Jamshedpur 23rd July 2021: XLRI’s Financial Markets Center (FMC) hosted a webinar on structural changes in the banking sector in light of macroeconomic developments.
The webinar was delivered by Dr. Manoranjan Sharma, Chief Economist, Infomerics Ratings, India.
Dr. Sharma discussed the impact of COVID-19 on the Indian banking sector.
He said, “The banking sector is not a silo, but a microcosm, a miniature model of the wider macro-economy. Recently, the Indian economy has been hit by the triple whammy of demonetization, GST, and COVID 19. The hardest-hit sectors are required intensive human interaction in, e.g., MSME, aviation, tourism, logistics, and hospitality sectors, services, and construction; IT-intensive activities generally fared far better. India’s economy is crippled mainly because its four engines of growth – domestic consumption, government spending, private investment, and exports – are limping. Creating jobs is critical to recovery as well as boosting demand.”
Financial sector regulators and the government initiated policy measures to ensure normal financial intermediation functions and mitigate widespread distress.
The policy measures kept financial markets from freezing and eased the ongoing liquidity stress in financial institutions and households.
As a result, the cost of borrowing fell, and the liquidity premium shrank.
But risk aversion and weak demand hampered the full flow of finance into the economy from both banks and non-banks.
While banks have surplus liquidity, several critical sectors are debt-starved due to demand and supply-side shocks, low consumer confidence, NPAs, and consequently clear risk aversion.
4R- Recognition, Resolution, Recapitalization, and Reforms reduced NPAs from ₹10,36,187 crore (March 2018) to ₹8,08,799 crore (September 2020), NPAs are not uniform across bank groups or sectors.
The surge in NPAs stems from the apparent macro-economic slowdown, higher credit growth in some areas resulted in subsequent deterioration in credit quality and higher incidence of advance fraud, which are partly the result of faulty credit appraisal, monitoring, and supervision.
The lecture was followed by a Q&A session, which was anchored by Dr. HK Pradhan, Professor of Finance and Economics at XLRI – Xavier School of Management, Jamshedpur, who narrated the lecture briefly and called on Dr. Sharma “Structural Changes in Structural Changes”.