The document analyzes the banking sector in India and identifies several major challenges: (1) deteriorating asset quality and rising non-performing assets, (2) the need for banks to raise an additional 5 lakh crore in the next 5 years to meet new capital standards under Basel III, and (3) increased competition from many players offering similar services. However, the document also notes some positive factors for the sector including an uptick in credit and deposit growth, the financial inclusion program expanding banking access, and growing mobile banking services.
10. Major Challenges
• Deteriorating Asset Quality
– Deteriorating NPA’s
• Basel-III Implementation:
– Will be in force from 31st March 2018
– As Per RBI domestic bank need a common Tier –I Capital (Core Capital) :• 5.5% of Risk Weighted Asset (RWAs)
• 2.5% capital conservation buffer (CCB)
– Additional 5 lakh Crore in next 5year
• 1.75laks Crore of above in form of equity capital, this means we government need to put
money in equity of around 70k-100k
– As per S&P forecast Domestic bank need to raid 2.6Lakh crore to meet new
capital standards.
• Increased Competition:
– Large no of players and homogenous service, competition is very high
– Demand for cutting edge technology to increase operation efficiency.
12. Positive for Sectors
• Financial Inclusion Program:
– 40% of Indian does not have access to any kind of
banking services
– RBI mandated for the banks to open 25%
branches in rural area and 40% credit to priority
sector
– Numbers of rural branches have crossed 31,000 in
number
13. Positive for Sectors
• Mobile banking, next major technological leap
– As per RBI, As of March 2013, 55 banks with a
customer base of around 23mn were providing Mobile
Banking Service in India compared to 49 banks and
13million as of March 2012
– The regulatory relaxations in the transaction limits on
Mobile Banking and for transactions ,has resulted in
over 53 billion Transactions aggregating Rs 60 billion
being processed during 2012-13
14. RECENT DEVELOPMENTS
• RBI tightens loan restructuring norms; raises provision to
5% from June 1 from 2%
• RBI relaxes branch opening norms for banks
– RBI has relaxed its norms for banks to open branches in Tier I
cities to push financial inclusion, i.e., the process of spreading
banking services to unbanked areas. Now banks can open
branches in such centers without its prior permission.
• RBI eased rules to avail Swap Facility on Foreign Currency
Borrowings
– RBI lowered the three-year minimum maturity requirement to
avail the swap facility for banks foreign currency borrowings to
one year.
– However, RBI has allowed this facility up to 3 years.