Banks Are Structurally Well-Placed, Says Bandhan AMC's Sumit Agrawal

Sumit Agrawal, the Managing Director and CEO of Bandhan Asset Management Company (AMC), a leading asset management firm in India, recently expressed his optimistic viewpoint regarding the structural strength of the Indian banking sector in an interview with Business Standard. According to him, several factors make Indian banks structurally well-placed despite the challenges they have faced in the past few years.

Firstly, Agrawal highlighted the significant progress made by banks in addressing their non-performing assets (NPAs) or bad loans. He mentioned that the gross NPAs of Indian banks have come down from their peak of 11.9% in 2018 to around 6.5% in the current fiscal year (2021-22). This reduction is a result of various measures taken by the Reserve Bank of India (RBI) and the government, such as the Insolvency and Bankruptcy Code (IBC), which has led to the resolution of many stressed assets.

Secondly, the recapitalization of banks through the government's capital infusion program has strengthened their balance sheets. The government has injected over ?2 lakh crore into public sector banks (PSBs) since 2014 to help them meet their regulatory capital requirements and improve their financial health.

Thirdly, the digital transformation of banks has been another significant factor in their structural improvement. The adoption of digital technologies like artificial intelligence (AI), machine learning (ML), and blockchain has enabled banks to streamline their processes, reduce operational costs, and improve customer experience. For instance, the number of transactions through the Unified Payments Interface (UPI) has grown exponentially in recent years, reaching over 4 billion transactions per month in 2021.

Fourthly, the ongoing consolidation in the banking sector is expected to create larger and more efficient entities that can better compete with private sector banks and non-banking financial companies (NBFCs). The merger of Vijaya Bank and Dena Bank with Bank of Baroda and the merger of Oriental Bank of Commerce and United Bank of India with Punjab National Bank are examples of this consolidation process.

Lastly, the regulatory reforms initiated by the RBI have also contributed to the structural improvement of banks. For instance, the introduction of the Prompt Corrective Action (PCA) framework has helped identify and address the weaknesses of banks in a timely manner. Similarly, the introduction of the Basel III norms has strengthened the capital adequacy of banks and made them more resilient to shocks.

In conclusion, the Indian banking sector has made significant strides in addressing its past challenges and is structurally well-placed for the future. The reduction in NPAs, recapitalization of banks, digital transformation, consolidation, and regulatory reforms are some of the factors that have contributed to this improvement. However, there are still challenges that need to be addressed, such as the need for more credit growth and the resolution of large NPAs in some banks. Nonetheless, the future looks promising for the Indian banking sector as it continues to evolve and adapt to the changing economic and technological landscape.