The statutory Report on Trend and Progress of Banking in India 2015-16 (RTP) has been released on December 29, 2016 by Reserve Bank of India (RBI). RTP presents performance and salient policy measures relating to the banking sector during the financial year 2015-16. RTP states that RBI, in pursuance of the long-term vision of developing a sound, competitive, inclusive and customer-friendly banking sector, will continue with the on-going regulatory and supervisory reforms and also explore possibility of creating new kinds of differentiated banks, such as custodian and wholesale financing banks. RBI introduced during the year several regulatory, supervisory and developmental measures aimed at addressing short to medium-term concerns, including mis-selling of financial products/services and cyber security.
The Business Correspondent model, which has been at the heart of financial inclusion efforts by the Reserve Bank, will be scaled up further to expand its outreach to remote rural areas through registry, certification and training of these entities.
Following the ‘Payment and Settlement Systems in India – Vision 2018,’ payment infrastructure will be stepped up to address the five Cs of coverage, convenience, confidence, convergence and cost.
RTP highlights that India stood out in terms of higher economic growth although the banking sector was under stress primarily on account of asset quality concerns, whereas the performance of most emerging market economies (EMEs) was marked by severe domestic imbalances emanating from economic slowdown and downturn in credit growth coupled with rising stress in corporate and financial sectors.
The regulatory and supervisory policy responses during the year included asset quality review of banks, financial restructuring of large accounts under the Scheme for Sustainable Structuring of Stressed Assets and Large Exposures Framework to contain concentration risks besides others. The Central Repository of Information on Large Credits has proved to be an important tool for effective off-site supervision.
The report states that the performance of the Indian banking sector remained subdued during 2015-16 amidst rising proportion of banks’ non-performing assets, consequent increase in provisioning and continued slowdown in credit growth. However banks’ retail portfolios registered double-digit growth during the year.
The report mentions that during 2015-16, interest earnings and non-interest incomes of Scheduled Commercial Banks were adversely affected, which led to a more than 60 per cent drop in net profits for the banking sector. Banks’ return on assets and return on equity showed a substantial decline as compared to the previous year even as the Public Sector Banks reported negative return on assets.
RTP also states that the capital adequacy positions of banks showed an improvement during the year mainly due to the capital infusion by the Government and changes in the treatment of revaluation reserves, foreign currency translation reserves and deferred tax assets. These changes are expected to align the capital adequacy framework in India more closely with the Basel Committee on Banking Supervision’s guidelines.
As per the report some of the recent policy initiatives with respect to financial inclusion included revision of priority sector guidelines, Operationalisation of trading in priority sector lending certificates, advising banks for setting up of board approved financial inclusion plans for 2016-19, implementation of some of the recommendations of the Committee on Medium-term Path on Financial Inclusion, reconstitution of Financial Inclusion Advisory Committee, rolling out of National mission for Capacity Building of bankers for financing MSME sector, revising the guidelines of functioning of financial literacy centers.
RTP stresses that leveraging technology in the retail delivery of financial services is turning out to be a game changer for the financial landscape in India. It is a cost-effective means of reaching last mile finance and thus helps in financial inclusion. For providing a greater impetus to card-based retail payments, an Acceptance Development Fund is being designed to step up the card acceptance infrastructure. Further, the Unified Payments Interface was launched on August 25, 2016 to give a boost to mobile banking. This is expected to revolutionize retail payments given the high degree of penetration of mobile phones in the country.
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