It is undoubtedly true that the Indian economy is one of the fastest-growing economies in the world, with rapid industrialization garnering attention internationally. While economic reforms do play a significant role in achieving this, the banking system in India has been a robust contributor to this case as well. The Indian banking environment consists of 27 public sector banks, 21 private sector banks, 49 rural banks, and a multitude of regional and cooperative banks. The banking scenario in India is embedded into the very core of living, with massive outreach even into the remotest locations of the country. The first bank in India was started by the Europeans. Named as the Bank of Hindustan, little did the Europeans that this industry would make India’s retail credit market the fourth largest amongst the emerging nations. During recent years the CAGR improved to 10.94% for lending and 11.66% for deposits.
The Banking Industry is monitored by the autonomous body, namely the Reserve Bank of India which takes measures in ensuring a proper credit market. With recent times, the banking industry in India has shifted its focus to newer technology including online banking and digital payment systems. Small finance has also been a sphere of interest for many banks now. Recently initiatives have been taken to launch the Post Payments bank with the main motive of reaching out to a wider populace and inculcate the feeling of financial inclusion. The government has also been considering plans of injecting funds into the public sector banking so as to facilitate the next wave of capitalization. In the past year, India’s microfinance sector grew at a whopping rate of 39.88 percent. India also witnessed the biggest merger during the financial year of 2017 including the Indusland Bank and Bharat Financial Inclusion Limited. 2017 was also a massive increase in valuation of various mergers and acquisitions across industries.
The government had also taken up initiatives to boost the usage of debit cards and encouraging people to adopt the cashless method of transactions. One of the biggest challenges faced by Indian banks would be an increase in the number of bad loans. According to the IMF, the number of loans at risk stands at an alarming number of 36.9%. While the number in itself is pretty alarming, Indian banks have only about 7% rate of absorbing the loss. Another major aspect that the banking sector is dealing with is the “employee vacuum”- what this refers to is the vast difference in working quality between the top managerial posts and the newly recruited junior workforce. Banks also need to regularly update their technology so that to keep with the latest trends and offer a seamless experience for their customers.
Another major aspect that banks need to overcome is the phenomenon of overlooking their balance sheets. While the executive posts are short-lived, most of the attention is turned towards showcasing numbers and profits to the investors which results in the banks capacity to not being able to withstand