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Statsguru: Future of banking in India

Banks need to fundamentally reorient their business and adopt new strategies: Report

Udit Misra 

Banks
Banks

A new report by the Boston Consultancy Group, Hidden Treasure, claims that while major capital infusion by the government of India is likely to provide the with the necessary “breathing space” that they so critically need, it may still not be enough to restore to proper health; instead, need to fundamentally reorient their business and adopt new strategies.

It is true that, as Chart 1 shows, dominate the revenue pool. This dominance is more pronounced in the traditional segments and reduces as one looks at the non-conventional segments such as the distribution of insurance & mutual fund products or corporate advisory (for access debt & equity markets).

As Chart 2 underlines, the revenue pool in the financial services sector is expected to see material shifts over the next few years. For instance, advances to the retail and MSME sectors will likely grow at the cost of advances to corporates. Similarly, the share of fee income is expected to continue expanding.

Chart 3 presents a more detailed picture of how revenue from advances is likely to pan out. Between FY17 and FY22, retail advances are expected to grow at a compound annual growth rate of 16 per cent while the MSME segment is expected to grow at 15 per cent. The flip side is evident in the muted performance of corporate advances in immediate future as delinquency levels peak over the next two financial years.

Chart 4 maps the revenue from deposits. The reports claims that the drive towards a cashless economy and a greater push towards digital transactions are expected to enable faster savings deposit growth over the next 5 years. Term deposits, on the other hand, are likely to observe a slowdown as consumers shift to alternative modes of investments such as mutual funds.

1: have 85% share of the total revenue pool, but face greater competition in non-conventional biz segments

Statsguru: Future of banking in India
Statsguru: Future of banking in India
Notes: 1. Revenue refers to NII for deposit and advances, excluding RRBs & co-operative and fee income 2. Retail charges includes ATM / debit card interchange fees, credit card fees, penal charges, etc. 3. Txn banking includes income on trade instruments 4. Bank’s share in insurance distribution, excluding LIC, is 35% of total insurance commissions

 
2: Revenue1 pool is at an inflection point; set to change significantly in next 5 years

Revenue pool across segments (Rs 000’s crore)

Statsguru: Future of banking in India
Statsguru: Future of banking in India
Statsguru: Future of banking in India
Notes: 1. Revenue refers to NII for deposits and advances. Above revenues include all SCBs & NBFCs but exclude RRBs 2. Fee & other income includes retail charges, processing fees, transaction banking revenues, distribution commission, treasury income, profit on sale of assets, recovery of earlier written off assets, investment banking revenue, DCM fee and other income

3: In advances, MSMEs to be the key growth drivers

Statsguru: Future of banking in India
Notes: 1. Revenue refers to net interest income for deposits and advances. Above revenues include all SCBs & NBFCs but exclude RRBs.

4: Cashless economy to drive savings growth

Statsguru: Future of banking in India
Note: 1-Revenue refers to NII for deposits and advances. Above revenues include all SCBs & NBFCs but exclude RRBs


is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines

Source: Hidden Treasure: How can turn the fortunes for Indian by Boston Consultancy Group. Compiled by BS Research Bureau

First Published: Mon, November 13 2017. 00:58 IST
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