Move to tackle 'stressed assets'

Banks are expanding their reach, targeting markets that have a strong NRI presence

One of the most significant changes occurring in the Indian economy can be seen in the banking sector. Worried over the growing portfolio of 'stressed assets' - which has touched a record high of Rs8 trillion (about $125 billion) - the Indian government has been introducing radical new measures to tackle this problem.
Recently, for instance, the Indian Parliament passed the Banking Regulation (Amendment) bill, 2017, which empowers the Reserve Bank of India (RBI), the country's central bank, to deal with stressed assets.
Finance Minister Arun Jaitley told Parliament that NPAs in public sector banks alone amounted to about Rs6.41 trillion. According to the minister, the bad loans had piled up over the years, with banks having extended the loans in the past.
With the government now pushing ahead by dragging large defaulters to the National Company Law Tribunal, analysts expect quicker resolution of these disputes. The government has initiated action against a dozen defaulters, who individually have an exposure of over Rs50 billion each - and with more than 60 per cent of it classified as bad loans.
All these measures are expected to bring dramatic changes to the banking sector, resulting in both public and private sector institutions starting on a new slate.
As a report by McKinsey & Company, noted recently, "There are many layers to the changing face of banking and finance in the world's second most populous country. Even as legacy banks continue to be under pressure from stressed assets and stagnant loan growth, the sector as a whole represents one of the world's biggest opportunities to create value in banking."
Macroeconomic fundamentals continue to be strong, the country is in the midst of a digital revolution, and the ongoing disruptive changes (including momentum on the regulatory front) point to possibilities for both new entrants and incumbent banks, notes the report.
The Indian banking sector is also expected to witness dramatic changes over the coming months. The government is determined to consolidate public sector banks; the process is expected to begin later this year.
Earlier this year, five associates of the State Bank of India (SBI) - State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore - were merged with the country's largest commercial bank.
The Bharatiya Mahila Bank also became part of the SBI, which now ranks among the world's top-50 banks.
The deepening of economic reforms in the country and the introduction of landmark new legislation - including the Goods and Service Tax Act and the widespread use of Aadhar - have spurred global investor interest in the Indian banking sector.
Many Indian banks are aggressively expanding their international reach, targeting markets that either have a strong NRI presence - such as the Gulf region - or countries that are major hubs for Indian exporters.
Consequently, the next few years will see Indian banks beefing up their international operations, launching new services to NRIs and Persons of Indian Origin (PIOs), ensure better quality remittance facilities and also providing a plethora of services.

• India