13. Growth in the Bank’s Advances Portfolio
•2016 witnessed a Bank loan growth of just 8 percent whereas 2017 registered credit growth of 10%.
•Typically, Bank’s credit growth should be 2-3 times that of GDP growth.
•Early signs of Demonetisation and GST combination reversing the economic downturn cycle.
•Armed with Insolvency code, the Banking system would be willing to take more risks and lend.
•With RBI increasing repo rate by 25 basis points, leading to reduction in liquidity and hardening of interest rates, which in turn would hamper growth of the loan market.
•Bankers have become cautious in taking lending decisions post investigating agencies cracking the whip on Bankers for NPA issues.
14. SBI Merger with Associate Banks
•With merger of associate banks with SBI, it has reached the league of top 50 Banks.
•Merged entity’s balance sheet size has crossed Rs 37 Trillion – 5 times that of ICICI Bank.
•Larger Balance Sheet will enhance its risk-taking ability and expand bandwidth to give loans.
•Merger turning out successful would lead to Government contemplating consolidation of other state-owned Banks.
15. Effect of demonetization on Micro-finance Industry
•India’s Rs 65,000 crores plus Micro-finance Industry changed its working in 2017-18, in the aftermath of high value note-ban.
•Around 85% of the loan disbursement and close to 95% repayment or collection of loans have traditionally been in cash.
•To survive and flourish, MFIs will have to forge alliances with Payment Banks, SFBs and Universal Banks as well as digital wallet service providers for disbursement and collection through Banks.
•New architecture will make loans expensive as it would increase cost of disbursement and collection but at the same time it may not need large manpower.
16. NBFCs to change Business Model
•All NBFCs will have to change business model following clampdown on cash.
•Income assessment of the borrowers was taking place through salary and wages earned in cash.
•LAP, the equivalent of home loan would become most sought after product, having potential to be 50% of the mortgage book.
•SMEs are the big buyers of LAP as their transactions were mostly in cash; they are being hit the hardest.
Keep watching this space for interesting updates on BFSI sector!
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