Resilience Through an Evolving Industry

Due to the pandemic, bank credit growth remained subdued on account of lack of demand. However, there are signs of credit revival alongside green shoots of recovery in economic activity.

On the brighter side, banks are better positioned in managing stress given higher capital buffers, improvement in recoveries and a return to profitability. Further, the government-led amalgamation of Pub-lic Sector Banks (PSBs) has helped them consolidate their market position. The capital to risk-weighted assets ratio (CRAR) of Scheduled Commercial Banks (SCBs) rose to 16 per cent by March-end from 14.7 per cent in March 2020. As per RBI, even under stress, SCBs are sufficiently capitalised both at the aggregate and individual levels.

Despite the impact of Covid-19, the asset quality of SCBs has improved with the Gross Non-Performing Assets (GNPA) ratio declining to 7.5 per cent in March 2021 from 8.4 per cent in March 2020. The recently launched National Asset Reconstruction Company (NARCL) may help support re-coveries in the medium term.

The regulatory moratorium, Covid-19 specific restructuring and state guaranteed Emergency Credit Line and Guarantee Scheme (ECLGS) for MSMEs have played a significant role in reviving the banking sector. RBI has also been incentivising banks to lend to specific sectors and obtain benefits of equivalent amounts through its reverse repo window. There is also an encouraging trend for investments in industry viz. cement, steel, speciality chemical, etc., which are directly linked to increased public investments in infrastructure and healthcare sectors. Higher consumption is also expected to trigger investment.

Going forward, deposit growth is expected to be around 15 per cent and credit growth at 8 per cent. The outlook for FY22 is comparatively better than last year with GDP growth expected at 9.5 per cent.

The retail inflation at 6.26 per cent is margin-ally above the RBI’s inflation target band of two to six per cent on account of inflationary pres-sures in food and oil prices. However, RBI is un-likely to shift its stance from accommodative to neutral or tinker with the rates in the near term given the growth focus. The benchmark bond yields have started rising with an increase in global commodity prices on account of supply constraints in the present pandemic scenario and are expected to increase marginally

CONSOLIDATION OF INDIAN BANKS

The Indian banking industry has witnessed mega consolidation wherein ten PSBs were amalgamated into four and have already com-pleted one financial year, gradually realising the synergy benefits.

The Indian Government has also announced a Disinvestment Policy of not having more than four PSBs in each ‘strategic sector’. The plan for the privatisation of two PSBs has been announced in the Union Budget 2021-22. Therefore, the banking sector may be set for transformation.

COPING WITH TRANSFORMATION

Despite a challenging year, Punjab National Bank (PNB) was able to complete the amalga-mation of the Oriental Bank of Commerce and United Bank of India with it.

The integration of the business, human re-sources and information technology platform was completed in record time to bring the customers of all three banks on the same plat-form. The organisation structure of the bank was revamped with a vertical credit delivery model for improving efficiency, timely dispen-sation and strengthening of credit underwriting standards. It has also launched an IT-based solution called PNB LenS — the Lending Solu-tion to facilitate the standardised processing of loans.

Further, it has crossed Rs18,45,739 crore in Gross Global Business as of March 31, with Gross Global Advances at Rs7,39,407 crore and Gross Global Deposit at Rs11,06,332 crore. The core retail loan book grew by 9.54 per cent to Rs113,047 crore with a robust share of current and saving deposits (CASA) to total deposit at 45.5 per cent. We will continue with our focus on enhancing CASA deposits and the credit under the retail, agriculture and micro, small and medium enterprises (MSME) (RAM seg-ment. We plan to leverage our vast network of 10,769 branches across India, low-cost deposit base and technology to deliver greater value to all our stakeholders. Our strategic priorities con-tinue to be in the areas of quality credit growth, effective asset quality management and digi-talisation.

Recently, the bank joined hands with IIT Kanpur and Foundation for Innovation & Research in Sci-ence & Technology (FIRST) to jointly establish the PNB-IIT Kanpur Innovation Centre to conduct research and develop technological solutions in the banking and financial services sector.

GLOBAL REACH

PNB’s major lines of business activities in Dubai are term loans/ external commercial borrowings, fund-based and non-fund-based working capital facilities to corporate clients, bills negotiation facility, etc.

PNB has subsidiaries in London, UK and Bhu-tan, and a joint venture in Nepal. The bank also has representative offices, one each in Dhaka, Bangladesh and at Yangon, Myanmar.

GULF NRI REMITTANCE

Indians are one of the largest remitters of funds to India for maintenance, investment and oth-er needs of the family residing in India. This trend may continue in the future with India contributing a skilled workforce in information technology, infrastructure, healthcare and hos-pitality industry across the globe.

PNB has a dedicated call centre with a toll-free helpline for customers calling from the UAE. A monthly bulletin is sent on their registered email IDs. The bank also has a tie-up with 10 exchange houses in the Gulf to facilitate remittances. It has enhanced its digital experience for NRIs as well.

THE FUTURE OF INDIAN BANKING

PSBs have consolidated their position and have more dominant retail deposit franchises due to their large branch networks and high depositor confidence. They are also well-positioned in man-aging stress due to higher capital buffers and return to profitability.

One of the challenges that the banking sector faces today is in terms of increased technology adoption.

Besides, new entrants like 'fintech' and 'big-tech' have lowered the costs, enhanced the qual-ity and convenience and reach of various services. In the future, the banking space will be domi-nated by both traditional players with a strong customer base and new technology-led players.