XLRI Hosted a Webinar on Structural Changes in the Banking Sector in the Light of Macroeconomic Developments

News Desk, News Nation 360 : Financial Market Centre (FMC) of XLRI hosted a webinar on “Structural Changes in the Banking Sector in the light of macroeconomic developments” on July 21, 2021. The webinar was delivered by Dr Manoranjan Sharma, Chief Economist, Infomerics Rating, India. The lecture was followed by a Q&A session, anchored by Dr HK Pradhan, Professor of Finance and Economics at XLRI – Xavier School of Management, Jamshedpur, who briefly narrated the lecture and thanked Dr Sharma for sharing his thoughts around “Structural Changes in the Banking Sector in the light of macroeconomic developments”. Dr Trilochan Tripathy, Professor of Finance, added a few dimensions to the discussion where he argued that the bank consolidation may have concerns and impact on credit availability over the business cycle in India. He argued that the bank consolidation in India may lead to the monopolization of the banking business in India. The banks' collusion may be expected in the burst phase of the business cycle which may lead to higher mark-ups affecting the consumers and businesses all across. On the other hand, a reduction in competition may help stabilise credit in the burst phase of the business cycle. Further larger banks may be better diversified which in turn may pose threats to the smaller banks in India. Prof. HK Pradhan also observed that the RBI issue of license to NBFCs, payment banks, small finance banks, and new banks over the years may also trigger technological adoption, competition and efficiency in the Indian banking Industry. On the webinar they have discussed WEAKENED BANKING: Financial sector regulators & Govt. initiated policy measures to ensure normal financial intermediation functions & mitigate widespread distress. Policy measures kept financial markets from freezing & eased liquidity stress facing financial institutions and households. Consequently, borrowing costs ebbed and illiquidity premia shrunk. But risk aversion & lacklustre demand impeded the fuller flow of finance from both banks and non-banks into the economy, TRANSMISSION MECHANISM : Usually there is a significant difference in the borrowing level across banks and one-size does not fit all. Banks, however, are generally not borrowing significantly because of reduced credit off-take and parking of surplus funds in G-Secs. The Repo Rate has increasingly emerged as a signalling mechanism and banks are expected to follow suit. In a deregulated environment, however, banks take their individual call on the basis of their financial position, cost and yield, level of NPAs, etc, FALLING REVENUES : While central banks globally slashed interest rates, banks are reducing yields to generate business, thus significantly constricting NIMs. Income from payments and other fee-based services severely hit; moratoriums on loans reduced banks’ cashflow also. Banks must make payments safer & popularize digitization, and THE NEW NORMAL: COVID-19 will have an enduring impact across industries, including banks because of the destruction of lives and livelihoods. Fintech in India will be increasingly important in banking, blockchains, alternate lending and advisory. Rapidly increasing fintech has been a game-changer with Paytm, Mobikwik, Freecharge, Bankbazar, etc. leading in payments, credit, investment, insurance, wealth management & financial inclusion. The compelling need to transform requires an accent on cyber security.

Report : Anustup Kundu