BS Banking Annual: Fingers crossed

Banks have not been so well-placed for a decade. Balance sheets have been repaired, and all Reserve Bank of India-regulated entities have navigated the post-pandemic pullback of forbearance measures without much pain. Large segments of India Inc are also doing well, having pared debt over the past two years amid signs the private capex cycle is gradually reviving. The RBI’s robust response to the rapid changes in the macro-financial environment, driven in large part by external factors, has made sure that the financial system has remained at its resilient best.

But two factors going ahead will play a significant role.

The Fed’s not done with rate hikes. At the time of going to press, its Chair, Jerome Powell, was weighing data in the run-up to the Federal Open Market Committee’s March 21-22 meeting. Most observers believe there will be at least a 25 basis-point (bps) hike. The RBI’s response will hold the key. In its February 2023 policy, it decided to increase the repo rate at a slower rate (by 25 bps) to 6.5 per cent. But hikes down the line — following the Fed — can dampen the mood for India Inc, even as the country enters a phase of state elections, followed by the general elections in the summer of 2024. The economic crises in Pakistan and Sri Lanka and geopolitical tensions with China will play in the background as well.
 

The other variable to be watched is the fallout of measures taken after the collapse of Silicon Valley Bank. It has caused turmoil across global markets, affecting the start-up ecosystem in particular. Since RBI’s legacy regulated entities are entering into partnerships with fintechs in a big way, these arrangements — key to financial inclusion and the payments space — could come under closer regulatory scrutiny.

Banks, on their part, need to keep an eye on their credit appraisal process to rein in risks, slippages in restructured assets, and timely resolution of stressed assets to prevent depletion in asset values.

After the Monetary Policy Committee meeting in February 2022, RBI Governor Shaktikanta Das referred to uncertainty resulting from the lack of any quantifiable knowledge about some possible occurrence, as opposed to quantifiable risk. The observation was on Covid, but held true of the post-Ukraine world as well. This reality has not changed. 

The Banking Annual is also about celebrating success. A five-member distinguished jury headed by former RBI deputy governor S S Mundra selected HDFC Bank MD and CEO Sashidhar Jagdishan as the Business Standard Banker of the Year 2022. Happy reading!