Indian banks to see 'moderate growth' in deposits, 'deceleration in credit'
Chennai, Dec 31 (IANS) - Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Shares and Stock Brokers, shared insights on the robust outlook for the Indian banking sector in 2024. In an interview with IANS, he highlighted key trends, potential challenges, and opportunities that the sector may face in the coming year.
Trends in 2024:
The Indian banking sector is expected to witness a robust and healthy outlook in 2024. Factors contributing to this positive outlook include the Reserve Bank of India's (RBI) decision to pause policy rate revision, satisfactory capital levels, prudent loan loss provisions, and a softening trend in retail inflation.
Deposit and Credit Trends:
Hajra anticipates a moderate acceleration in deposit growth and a deceleration in credit growth in 2024 compared to the previous year. This is expected to result in a system-wide reduction in the credit-deposit ratio. While the transmission of previous monetary tightening is nearly complete, a modest increase in both lending and deposit rates may occur in 2024.
Merger and Acquisition Possibilities:
The consolidation among public sector institutions is considered complete, with no additional steps expected in 2024. Private sector banks, particularly old private sector banks, remain potential targets for mergers and acquisitions.
Role of Technology:
The increasing role of technology in the banking sector is highlighted, with digitalization being irreversible. Many banks have established internal fintech companies, and further momentum in technological investments is expected. Enhanced data protection regulations and the rise in digitization will necessitate increased investments in information and cybersecurity initiatives.
Challenges and Opportunities:
Challenges:The deceleration in corporate investment and lower working capital needs may pose challenges for banks aiming to expand their corporate lending portfolios. The RBI's cautious stance on exponential growth in retail loans and lending to non-banking financial companies may lead to a deceleration in such lending activities.
Opportunities:The formalization of the economy and digital distribution channels targeting unbanked sections present significant opportunities. Increased digitization may help banks reduce operating expenses and enhance profitability.
SWOT Analysis for Public and Private Banks:
Public Sector Banks (PSBs):Strengths include extensive geographic reach, a robust franchise for deposits and credit, and the public perception of a sovereign guarantee. Challenges include relatively high operational expenses and an emphasis on developmental factors over purely commercial considerations. Market share decline and the need for corrective measures are identified as potential weaknesses.
Private Sector Banks:Strengths include management continuity, business decision-making agility, and a focus on risk evaluation with an emphasis on profitability. Weaknesses include restricted geographic reach, high employee attrition, and a greater concentration of credit in specific activities. Opportunities lie in increased utilization of technology, quick turnover times for business decisions, and potential for further market share consolidation.
Regulatory Changes:
The RBI is expected to prioritize measures aimed at fortifying the financial system in 2024. Potential changes may include the implementation of Basel 4 standards, focusing on credit risk weights and encouraging banks to price loans using external benchmarks for transparency.
In conclusion, despite potential challenges, the overall outlook for the Indian banking sector in 2024 appears positive, with a focus on adaptability to technological advancements, regulatory compliance, and seizing opportunities in a digitized financial landscape.
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