Banking and Finance Trends

Growth

India is well positioned to become the fourth-largest economy in the world by 2025. GDP growth rates of 7-8 per cent will be sustainable going forward if key enabling factors have been put in place. One of the enablers of robust economic growth is a banking sector that is able to adequately and efficiently meet the needs of a growing economy.

The US$ 28 billion Indian financial sector has grown at around 15 per cent and has displayed stability for the last several years, even when other markets in the Asian region were facing a crisis.

Financial institutions have combated the reduction in interest rates and pressure on their margins by constantly innovating and targeting attractive consumer segments. Banks and trade financiers have also played an important role in promoting foreign trade of the country.

Banking industry on a high

The Indian banking system has a large geographic and functional coverage. Presently the total asset size of the Indian banking sector is US$ 270 billion while the total deposits amount to US$ 220 billion with a branch network exceeding 66,000 branches across the country. Revenues of the banking sector have grown at 6 per cent CAGR over the past few years to reach a size of US$ 15 billion. While commercial banks cater to short and medium term financing requirements, national level and state level financial institutions meet longer-term requirements. This distinction is getting blurred with commercial banks extending project finance.

Moreover, Banking today has transformed into a technology intensive and customer friendly model with a focus on convenience. The sector is set to witness the emergence of financial supermarkets in the form of universal banks providing a suite of services from retail to corporate banking and industrial lending to investment banking. While corporate banking is clearly the largest segment, personal financial services is the highest growth segment.

Government policies

The recent favourable government policies for enhancing limits of foreign investments to 49 per cent among other key initiatives have encouraged such activity. Larger banks will be able to mobilise sufficient capital to finance asset expansion and fund investments in technology.