Dear Shareholders and Stakeholders
1. The year gone-by i.e. FY 2017-18 presents a varied and kaleidoscopic view of theeconomic and banking sector. The global economy witnessed fastest growth rate at 3.8%since 2011 while domestic economic growth remained somewhat muted. The advanced economiesgrew by 2.3% and emerging and developing economies by 4.8% during 2017. The resurgence ininvestment spending in advanced economies upward movement in private consumption inemerging and developing economies coupled with rebound in global trade has kept up thegrowth momentum.
2. The resurgent growth however has been accompanied with the rise in commodityprices and building up of inflationary pressure. The uptick in economic growth and drop inunemployment rate has prompted USA to raise its policy interest rate thrice during theyear FY 2017-18. This process of normalization of interest rate is also expected tocontinue during FY 2018-19 which have significant implications for emerging economies interms of hardening of interest rate and possible adverse impact on capital flows.
3. Although buoyancy in economic growth is a matter of satisfaction for all of us itis the time when the economic units have to guard them against excessive risk taking andmispricing of risk which may sow the seeds of future financial imbalances.
4. Amidst the world growth story however India stood decoupled' with a GDPgrowth rate of 6.7% during FY 2017-18 against growth rate of 7.1% during FY 2016-17primarily due to temporary disruption of economic activities because of demonetization andimplementation of GST apart from the fact that monetary tightening measures also had thesobering effect on consumption and investment demand.
5. There have been occasions for cheers for India. The country improved its ranking by30 notches to secure 100th place among 190 countries in "Ease of doingBusiness". All of us also felt delighted when Moody's Investors Services upgradedthe Government of India's local and foreign currency issuer ratings to Baa2 from Baa3 andchanged the outlook on the rating to stable from positive which happened after a long 13years although we feel it was a delayed recognition of our county's credit standing.
6. In the Banking and Financial sphere there was a pressure on asset quality andcapital requirement and Banks earnings were affected due to rising yield although creditgrowth during the year remained somewhat decent. The bad debt provisioning has taken aheavy toll in terms of net loss posted by almost all the Public sector banks during theyear FY 2017-18.
7. The recognition and resolution of NPAs of course have remained at the centre stagefor Indian Banks for quite a couple of years. All of us are now pinning hope on theInsolvency Bankruptcy Code (IBC) framework for resolution of mounting NPAs especially ofcorporate ones. Although more than 500 corporate insolvency cases have been admitted byvarious NCLT benches resolution in majority cases is yet to happen. It is quite pertinentto mention that resolution under IBC is not only crucial for banks but also critical forthe economy as a whole for augmenting credit flow and supporting economic growth.
8. The re-capitalization package of Rs.2.11 lakh crore announced by the Government tostrengthen the balance sheet of the PSU banks and enable them to fulfill the regulatorynorms for capital adequacy has been quite re-assuring and confidence boosting. Howeveralong with capital infusion the banks have been advised to implement various reformmeasures under six broad agenda called Enhanced Access and Service Excellence (EASE)including better customer services fast paced digitization strengthening creditappraisal credit monitoring system improving credit delivery and credit flow to MSMEsector.
9. Going forward banking space will be shaped by a host of factors. Digitisation isone of the prominent factors through which banks would not only extend their outreach andconvenience/excellence in services but also it will prove to be a competitive advantagethrough enhanced operational efficiency and expansion of customer base. Howeverdigitalization is not entirely an unmixed blessing. Crucial to the success of digitizationis strengthening of cyber security measures. 10. Similarly the penetration of Fintech inBanking especially retail/commercial lending and payment space is fast progressing andpartnership between the Fintech companies and banks can be a win win situation for both.Through Fintech banks can provide innovative and niche products generate large businesstransactions can be able to reduce delivery in turn-around-time (TAT).
11. Lastly the latest economic forecast augurs well and brings in optimism for FY2018-19. The IMF in its latest World
Economic Review has projected the strengthening of global growth through 2018 and2019. Both the IMF as well as RBI have also projected higher domestic growth rate ofaround
7.4% during FY 2018-19. The encouraging economic growth will not only further activatecredit demand but also it will be conducive for credit repayment and thus reducedelinquency. The resolution of large stressed corporate accounts which are being processedunder IBC is likely to be expedited during FY 2018-19 and their resolution will createspace for growth. With the capital support from the Government and implementation ofreform measures public sector banks are now poised to transform themselves into strongerhealthier yet growth oriented banks in coming years.