By Alastair Pavrey The banking sector has always been in the spotlight, for good or bad. Considered a backbone of the economy, the integrity of the institutions has been questioned due to various issues, ranging from the exponentially increasing Non-performing Asset (NPA) woes to the recent frauds making waves around the finance community. Let us look at how the sector performed in Q3 FY18, the NPA situation and how it is being resolved and finally why the MSME sector is emerging as a good proposition for banks to expand their loan portfolio, while significantly reducing the risk of “bad loans”. Banking Sector Performance Q3 FY18 As per CARE Ratings, the performance of banks continues to be stressed in Q3-FY18 as revealed by the performance of a sample of 30 banks which includes 13 PSBs and 17 private banks. Profits are under strain and the NPA issue continues to pressurize banks. ·       Growth in interest income in Q3-FY18 was 8.9% as a...

NBFCs (Non-Banking Financial Companies) have emerged as a better alternative to Banks, for loans, including Business Loans, because of their innovative products, quicker Turn Around Time, higher Risk taking capabilities (because of better risk assessment and credit assessment systems), and better understanding of the segment in which they specialize. This fact is well understood by the policy makers at Banks as well, which is why Banks are more willing to lend to NBFCs, for onward lending to segments untouched by Banks. NBFCs have now, backed by the funding from Banks, become strong enough to challenge the Banks’ bread and butter areas - MSME lending, and Housing Loans and other personal loans. GROWTH IN BANK CREDIT The year-on-year growth in the Bank Credit, as on 22 nd December 2017 was 10.70% as compared to 4.70% in the last year. The growth can largely be the effect of the following: 1.        Post demonetization, Banks had surplus deposi...

The overall slump in World economy caused by Brexit, US elections, threats of war involving countries from the far-east, coupled with the haphazard implementation of Demonetisation and lack of clarity about the procedures involved in implementation of GST has affected the Indian economy to the extent that companies have resorted to job cuts and shut down. This slump, however, is temporary, albeit a bit stretched. India’s Real GDP slowed down in the last quarter, but overall growth for the Current Fiscal is estimated to rebound to 7.00%, which is far better than that of the competing Developing and Developed countries. One of the major factors stalling the onset of rapid recovery is the lack of Private Investment due to reasons not limited to India alone. The constant disruptions of Parliament since 2012 for various reasons meant that GST was not implemented at a time when India could afford a temporary slowdown, but rather, at a time when the economy was showing signs of reco...