After a dream run in the 2000 decade , the banking industry has been facing one challenges after another. First came the new agile FinTechs with wallets and host of other transaction services that stormed the citadel of banks. And if that was not enough , the Reserve Bank of India (RBI), came out with differentiated banking license for Payments and Small Finance Banks. The low credit offtake and asset quality deterioration has further added to their woes in the last few years.
The year 2017 was like a continuation of many of these development with only silver lining from the new bankruptcy code, that has promised a faster time bound resolution of bad assets. Here go the big trends in 2017
i) Asset Quality Deterioration Continues: The asset quality deterioration continues with the farm loan waiver in certain states is creating a moral hazard issue. The RBI , too, is forcing banks to make provisions for stressed assets , which are not strictly NPAs today.
ii) Low Credit Offtake : The credit offtake is still low at around 70 per cent. The public sector banks (PSBs ) are anyway staying away from lending , while private sector banks are selectively offering refinancing to good corporate.
iii) The new Bankruptcy Code : The biggest change came from the new bankruptcy code that provide for a faster resolution of stressed assets in a time bound manner. Bankers are hopeful of clearing the stock of bad debts with some gains in the books
iv) Fresh Capital via recap bonds : The PSBs strated of capital will soon be getting fresh capital through the recap bonds. The banks with surplus deposits post demonetization will subscribe to these bonds issued by govt or government backed institution and later government will recapitalize the bank with same money.
v) Fintech working with banks : The FinTechs , which were considered as a threat to banks , are actually working very closely with banks. There are some which are providing business leads and the actually funding is taking place from the banks' balance sheets.
vi) New payments and small finance banks : More and more new payments banks and small finance banks are launching their operations. These banks are catering to a specific segments. In the longer run , these banks will achieve scale and size.
vii) Retail story continues: The retail banking has been a savior for banking industry as the growth is in upwards of 18-20 per cent. In a way , retail banking is compensating for the lower growth on the corporate side. The retail story continues with housing being the largest segment for almost all.
viii) New areas like consumer durable and micro finance ; Some two decades ago , the retail banking spread from home loans to other unsecured loans in a big way. The new growth segments are now micro loans and consumer durable financing. Banks are developing these new businesses for future growth.
ix) Use of bots and artificial intelligence - the adoption of AI and bots is gradually taking place in the banking industry. Some banks have launched software robotics to for repetitive call centre jobs. The adoption of AI is going to transform many of the segments of banks especially 'sales platform' and 'customer service.