Huge Strain on the Banking System
SBI chairman OP Bhatt on Monday said there will be a huge strain on the banking system in times to come .
“While there are huge opportunities, the banking system is under a lot of strain. The profits and interest margins may strain, while low-cost resources, current and savings account (CASA) are also on a decline. Non-performing assets are also projected to go up over the next one or two quarters,” he said.
Bhatt also noted that as inflation pressures are building up, regulatory action may lead to hardening of interest rates.
However, he is confident of India likely to witness a growth rate of 8%. “The combined dynamics of multiple factors in social, political and economic sectors are such that come what may, the country will continue to grow at 8% for the foreseeable future,” Bhatt said. he was speaking atthe Bancon conference in Mumbai.On consolidation in the banking sector, Bhatt said it remains a concern owing to its slow pace.
“Banks will have to grow in size and scale, which otherwise, will act as constraint for local lenders to compete with their global peers,” he said.
On SBI’s consolidation process, Bhatt said the process is happening at a slow pace. “We started the process of consolidation, but it is going a bit slow,” Bhatt said.
Over the next 3-5 years, given the strong fundamentals of the economy, bank credit is expected to grow by 20-25%. SBI is projecting a credit growth of 16-18% this year.
A report by Mckinsey has said though the Indian banks have been impacted by the global financial crises, there is still a huge amount of opportunity for banks to expand in areas of retail, payments, rural banking, consolidation and globalisation.
“Urban India will add over 80 million households to the middle-class segment by 2025 highly driven by retail banking growth,” pointed out Naveen Tahilyani, partner at Mckinsey&Co, adding that there is a dire need for Indian banks to innovate on their technology and business models and at the same time give increased focus on low cost and fee income sources.
Tahilyani said the number of employees in the banking industry is projected to go up to 12 lakh in 2015 as against 9, 15,474 in 2005.
Supriyo Sinha, associate partner at Mckinsey&Co, said the attrition rate among banks stands at 15-20%.
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