The document discusses issues facing India's financial system including high non-performing assets, declining credit growth and profitability, and increasing bad loans. It outlines several signs of risk, including recent leadership changes at large private banks and over a dozen public sector banks being classified as potentially weak. Solutions proposed include mergers of public sector banks, giving banks more freedom over lending, and privatizing some banks. The document also covers new risks emerging in retail banking, MSME lending, and from government loan programs, as well as steps regulators are taking to strengthen oversight of non-banking financial companies.

1. FIXING OUR CRUMBLING
FINANCIAL SYSTEM
ABRAHAM JOHN
ROBIN SHAJI
RIYA ASEEF

2. “Our banks are best described as Jack of all trades, Master of
none. The Financial system, which banks dominate, is broken”

3. CONCERNS
• NPA’s have reached over 10 lakh crore.
• Credit off-take is in single digits.
• Over a dozen banks have been classified as potential
weak banks.
• NBFC’s are facing Asset-Liability mismatches.
• Liquidity has shrunk.
• Capital has become scarce.
• The government is going for consolidation of PSB’s
• Loss of confidence in NBFCs ( 15% of banking
system)
• Systemic risk caused by huge borrowings of NBFCs.
• The most significant problem is Bad Loans.

5. Signs of
Looming
Danger
• Recently the CEOs of 3 large private banks
were shunted out on performance,
governance and compliance.
• Banking as a whole is running on single digit
credit growth.
• Declining Profitability.
• Increasing Bad loans (30% in 2017/18)
• 14 lakh crore of banks capital locked in
stressed assets.
• Capital Shortages is PSBs.
• Over a dozen banks classified as Potential
weak banks.
• Complete risk aversion among bankers
whoare reluctant to function long term
projects.
5
SIGNS OF LOOMING
DANGER

6. Solutions
• Merger of PSBs.
• More freedom to banks to take
commercial lending decisions.
• Discouraging MUDRA, farm loan
waivers.
• Privatisation of banks and bringing in
strategic investors.
• Monitoring banks under PCA to avoid
systemic risk.
6
SOLUTIONS AT A
GLANCE

7. NEW POCKETS OF RISK
Banks blindly funded expansion and diversification plans
of India Inc.
Economic slowdown and policy paralysis in India and
China downslide
Risk being built up in the retail banking segment due to
unsecured loans like personal loans & credit cards.
Also the MSME & Business banking segment and the
government directed MUDRA & Agricultural loans are
causes.

8. Strengthen disclosures so that stakeholders can
raise relevant questions
Capital adequacy ratio and risk weights have to be
strengthened
Setup a separate regulator for NBFC within the RBI
Ask NBFCs to cleanup their balance sheets in one go
Introduce regulations to make rating agencies
accountable
CONCLUSION
FIXING
NBFC’s

9. NBFCs has realized that their basic
business model is not sustainable
Borrowing aggressively in a short term
commercial paper market and lending
for a long term is not sustainable
Turning into banks gives NBFCs access
to deposits, low cost funds and
regulatory requirements.
CONCLUSION
SELF
MEDICATION

10. Guidelines stipulation bank like Liquidity Coverage
Ratio
New LCR norms will facilitate quick access to
liquidity
Capital adequacy and risk weights be tightened
Ask NBFCs to cleanup their balance sheets in one go
Introduce regulations to make rating agencies
accountable
CONCLUSION
RBI STEPS IN

11. CLEANUP ACT
Cleaning up of balance sheets in one go or in staggered
manner in 3-4 years
Special liquidity window for struggling NBFCs
REGULATORY WATCH
• Stronger regulatory mechanism as they account for 15-20% of total lending.
• Enhancing the reporting structure for all regulated financial services entities.
• Redefine the business of rating agencies
• Private consumption has slowed down over the past quarter driven by income
uncertainty
3

12. FINDING THE WAY
India is the second-biggest fintech
hub in the world.
IL&FS default crisis erupted in
September 2018, regulations are
trying to put things right.
Fintech lenders will have to change their business models
to survive the ongoing liquidity crisis.

13. ROAD TO REGULATIONS
RBI's, recent draft proposes to
focus more on granular
buckets (0-7 days, 8-14 days
and 15-30 days instead of 30
days now) for asset liability
management.
Introducing liquidity coverage ratio
requirements in line with banks and
having more transparency in
borrower or concentration details.

14. RECOVERY IS THE KEY
Fintech players have realised that survival depends not on giving away money
but in getting it back.
Use new technologies such as machine learning, Artificial Intelligence and
blockchain to verify credit worthiness of borrowers and thus reduce defaults.
NeoGrowth Shubh Loans Bon

15. INNOVATION
SANDBOX
• The Securities and Exchange Board of India
(Sebi) on Monday proposed a framework on
“Innovation Sandbox” - a testing environment
where fintech firms can experiment
innovations in a closed environment.
• Sebi feels that fintech firms should have
access to market related data, particularly,
trading and holding data, which is otherwise
not readily available to them, to enable them
to test their innovations effectively before the
introduction of such innovations in a live
environment, to further create an ecosystem
which promotes innovation in the securities
market.

16. TOWARDS PARTNERSHIPS
Lead generation where fintech
firms only provide a
marketplace and don't bear the
risk of default.
Bankbazaar, Paisabazaar and
MyLoanCare, for example,
function as digital direct sales
agents.
Hybrid model in which fintechs
disburse loans on their own as
well as through partners such as
banks. CapitalFloat has co-
lending partnerships with banks
and NBFCs, and Shubh Loans
has applied for its own NBFC
licence.
Fintechs also partner with third
parties to get customers on
board. For example, Bon has
tied up with Uber and Swiggy.

17. NEW SOURCES OF FUNDS
Mezzanine financing - a hybrid
of debt and equity financing
that gives the lender the right
to convert her debt into
equity if the loan is not paid
back on time and in full.
Raising capital through
securitising loan books,
crowd-funding, masala bonds,
external commercial
borrowings as well as raising
money directly from foreign
investors are also becoming
popular.
Institutions like SIDBI, LIC and
NABARD should come up with
lending schemes for fintechs.

18. HOW INDIA CAN BOOST
FINTECH GROWTH
India's fintech ecosystem has
witnessed rapid growth.
Fintech firms saw a fourfold
increase in investments, from
£276.21 million in 2015 to
£1.39 billion in 2018.
India is now home to over
2,000 fintech start-ups.

19. The regulatory bodies have frequently come up with draft regulations to support the
government initiatives.
the RBI has drafted regulations around payment banks, mobile money and P2P lending,
all of which support financial inclusion.
the RBI came out with proposed/draft guidelines for a regulatory sandbox which would
enable fintech companies to test new products in a controlled environment. Similarly,
IRDAI and SEBI published their own set of draft guidelines for regulatory sandboxes.

20. THE WAY FORWARD
India has made large strides in this space, but to move to the next stage, regulators must
recognise the need for a co-ordinated effort for fintech policy development. The respective
sandboxes should encompass all categories of financial products and services to ensure all-
round growth. They should also consider a fintech regulatory body (with participation from
all regulators) to oversee this space and adopt a more cohesive and countrywide approach.

21. THANK YOU