Indian banking stronger than BRIC counterparts: Ficci survey

Indian banking is stronger on vital banking parameters than other BRIC nations, according to a survey carried out by industry body Federation of Indian Chambers of Commerce and Industry (Ficci). According to the survey, the Indian banking system has maintained its resilience and continues to provide growth opportunities.

The Indian regulatory system is much better than that of China, Brazil and the United Kingdom (UK). The risk management systems are more advanced than China, Brazil and Russia and credit quality better than China, Brazil, Russia, UK and the US. Moreover, India’s banking technology systems are also superior as compared to Brazil and Russia.

Some of the major strengths of the Indian banking industry, which makes it resilient in the current economic climate highlighted in the survey, were regulatory system (93.75 per cent), economic growth (75 per cent), and relative insulation from external market (68.75 per cent).

However, public, private and foreign banks have reported difficulty in hiring highly qualified youngsters due to high staff cost overheads, poaching of skilled quality staff and high attrition rates.

In the survey, majority of 69 per cent of the respondents felt that the Indian banking industry was in an extremely good shape with a further 25 per cent felt it was just good while 6.25 per cent felt that the performance of the industry was average.

The optimism is reflected in the fact that 53.33 per cent of the respondents are confident of a growth rate of 15-20 per cent for the banking industry in 2009-10 and over 20 per cent growth rate for 2014-15.

A majority of 93.75 per cent of the respondents saw expansion of operations as important for the banking sector in the future with branch expansion and strategic alliances the most important organic and inorganic means for global expansion respectively.

Other strengths were the further scope for new entrants in the market as there are significant opportunities in unbanked areas.

However, 57.14 per cent felt that non-banking financial companies may be allowed to be established as banking institutions but only if adequate capitalization levels, a tiered license that enables new entrants to enter into specific areas of the business only after satisfactorily achieving set milestones for the prior stages, cap on promoter’s holdings and other regulatory limitations are ensured.

Moreover, over 92 per cent of the respondents agree with recent stress test results that Indian banks have capacity to absorb twice the amount of their non performing asset levels.

Almost 80 per cent of the banks see personal loans as having the greatest potential for default, followed by corporate loans and credit cards.

Furthermore, almost 62 per cent of the respondents see consolidation as an inevitable process for their banks in the future while remainder does not consider it an essential factor for their future progress.

Majority of the public sector banks were also of the view that foreign banks should not be allowed to play a greater role in the consolidation process.