INDIAN BANKING CHALLENGES - CREDIT RISKS , GOVERNANCE , TECHNOLOGY , HR

Prepared in 2022 - challenges faced by the indian banks ... with statistics

1. WHAT AILS THE INDIAN BANKING SYSYTEM?
DR B S SURAN,
Former MD, NABARD Financial services (NABFINS), Bangalore
Date : 12 Dec 2022

2. OUTLINE OF THE PRESENTATION :
1.The Banking system in India
2.Board contour :of its size and reach of the Indian banking system
3.The importance of the banking system ?
4.The Present challenges and ills in the banking system
1.NPA & Loan delinquency
2.Governance, leadership & HR
3.Customer expectations
4.Regulatory issues
5.Cyber risk, technology, other issues
5. The way forward …..

3. THE BANKING ARCHITECTURE IN INDIA
RBI NABARD DFI- NHB EXIM OTHER
FI
SBI & PSBS -12PVT BANKS- 32 FOREIGN
BANKS- 46
SMALL
FINANCE
BANKS- 12
PAYMENT BANK
-6
REGIONAL
RURAL BANKS -
43
COOPERATIVE BANKS
URBAN COOP
BANKS-1534 RURAL COOPS STATE COOP
BANK -28
ARDBS / MORTGAGE
BANKS- ABT 20 DISTRICT COOP
BANK- 300+
PACS/ SERVICE
BANK- 90000
NBFCs
1000s

4. THE SIZE OF THE BANKING STRUCTURE IN INDIA*
Asset Size
Deposits
Loans
Net Profit
Gross NPA
Rs 195 Lakh Cr
Rs 155 Lakh Cr
Rs 108 Lakh Cr
Rs 1.2 Lakh Cr
Rs 8.37 Lakh Cr* RBI :Trend & progress in India – Dec 21
0
20
40
60
80
100
120
PSBPvt BanksForegin
Banks
SFBRRBsCOOP
Banks
107
54
8.5
1.55.57.2
70
45
4.61.43.26.9
Deposits & Advances - of different
Banking agencies – in lakh crore
DepositsAdvances

5. BANKING… THE ESSENCE OF ECONOMIC GROWTH !!
The financial sector performs this basic economic function of intermediation essentially through four
transformation mechanisms :
1.liability-asset transformation (i.e., accepting deposits as a liability and converting them into assets such
as loans);
2.size-transformation (i.e., providing large loans on the basis of numerous small deposits);
3.maturity transformation (i.e., offering savers alternate forms of deposits according to their liquidity
preferences while providing borrowers with loans of desired maturities); and
4.risk transformation (i.e., distributing risks through diversification which substantially reduces risks for
savers which would prevail while lending directly in the absence of financial intermediation).
- Dr C. Rangarajan ; Ex RBI Governor
Our aspirational goal of a $5 Trillion economy, would need a growth rate 9% p.a for 5+ years – credit is
essential ingredient for that.
Sector % age share in GDPBank Credit Outstanding
1Primary – Agri /Forestry/ Mining 21.8 %13 Lakh crore ( Agri only)
2Secondary (Manufacture , elec, gas)24.29 %32 lakh crore ( Industry only)
3Tertiary ( services sector) 53.89 %27 Lakh crore
- Retail loans 29 lakh crore

6. RBI Report

7. CHALLENGE : 1
NPA AND LOAN DELINQUENCY

8. RBI Report

9. RBI ReportSome dispute resoln mechanism
•DRT -1993
•SARFESI Act – 2002
•Lok Adalat
•OTS
•Insolvency & Bankruptcy code
•Asset Recon. Companies

10. RBI Report
Some dispute resolution mechanism
•DRT -1993
•SARFESI Act – 2002
•Lok Adalat
•OTS
•Insolvency & Bankruptcy code
•Asset Recon. Companies

11. CHALLENGE : 2
GOVERNANCE AND HR ISSUES

12. GOVERNANCE & HR ISSUES
.
Chart IV.31: Share of Independent Directors in PVBs(At end-March 2021)
Note: The whiskers of the boxplots are indicative of maximum and minimum share of independent directors on the board. The coloured box shows distance between first quantile and third quantile. Horizontal line in each box shows the median while ‘X’ shows the mean. The points outside box represent outliers. Source: RBI.
Chart IV.32: CEO Pay vis-a-visAverage Employee Pay
(At end-March 2020)
Source: RBI.
•LEADERSHIP / CEO related
•Executive Compensation
• Functional independence of
Board ?
•Staff related challenges –
attitudes , rural postings

13. CHALLENGE : 3
CUSTOMER EXPECTATIONS / LOW CLIENT COVERAGE

14. Client OutReach : Extent of the Population reached and serviced by the bank ?
-Continues to be low, despite massive efforts by the govt / RBI / banks
-Deposit accounts – PMJDY basic bank accounts - 475 Million accounts
- Credit accounts to clients continue to be low
-Rural hinterlands the division is more pronounced
-Kisan credit card (1998) – 73 million cards / 140 Million farm households
- Rupay Cards – 32 million
-World Bank – Findex rating – 78% of the population is financially included
-RBI – Financial inclusion Index – ( Access – 35%; Usage – 45%; quality -20%) –
on a zero- 100 scale reports India’s position as 56.4%

15. FINANCIAL INCLUSION – DEPOSITS & LOANS
RBI Report

16. CUSTOMER EXPECTATIONS !!
RBI Report

17. CHALLENGE : 4
REGULATORY CHALLENGES

18. 1. Capital adequacy requirements – BASEL Norms
2. Asset – Liability Mismatches – In addressing
longer term credit requirements for infrastructure etc
3. Efficiency and productivity related issues

19. RBI Report

20. CHALLENGE : 5
CYBER RISK AND TECHNOLOGY ISSUES

21. TECHNOLOGY RISKS FACED BY BANKS
•DAY TO DAY banking operations and transactions
•
•Cyber security: Phishing, malware attacks
•IT resilience and business continuity ,
•Vendor and third party risk
•Data management risk : Storage and retrieval of banking
data

22. RBI Report

23. THANKS, FOR YOUR TIME