INDIAN BANKING SECTOR: STAR REFORMER OF 2015

Now that we are way past US FED rate hike and ECB quantitative easing, we can now look at our own domestic economy and major reforms undertaken in 2015. Being an emerging market, our economic outlook is so much dominated by inflows and outflows of FDI & FIIs, that we have forgotten our own financial gangotari, our rural unbanked population. The Pradhan Mantri Jan Dhan Yojana (PJDY) has accumulated, approx Rs. 26000 crore as on November 2015 by opening 19 crore bank accounts within one year. This feat would have been impossible without vast penetrating network of our PSU banks. Even though we feel that our PSU banks are there in every nook and corner of this country, 40% of our population is still unbanked. Thus, the Indian banking sector especially PSU banks needed a structural overhauling to tune in with volatile global scenario.

The year 2015 started well for the banking sector with ‘Gyan Sangam’ in January where the bankers (PSU) along with government laid out both short term and long term goals for strengthening the Indian banking sector. This was followed by the 7 point ‘INDRADHANUSH’, program launched by the government on 14^th August 2015. Though the banks had been long asking for empowerment, higher capitalization and removing bottlenecks for de-stressing assets, the major breakthrough was splitting of CMD & MD posts and bank board bureau for monitoring the performance of the PSU banks. Licenses for small and payment banks completed the picture and thus fulfilling the financial inclusion agenda of the government.

PSU banks have under-performed in the stock market in 2015, due to lower profit margins, NIMs and falling ROAs compared to their private sector peers. But in the long run, PSB banks will not only outperform but will tether the whole financial system together making the Indian economy even more resilient and dynamic.