Over the past decade under Prime Minister Narendra Modi’s leadership, the Indian banking system has undergone significant transformations, moving from the era of ‘phone banking’ to implementing prudential norms, mega mergers, recapitalization, and fostering a banking culture through initiatives like Jan Dhan accounts, digital banking/payment systems, and Mudra loans.
According to a research report by the State Bank of India (SBI), the banking system’s total asset/liabilities growth during FY14-23 is 1.3 times higher than the growth in the last 60 years. Despite obstacles like demonetization, non-banking financial company setbacks, shifts in monetary policy, and the pandemic, the Indian banking system has shown resilience, emphasized by Sujan Hajra, Executive Director, and Chief Economist
at Anand Rathi Shares and Stock Brokers.
Hajra points out that banks are better capitalized, positioned to handle shocks, provide faster services, and reach marginalized communities. The non-performing loan ratio has decreased from 14.6% in 2018 to 7.3% in 2022. Public sector banks’ market cap rose by 173%, and profitability increased by 134.9% from 2014-22.
In an interview, Hajra discusses the transformation of the banking sector under Modi’s premiership, its state in 2014, steps taken to address issues, positive and negative aspects, and the way forward. He emphasizes the improvements in financial health, capitalization, asset quality, provisioning, and profitability of Indian banks.
However, challenges remain, including limited divestment of government ownership in public sector banks, issues with efficiency and corporate governance, and a persistent disparity between lending and deposit rates. Hajra suggests that the next decade may witness a further reduction in operating costs, specialization in banking activities, enhanced digital banking networks, and a transition to cash flow-based lending.
Regarding financial inclusion initiatives like Jan Dhan accounts and lending programs for MSMEs and unorganized sectors, progress has been made, but collateral-based lending remains dominant, impeding faster advancement in these areas.
