I assumed the position of Chairman of IDBI Bank in May 2019. It is indeed a privilegefor me to be associated with the Bank which has a rich legacy of partnering India in itsgrowth and development. IDBI Bank's journey is marked by transformation in tandem with theevolving business environment. In January 2019 Life Insurance Corporation of India (LIC)acquired 51% stake in the Bank becoming the promoter. With this a one-of-a-kindfinancial conglomerate came into existence with LIC and IDBI Bank offering a gamut ofbanking and insurance products under one roof.
The year 2018 saw deceleration in global economic growth as several major EmergingMarket and Developing Economies (EMDEs) slowed down. Growing trade protectionism emergedas a prominent feature of the global policy dialogue. In this backdrop the Indian economyremained fairly resilient though not without its own set of challenges. India's economygrew at 6.8% in 2018-19 marking a decline from 7.2% in 2017-18 on the back of domesticfactors such as disparate monsoons and muted consumption and investment demand whichrestricted growth in agriculture and services sectors. At the same time Consumer PriceIndex (CPI) inflation rate which is the mainstay of the monetary policy remainedmoderate at 3.4% in 2018-19. Keeping in view the weakening growth and soft inflationarypressures the Reserve Bank of India (RBI) reduced the Repo Rate with the intent tosupport economic growth.
With driving growth assuming primacy in the domestic policy dialogue the importance ofrevitalising the banking system came to the fore as India continues to be a bank-ledeconomy. The banking sector in India has been beleaguered by concerns on the asset qualityfront frauds and consequential adverse impact on profitability. In response to thesechallenges substantive reforms in governance and regulatory regime as well as legalreforms have been undertaken to lay the foundations for a stronger banking sector.Measures such as the PSB Reforms Agenda for Enhanced Access & Service Excellence(EASE) have laid out the framework for driving improvements in various areas includingcorporate governance risk management and service standard of the banks. The action pointsoutlined in the EASE framework are intended at ensuring responsive and responsiblebanking. Simultaneously the enactment of the Insolvency and Bankruptcy Code (IBC) hasprovided the much-needed institutional mechanism for ensuring time-bound resolution ofNon-Performing Assets (NPAs).
Consequently banks have made much headway in resolving NPAs which has led to adecline in the NPA levels for most of the banks. There has also been a pick-up in theindustry-wide deposit and credit growth underscoring signs of revival. Banks too havebecome more alert to these ramifications of the recent challenges and are proactivelystrengthening their risk management and corporate governance practices. Compliance hasemerged as one of key themes in the strategic business plans of the banks to avert anyuntoward incidents that may pose risk to its operations.
In this backdrop it is also essential to understand that the banking space isundergoing a paradigm shift. Notwithstanding these challenges the banking sector in Indiarepresents one of the biggest opportunities globally in terms of potential value. Thepolicy emphasis on financial inclusion and digitisation is driving change throughout theeconomy. Keeping in mind the aspirational class clientele most of whom are technologyadopters low-cost Indian platforms have been launched to promote digital payments. Theavailability of data in India has become more democratic with IndiaStack and openApplication Programming Interfaces (APIs) allowing banks to access customer informationfrom a single source. With these developments financial players - both existing and thenew entrants - have the opportunities to build innovative business models to serve theircustomers in a cost-effective and efficient manner.
The targeted segments represent the next growth drivers for the banking sector. Even asthe policy and regulatory framework is evolving it is abundantly clear that India ismoving towards a digital inclusive and interoperable financial services market. Withthese emerging developments the key for growth in the banking sector lies in harnessingtechnological prowess to create integrated digital infrastructures; combining traditionaland non-traditional data sources to gain customer insights; and cultivatingpartnership-driven digital ecosystems.
The regulatory framework is also seeking to promote competition in the banking space byallowing entry of new and even non-traditional players. Thus a new category viz.differentiated banks has been created for performing specific functions rather thanproviding full-service banking.
Thus new entrants were licensed to operate as Payment Banks and Small Finance Banks.Keeping in view these developments your Bank's business strategy is being shaped by theemerging trends as well as the current imperative to restore its financial health. Towardsthis end your Bank has also been progressively moving towards recalibrating its businessmix to transition towards a capital-light and diversified model. Accordingly your Bankhas been focusing on augmenting the share of retail and priority sector loans on the assetside. On the liability side concerted efforts are being made to boost the share of CASAand retail term deposits. With LIC acquiring 51% stake in your Bank various areas ofmutual synergies have been envisaged and the groundwork laid for some of these areas hasbeen yielding positive results. The mutual synergies are expected to provide a furtherimpetus to the Bank's effort in ramping up its retail business. At the same time the Bankrecognises that asset quality remains an area of concern. Thus all possible measures arebeing pursued under legal and regulatory framework by the Bank to maximise recovery andupgradations in the NPAs. Furthermore the credit monitoring processes are being revampedto ensure close monitoring to arrest further slippages in the asset quality at nascentstage itself. The Bank stands to gain from qualified professionals at the helm and I amconfident that their invaluable inputs will help in bringing about a favourable change inbusiness culture that will help the Bank to drive sustained and profitable growth therebycreating immense value for all its stakeholders.
The recent policy and regulatory reforms augur well for the banking sector in generalas it would foster economic growth and banks are an integral part of the process. TheBank will strive to capture the emerging opportunities by understanding the financialrequirements of its customers. In a largely homogenous landscape of the banking sectorthe Bank strives to differentiate itself by continually improving its service standards aswell as trying to ensure seamless customer experience across channels.
As the Chairman of the Bank I am happy to be a part of IDBI Bank's journey. I am surethat the transformational initiatives and innovations undertaken by the Bank will help itto return to a profitable growth path.
With best wishes