banking solutions) post office.
  • Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) stood at Rs 1.06 lakh crore (US$ 15.17 billion.
  • In October 2019, Government e-Marketplace (GeM) signed a memorandum of understanding (MoU) with Union Bank of India to facilitate a cashless, paperless and transparent payment system for an array of services.
  • In August 2019, the Government announced major mergers of public sector banks, which included United Bank of India and Oriental Bank of Commerce to be merged with Punjab National Bank, Allahabad Bank to be amalgamated with Indian Bank and Andhra Bank and Corporation Bank to be consolidated with Union Bank of India.
  • The NPAs (Non-Performing Assets) of commercial banks recorded a recovery of Rs 400,000 crore (US$ 57.23 billion) in the last four years including record recovery of Rs 156,746 crore (US$ 22.42 billion) in FY19.
  • Allahabad Bank’s board approved the merger with Indian bank for the consolidation of 10 state-run banks into the large-scale lenders.
  • The total equity funding of microfinance sector grew at 42 y-o-y to Rs 14,206 crore (US$ 2.03 billion) in 2018-19.

Government Initiatives

  • As per Union Budget 2019-20, the Government proposed fully automated GST refund module and an electronic invoice system that will eliminate the need for a separate e-way bill.
  • Under the Budget 2019-20, Government proposed Rs 70,000 crore (US$ 10.2 billion) to the public sector banks.
  • Government smoothly carried out consolidation, reducing the number of Public Sector Banks by eight.
  • As of September 2018, the Government of India made Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme an open-ended scheme and added more incentives.
  • The Government of India planned to inject Rs 42,000 crore (US$ 5.99 billion) in public sector banks by March.


Following are the achievements of the Government:

  • As on March 31, 2019, the number of debit and credit cards issued were 925 million and 47 million, respectively.
  • According to RBI, India’s foreign exchange reserve stood at approximately US$ 414.14 billion as of April 19, 2020.
  • To improve infrastructure in villages, 204,000 point of sale (PoS) terminals have been sanctioned from the Financial Inclusion Fund by National Bank for Agriculture & Rural Development (NABARD).
  • 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.
  • Unified Payments Interface (UPI) recorded 1.25 billion transactions in March 2020, valued at Rs 2.06 lakh crore (US$ 29.22 billion).

Road Ahead

Enhanced spending on infrastructure, speedy implementation of projects and continuation of reforms are expected to provide further impetus to growth in the banking sector. All these factors suggest that India’s banking sector is poised for a robust growth as rapidly growing businesses will turn to banks for their credit needs.

Also, the advancement in technology has brought mobile and internet banking services to the fore. The banking sector is laying greater emphasis on providing improved services to their clients and upgrading their technology infrastructure to enhance customer’s overall experience as well as give banks a competitive edge.

India’s digital lending stood at US$ 75 billion in FY18 and is estimated to reach US$ 1 trillion by FY23 driven by the five-fold increase in the digital disbursements.

Note: Conversion rate used in April 2020, Rs 1 = US$ 0.013123

References: Media Reports, Press releases, Reserve Bank of India, Press Information Bureau, www.pmjdy.gov.ins

Note: * – according to an FIS report, – Microfinances Institution Network

The source :- IBEF.ORG

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