India's banking sector is expected to continue its good run on the back of solid economic growth and fundamentals but needs to adopt a cautious approach, and improve risk management practices and underwriting standards, top public sector bank executives said at the Business Standard BFSI Insight Summit in Mumbai on Wednesday.
They also underlined that the customers are now the centrepiece for banks as they try to innovate to improve their banking experience.
“We as banks replicate the economy and as long as the economy is strong, robust, the banking sector would be in the sweet spot,” said Debadatta Chand, Managing Director and Chief Executive Officer, Bank of Baroda.
The top bankers stressed during a panel discussion that while banks were spending huge money on data analytics and offering innovative products, there was also need for some caution.
“With the advent of new products, we need to improve our risk management practices, going forward. Every bank has to take risks based on their appetite,” said Ashwani Kumar, Managing Director and Chief Executive Officer, UCO Bank.
The bankers highlighted that the gap between public and private sector banks on various performance parameters had narrowed in the last few years with more investments going into technology and talent.
K Satyanarayana Raju, Managing Director and Chief Executive Officer, Canara Bank, said the current position that the public sector banks have achieved was a result of the hard work done by the Reserve Bank of India (RBI), the government, bank boards in the last ten years in terms of regulatory guidance, and the individual bank managements. “The public sector banks are now in line with the private sector or the competitive peer banks…I strongly believe that the banks will grow in the double digit at 10 to 12 per cent,” Raju added.
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The CEOs noted there may be an elevated level of slippage in personal loan books but as a percentage it was not high enough to have any significant impact on the banks. They agreed that RBI’s concerns over the unsecured loans were more for the system as a whole, rather than any specific bank.
“We are giving personal loans to the customers who have a salary with us continuously from the last 12 or 24 months. About 1.4 per cent of my total book is unsecured, so we are not seeing much of an issue there,” said Shanti Lal Jain, CEO, Indian Bank.
Echoing similar views, Kumar said UCO Bank’s personal loan segment was data analytics driven and that they were not in the process of giving personal loans to everyone who applied. “The loans and delinquencies we are observing over the last two or three years are much, much lower. It is not even 1 per cent,” Kumar said.
Responding to Business Standard’s consulting editor Tamal Bandopandhyay on transferring benefits of a repo rate cut by reducing interest rates on loans and impact on cost of deposits, Raju said: “When the rates were increased, we are the people who benefited."
"The same reverse trend, we have to pass on the benefit to the borrowers but that will not be passed on to the depositors immediately because it's a pre-defined contract. But it will take three to six months to stabilise,” Raju added.
The Bank of Baroda CEO said the cost of deposit was not dependent only on the rate stance. "It's also largely dependent on the liquidity in the system. I am thinking of a scenario where cost moderation can happen before the repo rate cut.”
The panelists also talked about the specific innovative products that they have launched for different customer profiles such as salaried class, women, youth, pensioners, among others.
“Customer is the centrepiece as far as the banks are concerned. There are multiple ways we are taking to improve the customer experience,” Chand said.
Talking about innovations undertaken by the banks, Raju mentioned the pilot project around programmable central bank digital currency (CBDC) which can be used by the government, or an employee incentive scheme to transfer to beneficiary’s bank account to be used only for the specific purpose it is meant for.
“We are working on transferring educational loans interest subsidy through CBDC, and we are also working with the government on the Viksit Bharat card that is meant for direct benefit transfers such as fertiliser or seed or gas subsidy,” Raju added.
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