Jamshedpur: Financial Market Centre (FMC) of XLRI hosted a webinar on Structural Changes in the Banking Sector in the light of macroeconomic developments’. The webinar was delivered by Dr. Manoranjan Sharma, chief economist, Infomerics Rating, India.
Dr. Sharma discussed the implications of COVID 19 on the Indian banking sector. He said “the banking sector is not a silo but is a microcosm, a miniature model of the broader macro-economy. Of late, the Indian economy has been hit by the triple whammy of demonetization, GST and COVID 19. The hardest hit sectors require intensive human contact, viz., MSMEs, aviation, tourism, logistic and hospitality sectors, services, and construction; IT-intensive activities generally fared far better. India’s economy is crippled primarily because its four engines of growth — domestic consumption, government expenditure, private investment and exports — are limping. Creating jobs is critical to recovery together with boosting demand”.
Financial sector regulators & Govt. initiated policy measures to ensure normal financial intermediation functions & mitigate widespread distress. Policy measures kept financial markets from freezing & eased liquidity stress facing financial institutions and households. Consequently, borrowing costs ebbed and illiquidity premia shrunk. But risk aversion & lackluster demand impeded fuller flow of finance from both banks and non-banks into the economy. While banks have surplus liquidity, several important sectors are credit starved because of heightened risk aversion triggered by demand and supply side shocks, diminished consumer confidence, NPAs & consequently pronounced risk aversion. 4 R’s- recognition, resolution, recapitalisation and reforms led to reduced NPAs from ₹10,36,187 crore (March 2018) to Rs 8,08,799 crore (September 2020), NPAs are not uniform either across bank groups or across sectors.
The surge in NPAs stem from pronounced macro-economic slowdown; high credit growth in some sectors leading to decline in credit quality subsequently and high incidence of advances frauds, which are partly the result of faulty credit appraisals, monitoring and supervision.
The lecture was followed by a Q&A session, anchored by Dr. HK Pradhan, Professor of Finance and Economics at XLRI – Xavier School of Management, Jamshedpur, who briefly narrated the lecture and thanked Dr. Sharma for sharing his thoughts around “Structural Changes in the Banking Sector in the light of macroeconomic developments”. Dr. Trilochan Tripathy, Professor of Finance, added a few dimensions to the discussion where he argued that the bank consolidation may have concern and impact on credit availability over the business cycle in India. He argued that the bank consolidation in India may lead to monopolization of banking business in India. The banks’ collusion may be expected in the burst phase of the business cycle which may lead to higher mark-ups affecting the consumers and business all across.