STRATEGIST SPEAKS

P R E S E N T S

BANKING
INDUSTRY OUTLOOK
Overview of the Indian Banking Sector
Distribution of Banks Private Banks gaining share in the Past Decade RBI Rates

Private sector 22
Private banks share increased from 27% in FY14
to 41% in FY21
Public sector 12
100%
4.00%
80%
Foreign 44 Repo Rate
60%
Regional Rural 40%
(RRB)
43
20%
Urban cooperative 1,484
96,000
0% 3.35%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23
Rural cooperative
Private banks Public banks Reverse Repo

The Banking industry in India has historically been one of the most stable systems globally, despite global upheavals.
Indian banking has benefited from high savings rates and growth in savings as well as disposable income growth. 4.25%
Bank Rate
Indian Banking Assets Bank Credit Bank Deposit

Assets in trillion $ Credit Extended in billion $ Deposit Accepted in billion $

6.09% CAGR
4.00%
2,036.29
2.41 2.36 2.52
1,936.20
1,781.12
2.20
2.0 1.96 1,459.02 CRR
1.80 1,347.18
1.57 1,124.86 1,128.45
894.16

18.00%
575.72
429.02

SLR

FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 2007 2011 2015 2018 2020 2007 2011 2015 2018 2020

Source: 1. RBI 2. CRISIL/industry/banking/ourview 3. CRISIL/industry/banking/industryUnderstandingDetails

© Management Development Institute, Gurgaon | 2021 - 2022 2
COVID-19 Led Impact
Emerging Opportunities post COVID Fall in Banks Stability Parameters

The Banking Stability Indicator (BSI) exhibited improvement in all

five dimensions in March 2021 as compared to the previous year
Remote relationship Feature phone
managers banking
2.0
Efficiency 1.8
1.5
6.5
COVID-19 Insurance Liquidity 5.5
Bridge loans
distribution 5.0
7.5
Profitability 5.0
4.3
Doorstep banking Working capital and
5.0
as a paid service booster loans Asset Quality 4.2
3.5
1.6
Soundness 0.8
Digital merchant Unsecured COVID-19 0.3
financing personal/SME loans Mar-20 Sep-20 Mar-21

Note: Risk ratings upon a scale of 10. Higher the value, Higher the risk

Soundness, Profitability and Liquidity components revealed

Aggregator ecosystem noteworthy reduction in risk due to bank’s improved capital
Hospitalization loans positions, better returns on assets and higher customer
financing
deposits to total assets ratio respectively

Source: 1. CRISIL/industry/banking/ourview 2. Deloitte/financial-services/in-fsi-Impact-of-Covid19onBanking-in-India_BrandPart2 3. RBI

© Management Development Institute, Gurgaon | 2021 - 2022 3
Top Trends in Banking

1 Adoption of Digital
Technology

End to end digitization for

exceptional organizational
2 Focus on Customer
Experience

Omnichannel banking
experience is facilitating
3 Bank – FinTech
Synergy

Lending,
wealth
payments and
management
4 AI and RPA driven
Operation

AI is being embedded in
business workflows to
productivity, speed to customer-centric services; expected to drive the increase operational
market and customer Services like e-KYC gives a collaboration; The efficiency & reduce cost;
engagement; Focus areas hassle-free experience; collaboration is accelerating Automating manual, non
are mobile banking, AI, ML mobile banking services are innovation and helping value adding process with
analytics and cloud becoming table stakes banks to reach out of new RPA & ML
customers

5 Contactless Payment
over Cash

Pandemic has accelerated

6 Rise of Open Banking
in India

Current market size is

7 Enhancement of Cyber
Security

Cyberattacks against banks

“ Gartner estimates,
as many as
globally increased 238%

80%
the adoption of digital around 3-4 million
payments across the globe; customers and it's expected amidst the COVID-19 crisis
Growing familiarity with P2P to grow by 46% by 2026; between February and April of
apps is shifting the Banks opening their APIs for 2020; As per FY21 budget,
expectations; UPI traffic licensed 3rd party providers allocation for cybersecurity Traditional Banks
has hit record highs in which allows them to access was a mere Rs 170 crore. In
contrast, the UK had
will go out of
volumes and values every
month since June 2020
different types of accounts,
insurance, card accounts
and leases
allocated Rs 18,050 crore for
five years starting 2016
business by 2030 “
Source: 1. Top 5 Banking Industry Trends in 2021 | Hexaware 2. Cybersecurity-in-the-indian-banking (deloitte.com) 3. 2021-Prime-Time-Report.pdf (aciworldwide.com)
© Management Development Institute, Gurgaon | 2021 - 2022 4
Future Credit Growth Areas
Retail and Agriculture segments to drive credit growth in next 2 years with economical revival and discretionary spending

Credit Growth across Segments Key Highlights

Segment
Share FY15-20 FY21 FY22P FY23P
% share FY21
Retail segment to grow at a double-digit growth
Overall Credit 7% 5% 8-10% 9-11% due to economic revival and revenge spending of
customers
Agri & Allied 12% 9% 12% 10% 7%

Industry 27% 2% 0% 6% 6% Industry segments witnessed muted growth in

the FY21 due to the decline across metals,
Services 24% 13% 1% 4% 7% chemicals, engineering and construction
segments
Retail 26% 17% 10% 14% 16%

Services segments has witnessed low growth in

the FY21 due to lower discretionary spending
Sector wise Target within the Segments
power
Sector Segment FY15-20 FY21 FY22P FY23P

Infrastructure Industry 3% 4% 4% 5% In FY22, agri-loans are expected to increase on

expectation of higher food grain and horticulture
Trade Services 9% 12% 7% 9% production

NBFCs Services 21% 4% 8% 7%

Housing Retail 16% 9% 12% 14% Housing and the vehicles sector are expected to
grow at a healthy pace for the next 2 years due
Vehicles Retail 12% 10% 13% 10% to the increase in demand

Source: 1. RBI 2. CRISIL/industry/banking/ourview 3. CRISIL/industry/banking/industryUnderstandingDetails

© Management Development Institute, Gurgaon | 2021 - 2022 5
Payments Landscape in India
Current Landscape Major Modes of Transaction by Value Major Modes of Transaction by Volume

Large Value Credit Others 22%

44.38B Transfers – RTGS
Transactions made via 4%
Credit Transfers
NEFT 6%
Payment Systems
23% IMPS 6%
Debit Transfers and
730+ Rs, 1471
Direct Debits
NACH 7%
Payment system operators Trillion Card Payments
authorized by RBI as of PPI 9%
Mar’21
72% Prepaid Payment
Instruments Card 11%
40%
13.4% Paper-based
BHIM UPI
Drop in value of payments, Instruments
due to low RTGS & Paper
Based Instrument
transactions during lockdown Cash Usage in Emerging Economies Key Growth Drivers

China 41% Government Interventions

98.5% Brazil 74%
Policies promoting ease of
payments
of non-cash retail payments India 89%
in India by volume were Innovation
Indonesia 96%
Digital transactions Adoption of mobile wallets by banks
In 2020-21, 89 % transactions in India by volume
Mobile Adoption
were cash-based, down from 100 % in 2010.
Easy to use Mobile Apps
Source: 1. Reserve Bank of India - Annual Report 2. McKinsey Report:2020
© Management Development Institute, Gurgaon | 2021 - 2022 6
Key Trends in Top Payments Modes
Performance Snapshot Top 3 Payment Mode : Trends & Sources of Revenue

UPI

24*7 RTGS ▪ 414% CAGR since inception 2016

Major Revenue Source

Introduced in Dec 2020; created a speedy &

▪ Transactions declined by 20% to 999 million in April ✓ P2M MDR
secure growth of digital transactions
2020 but restored to a better position post COVID-19 ✓ P2P Interchange
▪ UPI transactions are likely to grow 7x by 2025 ✓ P2P Bank Fee

INR 5 Lakh Crore+ Debit and Credit cards

worth transaction made in FY’21, in the
Major Revenue Source
retail segment via UPI
▪ POS Credit and Debit Cards transactions grown at a
CAGR of 19% and 21% in 4 years ✓ Transaction Interchange

▪ 852 million Debit Cards and 57 million Credit cards with ✓ Card Issuance Fee
41 Million customers as of July’20 ✓ Income from Interest
Transactions per day made India global
leader in real-time payments Prepaid Payment Instruments (PPIs)
Major Revenue Source
▪ 13x Growth in 2020 Over 2019
>2 Bn Mobile Wallets ▪ Witnessed a surge in usage after app-based mobile
✓ Issuance & Loading Fee
Transactions as of March 2021, enabled a wallets became operational ✓ Float Income
way towards a cashless economy ✓ Transaction Charges
▪ Value of transactions is expected to reach approximately
INR 11,000 billion by 2025

Source: 1. Business Standard News 2. Reserve Bank of India - Annual Report 3. RBI Bulletin 4.The Indian Payments Handbook 2020-2025 | PWC
© Management Development Institute, Gurgaon | 2021 - 2022 7
How will the Market Shape up?
Expected Growth – Digital Payment in India Other Emerging Payment Tech
Transaction Value (in INR trillion)
NETC: National Electronic AePS: Aadhaar Enabled
Toll Collection Payment System
238
FASTag has become Increase in growth owing to direct
199
mandatory for all vehicles disbursement by Govt. COVID 19
163
132 from last year stimulus packages
101
92 NETC transactions currently growing Whopping annual growth of 124% in AePS
69
at CAGR 123% and expected to grow services in 2020-21; 400M transaction in
12x by 2025 April & May 2020
2019 2020 2021 2022 2023 2024 2025
Challenges in Indian Payments Ecosystem
Share of Payments Instruments Cyber Fraud Substandard Internet Quality Dispute of Small Merchants
Transactions India comes 2nd Payment traffic has specific Printed charge-slips and SMS
after US in hacking needs such as low latency, low are in English which troubles
61.4% 22.9% 15.6% attempts response time-outs small merchant community
2020
28.3% 34.6% 37.1%
2025 Key Highlights

Spend ▪ Over the next few years, UPI is expected to emerge as the most preferred mode of
transaction among Indians
5.9% 90.2% 3.9%
2020
▪ Owing to card tokenisation and NCMC, cards will continue to remain relevant in the
2025 4.4% 79.9% 15.7% Indian payment ecosystem

▪ India’s Digital Payments journey is expecting to gain 58% share of all cash and non-
Paper-based Electronic Real-time cash payments by 2025
payments payments payments

Source: 1.The Indian Payments Handbook 2020-2025 | PWC 2. 2021-Prime-Time-Report 3. Challenges To India s Digital Payment Revolution 4.India Digital Payments 2020 | NASSCOM
© Management Development Institute, Gurgaon | 2021 - 2022 8
All the very best!

For queries, suggestions, and feedback,

write to us at strategist@mdi.ac.in
Connect with us!

© 2021, Strategist, MDI Gurgaon.

All rights reserved.