A New Way Forward for India

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Banking, wealth management, and insurance try to keep pace with rapid economic shifts

By Suroopa Chatterjee, Kolkata-based Writer


In the aftermath of the COVID crisis the financial and wealth management sectors are undergoing unique challenges and establishing new ways to maintain the confidence of an increasingly cautious customer base, which is currently focusing on safe and sustainable investments.

It has now become absolutely vital for both clients and investors to familiarize themselves with financial strategies in order to safeguard their investments and make smart financial decisions.

The financial sector is meeting this challenge by instituting new roles in banking, strategies to empower small players, concentrating on mutual funds and market awareness. Other important aspects include health insurance, general insurance and life insurance strategies with respect to COVID.

One of the most recent significant developments in India is the merging of United Bank of India and Oriental Bank of Commerce with Punjab National Bank. Syndicate Bank was amalgamated into Canara Bank while Allahabad Bank into Indian Bank and Andhra and Corporation Banks into Union Bank of India.

Due to this flurry of mergers, India has seen a reduction in public sector banks; however, the lending capacity of these banks is high and they stand a good chance of meeting current business needs. 

The strength of public sector banks relies more on liabilities and less on assets. At a recent Kolkata webinar in late May, the Union Bank of India MD and CEO Rajkiran Rai G stated that lenders would be able to meet the business community’s expectations. He also mentioned that there would be a shift in the credit growth favoring public sector banks and depositors would expect an interest rate of 5.5%. 
He also added that for customer retention, depositors’ issues must be addressed and banks need to focus on their liabilities.

According to a Bloomberg news report, India and Italy have one of the worst bad loan ratios among the top-ten economies. In India, the State Bank of India has $19.6 bn in non-performing loans (NPLs). The bad loan ratio among the world’s biggest economies is expected to jump due to the COVID lockdowns, which resulted in business closures leaving millions jobless. 

Photograph: anand purohit 

In a statement to Bloomberg, Mr. CS Setty, one of the State Bank of India’s three Managing directors, talked about the two key lessons he learnt regarding debt collection: “One, time value: How quickly you can recover money is important. Second, follow up: I cannot stress the importance of this in recovering dues.”

In the private sector there have been some changes in moratorium policy. Customers have benefitted from some relief as moratoriums have been granted to all. Many experts feel that retail low-cost liability base is the key factor to sustain in the present market scenario.
In the case of loans, banks must first verify the credit score of the loan applicant, income source, job stability, job sector, average bank balance and other elements like capacity for loan repayment. 

According to a recent article in the Economic Times, experts said that getting a personal loan would be much more difficult for those who have already opted for the moratorium granted by the Reserve Bank of India (RBI) through August 31. Although the RBI assured borrowers that opting for the moratorium would not have any negative impact on their credit scores, lenders are rejecting the loan applications of those who have taken advantage of the moratorium. 

Small and micro businesses have also felt the pinch but many have responded with innovation. At a recent webinar in Kolkata, Mr. Ajay Kanwal, MD and CEO of Jana Small Finance Bank, stated: “65% of micro-finance customers felt a huge impact according to a survey conducted. There is a lot of entrepreneurship emerging in the customers. Bottom of the pyramid is the most crisis ready customer. What really matters is the leverage given to the client.”

Insurance is another industry that has been affected by the COVID-19.
LICI is an Indian state-owned insurance group and investment corporation. One of its Senior Business Associates, Mr. Kanchan Dasgupta, recently stated: “LIC has taken special initiatives in this lockdown situation. They have extended the Grace Period (the period from the date of first unpaid premium). Immense focus was given on online premium collections and on increasing the number of premium collection points. Special initiatives were taken to settle all kinds of Maturity claims. In this present pandemic situation, we are observing a major Shift in the mindset of investors. 
Capital Guaranteed, Return Guaranteed for a long term—preferably life long, is now a choice preference of investors. The declining trend of Repo rates and Returns on Investments (ROI), is the major reason for such shifts. Inclination for Income Insurance (Term Insurance) has taken a significant shift because of the uncertainties of the pandemic.” 
According to other senior staff at a private insurance firm, the 5% growth in GDP has resulted in customers being more inclined to make payments in cash. People are more focused on savings and protection against loss than in wealth creation.  

The new era of COVID has certainly reoriented and reshaped earlier trends in the banking, finance and insurance sectors in India and around the globe. These early indicators of shifts in the financial industry must be followed closely to see how many of these new developments are here to stay. 

Sources: PTI, UNI, Bloomberg

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