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Analysis of Banking Sector in India: Post Covid-19

Research · September 2020

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Ashish Bagewadi Devang Dhingra

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Analysis of Banking Sector in India: Post Covid-19

1
Ashish Bagewadi, 2Devang Dhingra
1
Student, 2Student
Symbiosis Centre for Management Studies, Pune

Survey 231, Near Lunkad Gold Coast, Viman Nagar, Pune, India – 411014

Abstract

Banking sector in India has played a major and a crucial role in socio-economic progress and this is evident since
the independence. Banking sector is the heart and soul of an economy for any country. It is the most vital pillar for
any financial sector and plays a major role in economic development of the country. Our paper seeks to analyse and
compare the banking sector in India pre and post Covid-19. The paper also focuses on the impact of Covid-19 on
the population. This was done with the help of random sampling and their responses were summarised using graphs
for better understanding.

Keywords: Banking, Consumer, E-wallets, Covid-19

Introduction

India isn't just the world's biggest autonomous popular government, yet additionally a developing monetary goliath.
Without a compelling financial framework, no nation can have a sound economy. Banks assume a fundamental part
of the financial advancement of a nation. They amass the inert reserve funds of the individuals and make them
accessible for speculation. They additionally, make new interest stores during the time spent allowing credits and
buying venture protections. They encourage exchange both inside and outside the nation by tolerating and limiting
bills of trade. Banks additionally increment the portability of capital. For as long as thirty years, India's financial
framework has had a few exceptional accomplishments surprisingly. It is not, at this point bound to just the
metropolitans, however has reached even to the far off corners of the nation. This is one of the reasons for India's
development cycle. Today, the financial part is one of the greatest assistance divisions in India. Accessibility of
value administrations is indispensable for the prosperity of the economy. The focal point of banks has moved from
client procurement to client maintenance. With the stepping in of data innovation in the financial division, the
working technique of the financial part has seen progressive changes. Different client situated items like web
banking, ATM administrations, Tele-banking and electronic installment have decreased the outstanding burden of
clients. The office of web banking empowers a customer to get to and work his financial balance without really
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visiting the bank premises. The office of ATMs and credit/charge cards has reformed the decisions accessible with
the clients. Banks likewise fill in as elective entryways for making installments by virtue of annual expense and
online installment of different bills like the phone, power and assessment. In the current economy where individuals
have no ideal opportunity to make these instalments by remaining in line, the administrations gave by banks are
estimable. Among the organizations whose part in the improvement of the less evolved districts is very much
perceived however insufficiently underlined are the advancement banks. Assuming numerous jobs, these
organizations have advanced, sustain, backing and screen a scope of exercises, however, their most significant
capacity has been as drivers of a mechanical turn of events.

Research Objective

This research was undertaken to find out how the banking sector has been affected by Covid-19. It presents, in brief,
an overview on how the banking sector was performing and the banking practices were but how it has changed due
the whole scenario. The following are the primary objective of the research paper :
1. To understand the financial impact of Covid-19 on the banking sector by taking select banks into
consideration.
2. The difference in consumer behaviour towards the banking sector and their comparison (pre and post Covid-
19).

Research Methodology

The current paper is intended to evaluate the effect of Covid-19 and lockdown on India's Banking division. To
accomplish this target a few concentrates have been drawn from the current writing accessible on different locales
of web in the structure of highlights of meetings of famous business analysts, subsidize chiefs, monetary and
financial advisors, senior authorities of monetary bodies, Chambers of trade and industry, authorities of global
organizations like world Bank and IMF, etc. Further, research articles and reports of expanded gatherings like
counselling firms, transnational institutions, central banks, with respect to the effect of the crown on budgetary
division of India have alluded. The relevant data accessible in different structures and at different sources was
checked and understood cautiously while reaching a correct inference for this article. It needs notice that this paper
is an exploratory kind of study. On the record of the non-accessibility of quantitative information of post Covid-19
scenario, the utilization of measurable devices was not possible

For this study, the data has been collected by the process of random sampling. A sample size of 135 was estimated
from the beginning of the study. The data has been collected by administering a self-structured questionnaire to
them. This helped to improve the questionnaire and gave an indication about the responses that would be seen; with
a few additions and deletions, the final questionnaire was prepared and circulated.
The analyses of collected data were done using simple frequency, percentage, and other basic statistical inference
tools. The analyses are presented in a graphical form for better understanding.

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Indian Banking System

The Indian financial industry assumes a significant function in the monetary improvement of the nation and is the
most prevailing fragment of the monetary part. Banks help channel reserve funds to speculations and empower
financial development by assigning reserve funds to speculations that can possibly yield better yields. India's
financial framework is a powerful one and is characterized into business banks and co-employable credit
establishments. Business banks include: booked business banks (SCBs) and non-planned business banks. SCBs are
further grouped into open area banks (PSBs), private banks, unfamiliar banks and territorial provincial banks
(RRBs). Agreeable credit foundations incorporate the different co-usable banks.

(Source : https://www.jagranjosh.com/general-knowledge/structure-of-banking-sector-in-india-1448530019-1)

Literature Review

In order to overcome the COVID-19 pandemic, Indian Government reported total lockdown in the nation beginning
on March 24, 2020 and the equivalent was stretched out to third May, 2020 in the subsequent stage. Despite the fact
that the lockdown was vital and unavoidable to forestall the quicker spread of Novel Coronavirus (Covid-19) and to
spare existences of individuals of the nation, it influenced the different divisions of our economy harshly. The
Banking and Non-banking money organizations (NBFCs) which are the spine of India's economy are not special
case to the above mentioned. This article is an endeavour to evaluate the effect of this pandemic on Banks and
NBFCs because of lockdown which has come about into conclusion of every business association, instructive
foundations, public and private workplaces, suspension of methods for transportation, and so on. (Singh & Bodla,
2020)

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Finance and banking is the life blood of trade, commerce and industry. Now-days, the banking sector acts as the
backbone of modern business. Development of any country mainly depends upon the banking system. A bank is a
financial institution which deals with deposits and advances and other related services. It receives money from those
who want to save in the form of deposits and it lends money to those who need it. Banking is one of the most essential
and important parts of human life. In the current faster lifestyle peoples may not do proper transitions without
developing the proper bank network. The banking System in India is dominated by nationalized banks. The
performance of the banking sector is more closely linked to the economy than perhaps that of any other sector (
Limbore, Nilesh, 2014).

The gigantic advances in innovation and the forceful mixture of data innovation had gotten a change in perspective
in banking activities. Web banking that has altered the financial business worldwide has ended up being the core
issue of different examinations everywhere on over the world. Anyway there has continually been a writing hole on
the issue in India. The motivation behind this paper is to help fill huge holes in information about the Internet banking
scene in India. The paper presents information, drawn from a study of business banks sites, on the quantity of
business banks that offer Internet banking and on the items and administrations they offer. It researches the profile
of business banks that offer Internet banking, utilizing univariate measurable investigation, comparative with other
business keeps money concerning benefit, cost proficiency, and different attributes. Before the finish of the first
quarter, 2004, contrasts among Internet and non-Internet banks had started to rise in subsidizing, in wellsprings of
pay and uses and in proportions of execution. It was additionally discovered that the benefit and offering of Internet
banking doesn't have any huge relationship (Singh & Malhotra, 2004).

Performance of Banking Sector Post Covid-19

India's financial stocks have experienced a sizable worth disintegration since the beginning of the pandemic of Novel
Corona. For example, Nifty Bank-the benchmark file of India's banks has fallen alarmingly since the start of March.
Kotak Mahindra Bank's credit development dropped to 6.7% in the primary quarter of the current year (i.e.2020),
the slowest, in any event, three years and down from 10.3% in the past three months. HDFC Bank has the least
terrible obligation proportion among its friends. Yet, Aditya Puri, managing director of HDFC Bank expressed that
they likewise become tougher about taking on new lending.
In the start of March, the effect of Coronavirus on Non-Banking Financial Companies(NBFC) was named as
'genuinely inconsequential' as the lazy economy stayed one of the biggest stresses. However, after fourteen days the
monetary area seemed to be in the focus, hit by a lockdown the country over and ensuing shut down of organizations.
The examination report of Emkay Global named "For Asia-Pacific Banks, COVID-19 Crisis Could Add USD 300
Billion To Credit Costs" specifies that the effect of the pandemic would be fractional duringQ4FY20 income. In any
case, the full effect of Covid-19 on development would be obvious fromQ1FY21.

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The challenges faced by the banking companies across a breadth of activities can be classified as follows -
1. Products
Decline in credit demand – Triggered by the fall in business activity and non-essential spend
Lower deposits and investments growth – Led by continued rate reductions and increasing volatility
2. Sales and servicing – branches
Decline in branch-driven sales – Driven by reducing customer walk-ins
Limited serviceability – Constrained by reduced staff and operational timing
3. Sales and servicing – other physical networks
Restricted operations – Due to movement restrictions and lack of clarity on banking correspondents as an
essential service
4. Sales and servicing – digital
Constrained capacity – Due to increased volume and a variety of service requirements on digital channels
5. Operations
Low productivity – Due to lack of adequate infrastructure and staff-given manual processes.
6. Collections
Muted collections – As a result of disruptions to physical collections, reduced ability to pay, and moratorium
7. Risk management and compliance
Inadequacy of risk models – Given the unprecedented nature and extent of the crisis
Cybersecurity concerns- Around data privacy and information security, given the increased dependency on
contactless channels
8. Treasury and capital management
Liquidity management challenges – Excessive liquidity with banks, given restricted lending; liquidity
constraints also faced by NBFCs
9. People
Low employee productivity and morale – Caused by lockdown restrictions and concerns regarding job
security
10. Technology
Limited data access – Inability to access data/ systems, leading to reduced serviceability
IT constraints – Limited bandwidth and system capabilities, and architectural constraints

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At the same time, this pandemic has bought some opportunities for the banking sector-

(Source:https://www2.deloitte.com/content/dam/Deloitte/in/Documents/financial-services/in-fsi-Impact-of-
Covid19onBanking-in-India_BrandPart2-noexp.pdf)

Data analysis and Discussion

The following table represents the responses received from people of different age groups

Age Group Number of responses

15-18 13

18-25 36

25-35 40

35-45 29

45 and above 17

TOTAL 135

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Usage of E-payments and other online banking services (Pre-Covid-19)

As we can see in the chart above that the number of people who used e-banking services was not very satisfying, as
compared to the technological advancements happening in the country. Some of the respondents were not fully
aware of the e-payment system as they preferred buying things from the local stores by paying in cash.

Usage of e-payments and other online banking services (Post-Covid-19)

From the chart above we can infer that many respondents switched and adapted themselves to online banking and
payment services. Lockdown being imposed throughout the country people were apprehensive of going to the bank
personally, therefore most of the people shifted to online modes of banking. Even the people who used to do online
banking once in a while and preferred to go to bank personally shifted to online banking and e-payments method.

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Problems faced by the people in banking services pre and post Covid-19 era

Problems faced by customers Number of responses (pre-covid-19) Number of responses

(post-covid-19)

Standing in ATM queues 45 21

Waiting for the formation of the account 32 11

Lack of awareness of online banking facilities 26 10

Lack of Source to avail the facilities 34 14

Security and privacy issues 7 16

Cheque/Funds bouncing 16 7

others 9 Nil

Financial impact of covid-19 on banks ( top 5 Indian banks as per market share )

As it is clear in the graph above, the profits of the five largest banks in India as per market share- HDFC Bank, SBI
Bank, ICICI Bank, Axis Bank, and Kotak Mahindra have declined in the first quarter of the financial year 2020-21.
This was the time when the whole country was in lockdown with only a few branches operating throughout the
country and very less using banking services personally.
Axis bank reported a loss of 1387 Cr during the fourth quarter of the financial year 2019-20 because they pumped a
huge amount in provisions and reserves keeping in mind the situation the country and world economy were in.
Rest all the banks have started recovering from the ending of the first quarter as the business started to operate again
and the lockdown was lifted in the country in a phased manner.
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Analysis on how people see the future of Indian banking system ahead

As we can infer from the above pie-chart, it is pretty evident that online banking services is the future ahead. People
also like to use e-wallets and UPI payment services like Paytm and google pay. Services like these have made it
easier for the people to transfer funds to one another because of their safety and easy user interface. A very minimal
percentage of people prefer going back to the earlier banking process i.e. going to the bank for every issue.

Suggestions

1. RBI must take all potential activities to keep up adequate liquidity in the financial system and its constituents
despite COVID-19;
2. Adequate bank credit streams is must for putting the little and medium endeavours on the track anew after
lockdown is finished;
3. Government is needed to make choices and activities to reduce vulnerability and financial worry in the
economy.
4. People keeping in mind the current scenario should themselves shift to online banking
And e-wallet payment services to carry out their financial transactions.
5. Government should conduct awareness drives to educate people about the need to switch to online banking
and its benefits.
6. RBI should promote these online services and reduce the charges levied on e-wallet and upi payments.

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Conclusion

The opinions expressed above mentions the following points in a crux about the banking sector pre and post
Covid-19scenario :-
1. The banks in India with the use of efficient planning and provisions, they were able to reduce their overall
damage and are trying to recover well from the hit.
2. Customers banking practices and ways have also changed a lot, their trust in the online banking services has
increased and have started using that more than going to the bank personally to get things done .
3. The online banking infrastructure has improved a lot and the interface has become more user friendly during
this pandemic.
4. RBI has infused $6.5 Billion Further, as fresh measures, the RBI infused $6.5 billion of additional cash for
banks to lend to shadow lenders and small borrowers. Moreover, RBI has relaxed the timelines for bad loan
rules, and barred lenders from paying dividends for the year ended March 31, 2019.
5. In the coming future, online banking, e-wallet and UPI payments are the way forward as they reduce the
human contact and are becoming very safe as more money is being spent to develop the apps with better
safety features.

References

1. https://economictimes.indiatimes.com/markets/stocks/earnings/kotak-mahindra-bank-q3-results-pat-grows-
24-yoy-to-rs-1596-crore-misses-street-estimates/articleshow/73424657.cms
2. https://economictimes.indiatimes.com/markets/stocks/earnings/kotak-mahindra-bank-q3-results-pat-grows-
24-yoy-to-rs-1596-crore-misses-street-estimates/articleshow/73424657.cms
3. https://economictimes.indiatimes.com/markets/stocks/news/coronavirus-impact-to-bring-more-worries-for-
indian-banks-
fitch/articleshow/74829677.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
4. Rajput, N., & Goyal, A. K. (2019). Indian Banking Sector a Major Contributor to Economy: Constancy
Major Concern. International Journal of Recent Technology and Engineering.
5. singh, J., & Bodla, B. S. (2020). COVID-19 PANDEMIC AND LOCKDOWN IMPACT ON INDIA'S
BANKING SECTOR: A SYSTEMIC LITERATURE REVIEW. In COVID-19 Pandemic: A Global
Challenge (pp. 21-32). Aryan Publications, New Delhi.
6. Rajput, N., & Goyal, A. K. (2019). Indian Banking Sector a Major Contributor to Economy: Constancy
Major Concern. International Journal of Recent Technology and Engineering.
7. https://www2.deloitte.com/content/dam/Deloitte/in/Documents/financial-services/in-fsi-Impact-of-
Covid19onBanking-in-India_BrandPart2-noexp.pdf

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