Indian Banking: Global Perspective

The global banking sector remained resilient and robust during the once in life time health crisis. The whole world on the face of   unprecedented challenges during  the pandemic period of nearly two years has grappled with the unforeseen crisis situation. High capital buffers and policy supports enabled the global banks to carry out normal banking operations. The asset quality, however, suffered marginally in some parts of the globe. The resurface of the pandemic in the form of Omicron has again engaged the entire global community to save life and livelihood on a war footing. Its against this back drop one needs to introspect Indian Banking Sector from a global perspective.

Out of the 12 PSBs (public sector banks) and 21 PVBs(private banks) 09 PSBs and 03 PVBs have branches abroad.06 of the PSBs have subsidiary and Representative offices.03 of them have JVs(joint ventures) and other offices.03 PSBs have no presence of any sort abroad. While 05 PVBs have branches abroad ,08 of them rep offices .02 of them have subsidiaries and 01 PVB has other office.13 PVBs don’t have any kind of presence outside. 

Among the PSBs it is SBI followed by BOB and BOI who have maximum presence abroad. Amongst the PVBs ICICI has maximum presence followed by AXIS and HDFC. The total number of all kinds of offices of Indian Banks abroad stands at 229 out of which 189(82.5%) are that of PSBs. We have over 151000 bank branches of SCBs( scheduled commercial banks) in India. However, we have only 126 bank branches abroad. So the per bank branch network outside the country is less than 04. Some 11 foreign bank branches had to be closed/merged during 2020 because they were found to be unviable. As against this there are 45 foreign banks are operating in India with 263 branches as on October 2021.So we don’t compare favorably in terms of the presence of foreign banks in India and also in terms of our domestic network.

As per the ranking of carried out by The Banker while India has 29 banks in the list of 1000 global banks.  Out of this 06 are FOS(Foreign Owned Subsidiaries) so literally only 23 Indian Banks figure in the top 1000 banks;09 PSBs and 14 PVBs. There are 03 Indian banks in the top 100 global banks; SBI(56th)HDFC bank (68th) and ICICI (96th). Among the top 500 banks we have only 10 banks.

*Including FOS

Apart from US (200) and China (160) Japan too has a large share in the list with 89 banks.  UK has 41 banks followed by Germany and Italy with 28 and 27 banks respectively. China has the unique distinction of occupying the first 04 ranks and that too 4th time in a row. This is perhaps reflective of the differences in the size of the economies and the financial sectors. Barring China most of the top banks are from the developed block.

No. of banks in top 1000 geography-wise:

*Africa Carrabin, Central Asia, Central Europe, Central America, Middle East. and South America.

As is evident from the above 80 percent of the banks are in the first three geographical areas. Although largest number of banks are from Asia Pacific countries but its China and Japan who account for maximum number of banks in this region (249 out of the 385 :65 percent) So, we find a greater number of banks are from the developed world barring China. The emerging economies including India have a long way to go.

Indian banks domestically have done reasonably well during 2020-21 and also in the first half of 2021-22, notwithstanding the pandemic woes. Gross NPAs of SCBs have come down to 6.9 per cent, the lowest in 06 years, as on September 2021 from an all time high of 11.5 percent in March 2018.PSBs have earned profit in 2021 for the first time in 05 years. The last 05 years saw some bold policy initiatives on the part of Govt viz

 1. The enactment of strong recovery laws IBC (the insolvency and bankruptcy code) and setting up of NCLT (National company Law Tribunal) and IBBI (Insolvency and Bankruptcy Board of India) in 2016.

2. Bank Amalgamation in 2017,2019 and in 2020. This has resulted in reducing the number of PSBs from 27 05 years back to 12.

3. Policy relating to setting up of NARCL (National Assets Reconstruction Co Limited), IDRCL (India Debt Resolution Company Limited) and Nab FID(National Bank for Financing Infrastructure and  Development).

These are undoubtedly bold policy initiatives. The experience with IBC and NCLT has been quite rewarding initially. But because of the sheer number of cases and absence of a mechanism to deal with them expeditiously, it can be another DRT (Debt Recovery Tribunal) experiment. Recovery under IBC in FY 2021 was 20.10 percent only and only 2.73 trillion could be recovered, lowest since the year of inception. Govt had of course suspended certain provisions under IBC for one year on account of pandemics. Improvements in general recovery numbers in March and Sept 2021 can be attributed, inter alia, to the massive write-off of loans by banks. Hopefully, the amendments of laws relating to IBC from time to time will bring about improvement in the recovery area which is very crucial for continuity and sustainability. Similarly, the amalgamation is no panacea for the weak banks. One or more weak banks’ mergers with a strong bank will make the strong bank also weaker because of the legacy issues of the merged banks. Besides during the transition period, the merged entity will have to grapple with operational issues and profitability will lose focus. Out of the 12 PSBs while we have 05, apart from SBI, banks can be called large banks there is an equal number of mid-sized /small banks that operate side by side. This means the experiment is not complete. The efforts of the Govt to privatize two banks have so far not succeeded. In the private sector banking space, we come across serious governance issues in some of them at regular intervals. So, it cannot be construed that private banks are better always. In a mixed and transitional economy such as ours, we need strong PSBs and strong PVBs for better delivery and progress of the nation. Once the forbearances end, post-pandemic, the asset quality issues may again arise.

The Govt is also mulling with the idea of couple of banks to be owned by corporate houses /industrial houses. The new institutions which are in the process of getting established for resolving the bad assets and promoting infrastructure finance are again experiments we have to wait and watch for their effectiveness. Similar experiments have been tried earlier also, especially for infrastructure financing, without much success.

So again, it comes down to the basics. The capital, the recovery, the risk (perception measure and mitigation), the fear factor from the 03 Cs (CBI, CVC and CAG) especially for the PSB, digital disruption, the corporate governance and leadership/HR issues  are the foremost prerequisites for the transformation. To develop a robust and prudent banking system a strong leadership and accountable management are needed.

We are great nation with a 250 years history of banking. Banking is changing all over the world with traditional banking giving way to modern, digital and disruptive banking. Other players are making serious attempts to enter into the banking space, they have succeeded in the payment space. But considering the size and reach of banks they cannot replace them. At the most they will force the banks to have a collaborative approach. Indian banking has never been smooth and it will continue to be turbulent. Inclusiveness and professionalism both are important for the nation. We have weathered many storms in the past and should remain optimistic about the future with the right strategic initiatives so as to meet out the challenges domestically and globally.