I am glad to connect with all of you through your Bank's Annual Report for 2019-20. Ithas been around a year since I assumed the position of Chairman of the Bank in May 2019.The year 2019-20 was a challenging one on several fronts that has brought about changesnot just in the way banking is conducted but also the way we conduct ourselves in ourdaily lives.
During the year India was confronted with the challenge of a slowing economy on theback of weak investment and consumption demand. The challenge was compounded by the factthat the banking sector was combating asset quality issues which constrained their lendingcapabilities. However there was steady progress being made by the banks with Governmentof India embarking on major policy reforms comprising regulatory/ legal reforms etc. tostrengthen the banking sector and thereby be instrumental in supporting a higher economicgrowth trajectory. In the midst of these reforms technological developments entry ofnon-traditional players in the banking space as well as emergence of tech-savvy clientelebrought about its own set of challenges as also opportunities for the banks. There was asignificant shift in not just the banking behaviour that saw growth in aspirational demandbut also in the way banking was conducted to a more digital-oriented transactionalbehaviour.
However the year 2019-20 also saw one of the world's greatest health threats that hasprofoundly impacted the economic health of the nation as well as of the people. Thecoronavirus outbreak has overtaken many lives across the world presenting anunprecedented medical and economic challenge and will impact how we conduct business goingforward. In India too a nation-wide lockdown was announced in successive phases tocontain the risk of widespread outbreak. However this lockdown has had manifold impact interms of absolute standstill in most economic activities resulting into loss of income.
It is noteworthy that the policymakers and the regulators have been responsive to thechallenges posed by such an unprecedented situation and have announced several measures tosupport the affected economic sectors as well as segments of the society. The Governmenthas also unveiled a comprehensive stimulus package christened as AtmanirbharBharat Abhiyan' under which wide-ranging reforms have been announced to enable Indiato emerge as a self-reliant economy. The various stimulus measures announced by thepolicymakers aggregating overRs. 20 lakh crore are expected to help the economy inaddressing the present challenges by helping sectors such as MSMEs small traders personsengaged in agriculture and allied activities etc.
While there has been no immediate impact on the Indian banking sector it isanticipated that going forward the disruption in economic activities due to the Covid-19outbreak will affect the banking sector due to its exposure to affected industries andsectors. In this challenging environment your Bank persevered in its efforts towardsstrengthening its financial health. The efforts undertaken by the Bank is also reflectedin its financial performance especially in Q4 FY 2019-20. After posting thirteenconsecutive quarters of net losses your Bank posted a net profit ofRs. 135 crore in Q4 FY2019-20 marking a much-awaited turnaround. Your Bank has also showed improvement onseveral other fronts such as improvement in capital position higher CASA ratioincreasing share of retail loans in the asset book among other parameters.
Taking cognisance of the challenges posed in the midst of the novel coronavirusoutbreak your Bank has undertaken various initiatives and will continue to implement suchmeasures to help its stakeholders. I would like to draw your attention to some of thesemeasures undertaken by your Bank. In line with the regulatory guidelines your Bank hasextended a moratorium on payment of all instalments falling due between March 1 2020 andAugust 31 2020 for various categories of loans to the borrowers who opted for it.Recognising the liquidity constraints confronting MSMEs your Bank has also extendedadditional credit limit to MSMEs affected by Covid-19 after careful assessment of theunderlying viability. To support its customers in availing seamless services your Bankhas been implementing alternative work arrangements to allow for uninterrupted andtime-bound processing of customer requests. Your Bank has kept its branches open and isfollowing the necessary guidelines to ensure safety of its customers who need to availservices at the branches. In addition your Bank has kept its ATMs well-stocked andfunctional to provide basic banking services such as cash withdrawal to its customers.Your Bank has simultaneously been encouraging customers to use digital channels to carryout their banking transactions. Your Bank has also been using its social media channels tospread awareness about do's and don'ts during the pandemic. Your Bank's workforce hasshown commitment towards the nation in this fight against the pandemic by contributingRs.5.12 crore towards the Prime Minister's Citizen Assistance and Relief in EmergencySituations Fund (PM CARES Fund). Your Bank is committed to support the policymakers andregulators in implementing stimulus package benefits to help the nation to rebuild itselfby helping out the sections in need. Your Bank intends to do everything in its control toensure that the government support is reaching the intended beneficiaries in a timely andcost-effective manner. The challenges are significant enough to be addressed by comingtogether of all to fight against the pandemic.
The coronavirus outbreak has affected a sea-change in the way businesses functionincluding the banking sector especially in the retail banking space. As the economicramifications of the outbreak spread the banks are compelled to relook at their strategicpriorities while also recalibrating the future strategies.
The social distancing and lockdown measures have resulted in a surge in digital channeltransactions. At the same time banks are working out ways to manage traditional bankingfunctions which were typically never designed for remote work. There are looming concernsover asset quality as several industries being non-operational for a while would beadversely impacted in their debt servicing capabilities. While the balance sheets of banksmay come under pressure due to deterioration in asset quality recent initiatives by theReserve Bank of India (RBI) at enabling banks to provide moratorium on retail andcorporate loans would help in moderating the impact. Furthermore there has been atransformative change in consumer behaviour towards more frugality which implies that thedemand from the retail segments may remain dented going forward. In such a situationbanks need to devise a strategy that addresses the challenging times as well as the changein customer preferences in the aftermath of the coronavirus crisis.
The first and foremost impact on banking can be seen in terms of delivery channels. Itmay be that digital transactions or transactions through other alternate channels likecall centres may witness a manifold growth. Simultaneously there may be a decline in thefootfall in the branches. Such a change in its day-to-day operations may be usedstrategically by banks to utilise front-line staff for targeted sales and decentralisecertain routine activities to back offices. Furthermore there may be a need to investheavily in automation of certain processes which can be beneficial for the banks in termsof redeployment of workforce to more productive avenues economising cost driving higheroperational efficiencies as well as improving turnaround time. At the same time bankswill also need to develop human resources strategies to on-board executives withappropriate computer skills as well as designers to ideate about user interface to ensureseamless customer experience.
Banks may witness a surge in demand for credit as business especially small businessseek financial assistance to revive their operations with enabling policy impetus from theRBI. Banks would need to rethink their capital allocation plans in response to their ownrisk appetite and the changing environment.
The unprecedented situation has also led to growing preference among individuals forthe liquidity and safety offered by bank deposits. This presents an emerging opportunityfor banks to raise low-cost deposits as well as enhance wallet share by providing wealthmanagement solutions. Banks which are able to tap this opportunity would be able to fueltheir business growth in an era defined by low margins.
Given the changing environment the Bank would also accordingly strategise to overcomethe challenges and tap the emerging opportunities. Your Bank has been progressively movingtowards a retail-oriented model backed by data analytics and technological upgradations. Iam confident that this strategy will serve your Bank well in the times ahead. Furthermoreyour Bank will strive to remain strong and resilient to support all its stakeholdersincluding its shareholders customers employees as also the community at large.
Looking back at its journey over the years your Bank has weathered unprecedentedchallenges in the past and has always managed to surmount them. I am confident that yourBank would similarly confront and overcome the current challenges with similar success. Irequest all the stakeholders of your Bank to continue supporting it in all its endeavours.Together all of us will get through this unprecedented situation and will even emergestronger than before.
With best wishes
M. R. Kumar