Daily News Analysis :-
Banks are fine, but there are risks
GS3- Banking sector
Performance of banks
- Profits are at peak- SBI banked on 34,000 crore consolidated net profits, highest till now. Entire banking sector by March 2024 can bank on 2,50,000 crores.
- Bad debts- below 0.8% as a net. NPA percentage hasen fall below 3.9%, 10 years low.
- Liquidity among banks is good- despite high CRR.
- Despite low deposit growth, credit to deposit ratio is low. Means banks can still lend for more longer period. Deposits are high still.
- Capital to risk-weighted asset ratio for schedule commercial banks stood at 16%. Against 9% of Basel norms.
- RBI’s strict regulations againts ghost landings and evergreening and tight regulations. State sponsored bailouts worked well to bring out Yes Bank from insolvency.
However risks may arise in future on certain areas.
- State government finance is stretched- Deficits and debts are increasing. Risk of defaults are increaing due to freebies. Banks which are lending to state govt infrastructure programs should be cautious.
- Internal risk assessment should be conducted by banks for each states.
- Seemingly, overhyped share markets creating illusion of wealth to an entire new generation. Current generation is transitional generation, which doesnt bother in over leveraging and savings. Loans taken by them would be at risk.
- Lax governance in NBFC sectors, where evergreneing of loans is happening. Banks lend to NBFCs which are not as strictly regulated as banks. Despite regulations, governance is weak in NBFCs and most of the time they are influenced by corporates. Snowballing of risk can be expected.
- Loans to small and medium industries are at risk: Since globalisation is facing challenges like de-globalisations, it affects labor, capital and trade flow to SMEs. This affects strategy of export led growth.
- Severe competitions from other developing countries like Bangladesh on domestic textile industries.
- Supply chains are getting disrupted.
- Digitisation and neo-trends in consumption are exerting pressure on retail deposits which may affect the deposits and liquid coverage ratios in future.
If Indian savings are facing structural shift like this then banks may be at larger risks hence, prudence and caution should be eternal watchwords for bankers.
