ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Impact of COVID-19 on the Indian Banking Sector

This article investigates the impact of COVID-19 on the banking sector through the trend analysis of return on assets and return on equity of the scheduled commercial banks. It covers both the pre- and post-lockdown periods. The results suggest that the governmental measures are helping ameliorate situations of bad quality loans and will improve future prospects of the banking industry.

Measurement and Analysis of the Productivity of Indian Banks

The paper reveals that cash holdings, the “growth rate of assets,” the “incremental gross non-performing assets,” and the “incremental cost of funds” negatively impact the productivity of banks, whereas the net interest margin has a positive impact. The paper also benchmarks major banks in India that can be used as an input in strategic decision-making.

Bailout Barometer for the State-owned Indian Banks

Using the disaggregated data covering 2007–20, the study estimates the bailout barometer for state-owned banks in India. The findings show that the magnitude of the bailout barometer, in 2020, was $400 billion or around 18% of the total liabilities at the upper end of the scale. The classifications by separate categories such as size, systemic importance, and interconnectedness show that the former two categories appear to exert the most perceptible impact in terms of bailout magnitude.

Reviving the Lending Appetite of Banks

The flow of bank credit is crucial to revive the economy. The fear of potential asset quality woes has reduced the risk appetite of banks. Going beyond the restructuring support, banks need policy support by relaxations in prudential norms in the near term to be normalised in the next four–fi ve years. Coping with the adversities of the pandemic needs a collaborative policy support of all stakeholders to step up the lending appetite.

Income Diversification and Risk-adjusted Returns for Indian Banks

Of late, banks are under pressure to improve their performance and asset quality. Diversifying income might improve their performance at a time when interest incomes are under strain. This article covers trends in diversification from 2000 to 2017 and explores the relationship between income diversification and risk-adjusted returns for banks in India. Our research supports the hypothesis that banks diversifying into non-interest income category are able to get higher risk-adjusted returns. For public sector banks, it is found that it is the dividend and treasury income that is contributing positively and significantly to risk-adjusted return.

Converting Urban Cooperative Banks into Commercial Banks

The debate around the conversion of Scheduled Urban Cooperative Banks into commercial banks warrants an investigation into their performance. The larger objective is to examine whether SUCBs are able to compete with their peer group and remain viable when subjected to stringent regulatory requirements, in the event of their conversion. The performance of SUCBs as a group is comparable with that of their peer group, that is, old private sector banks, with the exception of non-performing assets. Performance rankings reveal that the smaller SUCBs are better performers than larger ones, calling for a relook at the threshold for conversion. In the event of conversion of SUCBs into commercial banks, some of the converted entities will be as good as some of the existing OPSBs, or may even be a shade better.

Determinants of Recovery of Stressed Assets in India

There have been signs of stress in the balance sheets of banks in an environment of increasing uncertainties and a fragile global economy. Weakening loan recovery rates not only forces banks to face the burden of higher provisions and limits their lending capacity, it also diminishes their profitability and solvency. Examining the determinants of recovery of defaulted loans by banks in India, the need for a stronger and effective insolvency regime is felt so as to improve the debtor-creditor relationship and credit environment. The importance of the presence of collateral, the type of collateral used, and a conducive macroeconomic environment towards recovery of bad loans are highlighted. There is a need for strengthening banks' credit appraisal system. Access to alternative resources facilitates loan recovery, highlighting the need for further development of capital market as a source for adequate resources for borrowers.

Multiplier Effect of Self-help Groups

This article measures financial inclusion performance on three dimensions--branch penetration, credit penetration and deposit penetration and in the process of quantifying the contribution of self-help groups towards macro-level financial inclusion dimensions, reveals the multiplier effect of SHGs. Since it enables all group members to access savings, credit and other financial services from bank, efforts to promote financial inclusion through SHGs should continue.

Trade Unions in Banks Remain Relevant

“Are Trade Unions Relevant in the Indian Banking Sector?” by Bino Paul G D and Pooja Gupta Mahurkar (EPW, 16 April 2016) contains surmises and generalisations without verifiable supporting data, apart from glaring contradictions. Further, it does not address the current challenges before bank unions.

Not in People's Interest

The politics and economics of interest rate formation in this country must be studied carefully. Lowering the interest rate raises stock prices in an environment where they themselves cannot move up thanks to the fundamentals of the economy that are not conducive.
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