New govt, RBI policies will help revive banking sector: D&B

The domestic banking sector is struggling for the last few quarters, but it will see a revival thanks to the many new policies from the government and the Reserve Bank of India (RBI), Dun and Bradstreet said, in a statement. 

So much so that D&B's CEO and Director Bob Carrigan said that the banking sector will be key driving force of the Indian economy because of the transformation taking place in many areas.

He said, the 20% CAGR growth in bank credit and the four-fold increase in the per capital bank credit over the last decade is a clear indicator of the country's economic progress," he added. 

"While the regulators and the government have played a major role in this incredible growth, this has also been possible because of the untiring efforts of Indian banks," he added. 

The government and the Reserve Bank of India (RBI) have made a lot of changes to the banking sector, allowing new players, all-new models, and bank structure enter the market. This includes payments banks, small finance banks, making licences available on tap, and so on. 

Dun & Bradstreet recently unveiled its 'India's Top Banks 2016' report which said that credit growth of the featured scheduled commercial banks moderated to 8.6% in FY16 from nearly 9.7% in FY15. This was the lowest in two decades. Banks have been practising caution in lending for the past year, as the Kingfisher case intensified in the country and bad loans mounted. Gross Non-Performing Assets (NPA) ratio went up sharply from 4.3% in FY15 to 7.5% in FY16, the highest in 13 years but this was "largely reflecting reclassification of restructured standard advances as NPAs," the D&P report said. 

RBI's initiatives to clean up the banks and review its asset quality has also made banks cautious in lending. Demand for credit has also been muted in the period. Bank deposits also decelerated from nearly 10.5% in FY15 to 7.5% in FY16, the lowest in five decades and the net profits of the banks declined by 61% in FY16. 

For the report, D&B analysed the performance of 74 Scheduled Commercial Banks (SCBs), which included 27 public sector banks, 21 private sector banks, and 26 foreign banks. 

Kaushal Sampat, President and Managing Director, Dun & Bradstreet, said, The NPA quagmire, burden of high provisioning and slowdown in credit demand have undoubtedly taken a toll on banks' performance over the last two years. 

"However, concerted policy measures by the government and the RBI will see the beginnings of a structural recovery in the banking system," he said. 

The government cleared the Bankruptcy Code and the Debt Recovery Bill in its last Parliamentary Session, while the RBI announced measures to deepen the corporate bonds market, let banks issue its own Masala Bonds, and also announced various measures to develop the fixed income and currency markets. 

"Business confidence has received a strong boost driven by the focus of the government on policy certainty, predictability and continuity," Sampat said. 

Clearance of the crucial bills reflects "the government's firm intent on improving the ease of doing business in India and creating an enabling environment for expeditious resolution of bankruptcies while simultaneously reducing the problem of stressed assets in the banking system," he added.