By any yardstick, 2016 has been a rollercoaster year for Indian banking. Loan growth continued to be tepid as corporate India refused to take investment calls and the growth of deposits in the world’s fastest growing large economy was just 9.1%, a 53-year low.
What do Anshu Jain, Jaspal Bindra, Gunit Chadha and Pramod Bhasin have in common? They are all global bankers from India. Right? Yes, they have all been high-profile bankers and now they want to dabble in the affordable housing loans segment. And, they are not alone.
People have been waiting eagerly for the launch of the India Post Payments Bank or IPPB, the largest among the eight that are likely to start operations over the next few months. Eleven entities received the Reserve Bank of India’s (RBI’s) in-principle approval for floating payments banks but three of them have left the field. Originally, the department of posts, or DoP, which has been running the post office savings bank, wanted to set up a universal bank.
The key takeaway from the December policy of the Reserve Bank of India (RBI) is the central bank downplaying the impact of demonetisation. Uncertainties surrounding the US Federal Reserve’s outlook on interest rates over the next year (though it’s a given that the Fed will hike the rate at the 13-14 December meeting) and the impact of the Organisation of the Petroleum Exporting Countries’ (Opec) agreement to cut crude oil production, as well as the award of the Seventh Pay Commission and one-rank, one-pension on retail inflation, is being regularly discussed, but most thought that RBI would cut the policy rate by a quarter percentage point to take care of the impact of demonetisation on inflation as well as growth. RBI has chosen to wait and watch the impact on growth although it feels that the inflation could be temporarily reduced by 10-15 basis points in the December quarter.
If you ask economists about their expectations from the two-day meeting of the six-member monetary policy committee (MPC) that kicks off on Tuesday, they will say a quarter percentage point rate cut. If bond dealers are asked the same question, the answer is a deeper half percentage point cut. The Reserve Bank of India’s (RBI) repo rate, or the rate at which the central bank sucks out liquidity from the banking system, is 6.
If you have your ear to the ground, you may hear 1.2 million employees of the Indian microfinance industry singing an old song of country-and-western singer and songwriter Jim Reeves: Where do I go from here? What fate is drawing near? To use a cliché, the Rs65,000 crore microfinance industry has been in the doldrums, at least for the time being, in the aftermath of the ban on old Rs1,000 and Rs500 notes that accounted for 86% of the money in circulation in India or close to 11% of the size of Asia’s third largest economy. Around 85% of the loan disbursements by the microfinance institutions (MFIs) and close to 95% repayment or collection of loans have traditionally been in cash.