Tag: gdp

States debt-to-GDP ratio worryingly higher than FY23 target, says RBI report, BFSI News, ET BFSI

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Mumbai, The combined debt-to-GDP ratio of states is expected to remain at 31 per cent by end-March 2022 which is worryingly higher than the target of 20 per cent to be achieved by 2022-23, according to a RBI report. The Reserve Bank’s annual publication titled ‘State Finances: A Study of Budgets of 2021-22’ further said as the impact of the second COVID-19 wave wanes, state governments need to take credible steps to address debt sustainability concerns.

“The combined debt to GDP ratio of States which stood at 31 per cent at end-March 2021 and is expected to remain at that level by end-March 2022, is worryingly higher than the target of 20 per cent to be achieved by 2022-23, as per the recommendations of the FRBM Review Committee,” it said.

In view of the pandemic induced slowdown, in its projections, the 15th Finance Commission expects the debt-GDP ratio to peak at 33.3 per cent in 2022-23 (in view of the higher deficits in 2020-21, 2021-22 and 2022-23), and gradually decline thereafter to reach 32.5 per cent by 2025-26.

The RBI report noted that the budgeted consolidated gross fiscal deficit (GFD) of 3.7 per cent of GDP for states for the year 2021-22 – lower than the 4 per cent level as recommended by the FC-XV (15th Finance Commission)- reflect the state governments’ intent towards fiscal consolidation.

According to the report, in the medium term, improvements in the fiscal position of state governments will be contingent upon reforms in the power sector as recommended by FC-XV and specified by the Centre – creating transparent and hassle-free provision of power subsidy to farmers; preventing leakages; and improving the health of the power distribution companies (DISCOMs) by alleviating their liquidity stress in a sustainable manner.

“Timely payments of state dues to DISCOMS and, in turn, by them to Generation Companies (GENCOS) hold the key to the sector’s financial health,” it said.

The report said undertaking power sector reforms will not only facilitate additional borrowings of 0.25 per cent of GSDP (Gross State Domestic Product ) by the states but also reduce their contingent liabilities due to improvement in financial health of the DISCOMs.

It pointed out that in 2020-21, the first wave of the pandemic posed states the critical challenge of declining revenue and the need for higher spending.

To partially offset the revenue shortfall, the report said states hiked their duties on petrol, diesel and alcohol and focused on rationalising non-priority expenditures to make room for higher expenditure on healthcare and social services.

According to the report, the year 2021-22 started on a similar note, with the outbreak of the second wave.

“However, the impact of the second wave on state finances is likely to be less severe than the first wave due to less stringent and localised restrictions imposed this time as opposed to the nationwide lockdown during the first wave of COVID-19,” it observed.



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SBI Ecowrap: Private investment revival seems around the horizon

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New investment announcements in the current year look encouraging as around ₹8.6-lakh crore have been declared so far in the last seven months of FY22 (around ₹11 trillion reported last year).

With the private sector contributing around 67 per cent of this i.e., ₹5.80-lakh crore, it seems the private investment revival is on the horizon, said Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India (SBI), in the latest edition of SBI Ecowrap.

India’s GDP grew by 8.4 per cent in Q2 FY22 on the back of the double-digit growth in ‘mining & quarrying and public administration, defence and other services’. The real GVA increased by 8.5 per cent, a tad higher than the GDP growth.

Nominal GDP growth jumped by 17.5 per cent, driven in part by a GDP deflator at 8.4 per cent. For Q2, seasonally adjusted real GDP growth is 6.6 per cent q-o-q compared to 10.36 per cent q-o-q non-adjusted real GDP growth. Core GVA, a proxy of private sector growth, expanded by 7.5 per cent – the highest since Q1 FY19.

“In H1 FY21, the country exhibited real GDP loss of ₹11.4-lakh crore (on y-o-y basis) due to the complete lockdown in April-May and partial lockdown in June-September. The situation has improved in FY22 and in H1 FY22, the real gain was around ₹8.2-lakh crore. This indicates that the real loss of ₹3.2-lakh crore still needs to be recouped to reach the pre-pandemic level,” Ghosh said.

Affected sectors

Sector-wise data indicates that ‘trade, hotels, transport, communication & services related to broadcasting’ are still the most affected sectors and the real loss of ₹2.6-lakh crore is still needed to be recouped in this sector.

Overall, the economy is still operating at 95.6 per cent of the pre-pandemic level (with the above-mentioned affected sectors still at 80 per cent) and should take one more quarter to recoup the losses.

In Q2 FY22, the FMCG sector reported a top-line y-o-y growth of 11 per cent while EBIDTA and PAT grew by 4 per cent each. However, the rural markets, which have shown good resilience thus far during the pandemic have slowed in the last couple of months as suggested by some of the industry majors.

However, the results of industry majors whose Q2 FY22 results have been declared (like Dabur) have still not shown a significant slowdown in the rural economy.

“The Q2 estimate of the GDP on the expenditure side largely retains the flavour of trends observed in Q1 FY22. Foremost in quarterly trends, the shares in real terms have decreased for private consumption, government consumption and exports, and have increased for imports and investments and valuables. The component which has also increased is the inventories which have surpassed the pre-Covid level of FY20,” SBI Ecowrap said.

Thus, accounting for the growth in production and concomitant accumulation of inventory, the demand side has not recovered even after the opening of the economy. The massive jump in valuables which implies savings to the tune of 2 per cent of the GDP has moved into precious metals given their inflation hedging property and postponement of marriage in FY21, it added.

“We now expect the GDP growth for FY22 to top 9.5 per cent of the RBI forecast. We believe that the real GDP growth would now be higher than the RBI’s estimate of 9.5 per cent, assuming the RBI growth numbers for Q3 and Q4 to be sacrosanct,” Ghosh said.

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Jana Small Finance Bank ties up with three TReDS platforms to help SMEs, BFSI News, ET BFSI

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BANGALORE: Jana Small Finance Bank has tied up with M1xchange, RXIL, and A.TReDS. The partnership with Jana Small Finance Bank will now provide buyers and suppliers registered on all the TReDS platforms with a variety of options to secure funds by discounting invoices after sale.

The Trade Receivables Discounting System (TReDS) has been set up by RBI in order to resolve the credit challenges faced by the MSME suppliers by enabling discounting of their invoices and bills of exchange. TReDS ensures timely payments to MSMEs that access credit by posting their trade receivables on the system and getting them financed at a competitive rate through an auction mechanism where multiple financiers can bid on invoices accepted by PSUs, corporate buyers.

For MSME suppliers, TReDS offers the benefits of easy and quick availability of finance by discounting receivables at competitive rates, minimum and simple documentation, and overall better working capital management. For buyers of the goods or services such as corporates, government departments, PSUs, the platform helps to optimize working capital, reduced procurement cost, improve vendor management and lower administration cost for vendor financing, payments and settlements.

With the economy recovering after the COVID pandemic, Jana Small Finance Bank has been seeking to bolster its goal of building a robust and diverse MSME portfolio by stepping up its focus on supply chain financing. This partnership with all the three TReDS platforms is inclusive and provides access to a broad range of MSME loan-seekers.

In a statement, Sumit Aggarwal, Head of MSE, Supply Chain & Financial Institutions, Jana Small Finance Bank said, “MSMEs contribute 30% of India’s GDP, their growth depends on the availability of convenient, collateral free funding solutions to finance average outstanding receivables of Rs 500,000 crore per year, due to the time lapse between raising an invoice and receiving payment. By partnering with all available TReDS exchanges, we intend to become the go-to solution provider of supply chain finance to MSMEs that wish to unlock working capital without having to post collaterals or go through lengthy loan application processes.”



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Report, BFSI News, ET BFSI

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Despite the overall increase in the formalisation of the economy in the past five-six years, the key component of an informal economy — cash in circulation (CIC) as a percentage of GDP — has continued to rise year after year, barring in the year of note ban in 2016 when it fell to 8.7 per cent, according to a report. According to the report by SBI Research, almost 80 per cent of the economy has been formalised in the past five years with every aspect of the non-cash component of the economy including agri credit, gaining traction.

In a detailed report on Monday, SBI Research said that after dipping to 8.7 per cent of GDP in 2016 (after the note-ban), cash in circulation (CIC) as a percentage of GDP has climbed again to 13.1 per cent so far this fiscal. It is only marginally down from the peak of 14.5 per cent in FY21, which could be because of the pandemic-driven sense of insecurity and uncertainties.

During FY08-FY10, when the economy was on a scorching growth rate, sniffing at almost double-digits growth, the CIC trended at 12.1, 12.5 and 12.4 per cent, respectively. The same trend continued with minor variations in the next five years also peaking at 12.4 per cent in FY11 and falling to 11.4 per cent in FY15, according to the SBI report pencilled by Soumya Kanti Ghosh, its group chief economic adviser.

Ghosh attributes the high 14.5 per cent CIC in FY21 to the collapse of the economy due to the pandemic, wherein the GDP reported the worst contraction of 7.3 per cent.

If the circumstances were normal, nominal GDP growth in FY21 and FY22 would have been much higher and as a result, CIC would also have followed the trend as witnessed pre-note ban.

According to him, without the pandemic-induced GDP collapse, the CIC-GDP ratio would have been at 12.7 per cent as against 12.4 per cent in FY11 as because of the pandemic, people might have held as much as Rs 3.3 lakh crore in cash as a precaution.

Coming to digital transactions, 3.5 billion transactions worth Rs 6.3 lakh crore were recorded through UPI in October 2021, which is 100 per cent more than the same period last month and in terms of transaction value, it is 103 per cent more than October 2020.

Data also show that UPI transactions have jumped 69 times since 2017, while debit card transactions have stagnated indicating people preference and shift to UPI.

UPI transactions have jumped 69 times in the past four years — from Rs 1,700 crore in 2017 to Rs 15,100 crore in 2018 to Rs 29,900 crore in 2019, to Rs 57,100 crore in 2020 to Rs 1,17,100 crore so far in 2021.

Similarly, credit card spends rose manifold between 2012, when it was only Rs 1,500 crore, and 2018 when it touched Rs 10,100 crore. It then steadily added 30 per cent more in two years to cross Rs 13,000 crore and peaked at Rs 13,500 crore in 2020, according to the report.

It added that the credit card spends are on course to set a record this year as already YTD (year-to-date), it has reached Rs 13,300 crore, according to the report.

Again, debit card spends also continued to gain traction with 2012 seeing Rs 12,100 crore of transactions, which climbed to Rs 38,800 crore in 2016 but declined steeply in 2017 to Rs 15,600 crore. It more that doubled the next year to Rs 32,700 crore and peaked at Rs 56,300 crore in 2019 and again steeply fell to Rs 13,800 crore in 2020 and continued to head southwards in 2021 at Rs 9,700 crore, the report said.

Ghosh also noted that tax as percentage of GDP has also jumped since FY16 but declined after FY19, reflecting the changes in the Budget of 2019. The tax-GDP ratio has jumped in the pandemic year again reflecting formalisation efforts.

The tax-GDP ratio jumped from 10.5 per cent in FY16 to 11 per cent in FY19 but retreated since then, as the exemption limit was raised to Rs 5 lakh in the Budget FY20.

On the macrofront, the economy formalised much larger: The share of the informal sector GVA to total GVA for FY18 stood at 52.4 per cent. Employing this methodology (except for agricultrue and allied activities), the informal economy is possibly only around 15-20 per cent of the formal GDP, according to the report.

Even agriculture formalised if the numbers of Kisan Credit Cards (KCCs) are any indication. In the past three-four years, the per-card outstanding has increased from Rs 96,578 in FY18 to Rs 1,67,416 in FY22, an increase of Rs 70,838, that translates into agri credit formalisation at Rs 4.6 lakh crore and there are 6.5 crore KCCs.

According to the GST portal, between August 2018 and March 2021, the number of new MSMEs (micro, small and medium enterprises) incorporated stood at 499.4 lakh and came under GST.



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SBI Report, BFSI News, ET BFSI

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People may be holding as much as Rs. 3.3 lakh crores in cash for emergency purposes due to the Covid related dislocation in their income expectations, estimates SBI. The rise in cash to GDP ratio may be misleading due to this factor. If one adjusts for the emergency, the cash to GDP ratio may be lower than the pre-demonetisation level.

“Our estimate also shows that because of the pandemic people may have been holding as much as Rs 3.3 lakh crores in cash for precautionary motive beginning FY21″ said SBI Research team’s report titled “A Guide to Formalisation of Economy since FY18”.It adds that “If we adjust for such currency transactions, the currency to GDP ratio for pure payment purposes may have actually declined in FY21 compared to earlier years.”

The formalization efforts are bearing major fruit in terms of currency /GDP ratio. The research report by the country’s largest lender estimates that without pandemic GDP collapse, CIC/GDP ratio would have been 12.7% in FY21, as against 12.4% in FY11.

Indian consumers are migrating to high end technology platforms like UPI- Unified payments interface- that does not require the intervention of a POS or a point of sale machine and factor authentications: UPI transactions have jumped 70 times in last 4 years.

Latest currency in circulation data reveals that it has remained constant over the previous year even as record purchases happened during Diwali at Rs 1.25 lakh crores. The latest RBI data show that currency in circulation rose Rs 43,892 crore during the festival weekend, almost the same as the previous year’s Diwali week when the festival spends were lacklustre. “This happened for the first time since 2014” said S K Ghosh, SBI’s group chief economic advisor, who has authored the report.

“Indian consumers now prefer convenience in payments through the click of a button. The vast quantity of information that is produced as a passive by-product of the use of such UPI transactions holds a great promise as a transformative resource for real time policy and evidence based policy making” Ghosh said.

As this would need use of huge swaths of data and use of artificial intellegence by banks, the report recommends scaling up of large investment in cloud platforms by banks. “This might also necessitate regulatory interventions of both Central Banks and Government so that database can be harnessed and stored and also used for real time policy making” Ghosh said.



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SBI Report, BFSI News, ET BFSI

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Mumbai, The digitisation drive and pandemic-induced emergence of the gig economy have led to a faster formalisation of the economy, with the share of the informal sector shrinking to just 15-20 per cent in 2021 from 52.4 per cent in 2018, according to an SBI Research report. Share of the informal economy has fallen drastically to 15-20 per cent of the gross value added (GVA) or the formal GDP in 2020-21 from 52.4 per cent in 2017-18 due to digitisation and the rapidly expanding gig economy, said Soumya Kanti Ghosh, the group chief economic advisor at SBI.

The share of the same had stood at 53.9 per cent in 2011-12.

According to Ghosh, many measures since the note-ban in November 2016 have accelerated digitisation of the economy, and the pandemic-induced emergence of the gig economy has facilitated higher formalisation of the economy, at rates possibly much faster than most other nations.

The note ban hit hardest the informal sector which then constituted 93 per cent of the workforce. The second blow to the informal economy was the GST and the final and the hardest hit came from the pandemic.

At least Rs 13 lakh crore has come under the formal economy through various channels over the past few years, including the recent scheme on the E-Shram portal, the report said.

Real GDP was estimated at Rs 135.13 lakh crore in FY21 but lost 7.3 per cent of that in FY22 after the worst economic contraction on record due to the pandemic.

The 2011 Census pegged the size of the informal sector in trade, hotels, transport, communication and broadcasting at 40 per cent; in construction at around 34 per cent; 16 per cent of public administration; and 20 per cent of manufacturing and almost 100 per cent formalisation in finance, insurance and utilities, and to a large extent in real estate and agriculture.

The formal financial sector has even expanded by 10 per cent post-the pandemic, with the DBT transfers gaining traction and that of formalised utility services size expanded by 1 per cent during the pandemic, according to the report.

The report, quoting the monthly EPFO payroll data, said that since FY18, almost 36.6 lakh jobs have been formalised till July 2021 and the report expects that this fiscal formalisation rate will be higher than FY20 but lower than the FY19 level.

Since FY18, the agriculture sector has been formalised by 20-25 per cent due to the increasing penetration of KCC credit and now the informal agriculture sector is 70-75 per cent.

Over the years, usage of Kisan credit cards has also increased significantly as the per card outstanding has gone up from Rs 96,578 in FY18 to Rs 1,67,416 in FY22, an increase of Rs 70,838. And there are 6.5 crore such cards, the amount formalised is Rs 4.6 lakh crore, the report noted.

It also said payments worth Rs 1 lakh crore have been made at petrol pumps alone in the past five years.

A sizeable informal economy is not just an emerging and developing economy feature, and according to the IMF, 20 per cent of the European GDP is an informal economy.

On the impact of the just-launched E-Shram portal, a first-ever national database of unorganised workers, on the formalisation of the economy, the report said as much as 5.7 crore unorganised workers have registered in the first two months after its launch in August, with 62 per cent of workers belonging to the 18-40 age-group and 92 per cent of the registered workers having monthly income of under Rs 10,000.

Ghosh considers the E-Shram portal to be a big step towards employment formalisation as to date the rate of formalisation of unorganised labour due to E-Shram is around 17 per cent or Rs 6.8 lakh crore, which is 3 per cent of GDP in just two months.

He also called for more rationalisation of indirect taxes like GST and excise, saying just 11.4 crore tax-paying households or 8.5 per cent of the total population contribute Rs 75 lakh crore or 65 per cent of the private final consumption expenditure and cross-subsidies to 91.5 per cent of the population.

As of the 2014 NSSO survey, as much as 93 per cent of the workforce earned their livelihoods as informal workers, who were hit the hardest by the pandemic too.



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Private firms’ bank deposits log 26.5% growth during pandemic, households lag, BFSI News, ET BFSI

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In FY21, deposits from private sector companies grew by 26.5%, the biggest jump in nine years, even as the share of household bank deposits declined.

The share of private sector companies in total outstanding bank deposits increasing from 11.3% in FY20 to 12.7% in FY21, according to a report by Kotak Institutional Equities. The growth here has been faster than that of deposits from households, which grew by 12.9% during the year. The ratio of household (bank) deposits to GDP declined to 3 per cent in the third quarter from 7.7 per cent in July-September.

The data shows that the pandemic was not hard on private firms but households suffered.

“The slower growth in retail deposits and solid growth in the private corporate sector gives two opposing signals of the current economic condition. The private sector has accelerated deposit growth for the third consecutive year, giving further evidence that the impact of the pandemic was not negative,” the Kotak report noted.

Households hit

The first wave of Covid last year impacted households as their financial savings moderated to 8.2 per cent of GDP in the December quarter from 10.4 per cent in the previous three-month period, according to RBI data.

The preliminary estimate of household financial savings is placed at 8.2 per cent of GDP in October-December 2020-21, exhibiting a sequential moderation for the second consecutive quarter after having spiked in the pandemic-hit June quarter, RBI said in a release.

“The moderation was driven by a significant weakening in the flow of household financial assets, which more than offset the moderation in the flow of household financial liabilities,” it said.

Household debt to GDP

RBI further said household debt to GDP ratio, which is based on select financial instruments, has been increasing steadily since end-March 2019.

“It (household debt to GDP ratio) rose sharply to 37.9 per cent at end-December 2020 from 37.1 per cent at end-September 2020,” it said.

Despite higher borrowings from banks and housing finance companies, the flow in household financial liabilities was marginally lower in the third quarter following a marked decline in borrowings from non-banking financial companies.

As per the data, financial assets, including deposits, life insurance funds, provident and pension funds, currency, investments in mutual funds and equity, and small savings, stood at Rs 6,93,001.8 crore in the third quarter. It was at Rs 7,46,821.4 crore in July-September 2020-21.

Financial liabilities (loans) stood at Rs 2,48,418.7 crore in the third quarter. In the preceding quarter it was Rs 2,54,915.2 crore.



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Know how Banks and Financials performed throughout this week, BFSI News, ET BFSI

Personal Finance

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Benchmark indices have been on a record-breaking rally lately and August witnessed the stock market reaching many new highs. The BSE benchmark soared over 9% last month. Buying action continues to follow a positive global trend. The index has formed a strong bullish candle on weekly charts.

Major market driving factors for this week are considered to be the Improving general pandemic conditions, GDP numbers indicating revival in economic activity, increased confidence in facing a potential third wave, the stress on universal vaccination and the indications from Jackson Hole address.

Monday Closing bell: All time high
Nifty made a strong bullish bar on Monday (30 August, 2021) closing at its all time high level. The rally was also supported by Banknifty. Nifty closed at 16,931 up by 225 points. Banknifty closed at 36,347 up by 720 points.

Tuesday Closing bell: All time high
Another All time high Nifty made another lifetime high on Tuesday. It had been showing strength since the last four trading sessions. The Sensex closed at 57,552.39, up 662.63 points, or 1.16%, while Nifty was at 17,132.20, up 201.15 points, or 1.19%. Metals, IT financials were top gainers.

Wednesday Closing bell : Markets end in Red
The Indian benchmark indices ended in the red after hitting record highs in the early trade on September 1. At close, the Sensex was down 0.37%, at 57,338.21, and the Nifty was down 0.33%, at 17,076.30.

However, Axis Bank and Induslnd Bank were among top BSE Sensex gainers. Bank Nifty gained 0.4% to settle at 36,574. Nifty sectoral indices mostly ended in green, except for Nifty Financial Services.

Thursday Closing bell: Markets end Flat
Benchmark indices ended higher with Nifty closing above 17200 led by IT and FMCG stocks. At close, the Sensex was up by 0.90% at 57852.54, and the Nifty was up 0.92% at 17234.20. Except for auto and PSU Bank, all other sectoral indices ended in the green with IT and Pharma indices up 1% each. HDFC Life was amonth the top Nifty gainers. BSE midcap and smallcap indices gained over 0.5% each.

Friday Closing Bell: Fresh record
The Sensex closed at 58,129.95, up by 0.48%, while the Nifty was at 17,323.60, up 0.52%. Boosted by Reliance Industries and a jump in Exide Industries following the sale of the battery maker’s insurance unit Exide Life Insurance to HDFC Life Insurance, while the focus was also on a key US jobs report later in the day.

Among sectoral indices on the NSE, Nifty Bank fell the most – down nearly by 1.5% to 23,531 levels. HDFC Bank, Induslnd Bank, HDFC Life were among the top losers.

Industry Key Takeaways

India’s GDP rose 20% in the June quarter

India’s economy expanded at its fastest ever in the June quarter, helped by the low base of the year-earlier record contraction and a strong rebound in manufacturing and construction, data released on Tuesday showed. The data also reflected thag Fiscal deficit narrowed to a nine-year low of 21.3% of annual budget estimate as of July end at Rs 3.21 lakh crore, helped by a rise in revenues and decline in non-interest revenue expenditure.

Kotak Mahindra Bank to sell 20 crore shares of Airtel Payments Bank to Bharti Enterprises:

Kotak Mahindra Bank on August 31 said it will sell 20 crore shares held in Airtel Payments Bank (APBL) for a cash consideration of Rs 294 crore or more to Bharti Enterprises Ltd. A share purchase agreement was executed by the bank for divestment of 20,00,00,000 equity shares (8.57 percent stake) held by Kotak Mahindra Bank Ltd in APBL.

ICICI Bank hits Rs 5 lakh crore market cap; what should investors do?

On September 1, Private sector lender ICICI Bank crossed Rs 5 lakh crore in market capitalisation for the first time only to become the second bank to attain the said feat. Among banks, HDFC Bank, the country’s largest lender by assets, remained at the top with Rs 8.7 lakh crore market capitalisation, while SBI is at the third spot with Rs 3.81 lakh crore market cap, Kotak Mahindra Bank at 4th and Axis Bank at 5th.

HDFC Life Insurance share price hits 52-week high

HDFC Life Insurance Company share price touched 52-week high of Rs 775.65and rising percent intraday on September 2 as company board is going to consider fundraising on September 3.

“A meeting of the board of directors of HDFC Life Insurance Company is proposed to be held on Friday, September 3, 2021 to consider issue of equity shares and / or other securities of the company by way of preferential allotment,” company said in its release.

HDFC Life to acquire 100% stake in Exide Life Insurance:

HDFC Life Insurance on Friday announced that its board has approved acquisition of 100% of the share capital of Exide Life Insurance Company Ltd for a total consideration of Rs 6,687 crore. Exide Life will be subsequently merged into HDFC Life.

HLIC also announced that out of the aggregate amount, Rs 725 crore will be settled in cash and the balance via issuance of over 8.70 crore equity shares at an issue price of Rs 685 per share to Exide Industries Ltd.



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Former union finance minister P Chidambaram says India’s recovery depends on Centre not taking foolish decisions, BFSI News, ET BFSI

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India’s economy will not recover to pre-pandemic levels in the current financial year or in 2022-23 if the Narendra Modi government continues to take “foolish decisions,” said former union finance minister P Chidambaram here on Thursday.

Chidambaram said that the Centre’s four year National Monetization Pipeline is a foolish decision that is akin to giving away the country’s assets that were built by the Congress party over several decades.

“The recovery in 2022-23 may take us to the pre-pandemic level, provided the government does not take foolish decisions,” said Chidambaram while speaking to reporters.

Speaking further, the AICC core group committee member, said that along with demonetization and faulty roll out of GST, the Centre’s refusal to increase public expenditure during a pandemic was a foolish decision. “And a few days earlier they took another foolish decision to monetize national assets,” said the former Union minister.

Chidambaram said that India’s economy ended with negative growth in the last financial year with no hope of any recovery even in 2021-22.

“The GDP for this year will not go to the pre-pandemic level of 2019-20. 2020-19 was a decline. 2021-22 will show an apparent increase in the GDP but it will not go back to the pre-pandemic level. Only when it goes to the pre-pandemic level, can you call it a recovery,” said Chidambaram.



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Chief Economic Advisor K V Subramanian, BFSI News, ET BFSI

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Exhorting the Indian BFSI sector to make a mark globally, Chief Economic Advisor K V Subramanian has said India should have at least six banks in the global top 100.

“It is a matter of mindset now, the mindset has to be one where we are not happy with just being lions at home and lambs abroad, we have to be lions globally as well, Krishnamurthy Subramanian said, delivering the keynote address at ETBFSI Summit.

Stating that India has to become a big player in the BFSI space in the next decade, he said the sector must seek inspiration from IT, pharma & sports.

BFSI sector needs to have that hunger which will also help the Indian economy, Subramanian said, adding, “Five Chinese banks are in the top 100 global, Swedish banks, American banks. There is no reason why our banks cannot be in the top 20 either.”

Ruing that India has only one bank in the global top 100 — SBI at 55th position, he said for the size of the economy, India should have at least six banks in the global top 100, some in the top 10 or the top 20.

Drawing an analogy with cricket, he said the Indian BFSI sector appears like the Indian cricket team of the 1990s which could boast a lot of victories at home but had nothing noteworthy outside the shores, globally.

The sector has to aspire to become like a cricket team under Sourav Ganguly, Mahindra Singh Dhoni or Virat Kohli where they’re achieving global recognition.

“The BFSI sector has to start mattering globally, their aspirations need to be scaled up. Aspiration has to be set, given the aspiration that India has set for the economy itself.”

Fixing problems

The CEA said India’s BFSI sector has a quality and quantity problem which needs to be fixed, especially when the Prime Minister has outlined Rs 100 lakh crore infrastructure building apart from the National Infrastructure Pipeline.

“Infrastructure will actually require the BFSI sector to be able to participate and thereby learn how to do high-quality lending without suffering the problem of non-performing assets, crony lending, evergreening of loans, gold plating of loans, all the kind of problems that we have witnessed in the Indian financial sector over the last decade,” he said.

He said the country has large corporates and large borrowers who end up borrowing but not repaying, and yet many times banks actually end up giving credit to the defaulters as well.

Observing that on the credit side India is far behind, he said, “The ratio of credit to private credit to GDP at about 58% is one-third of the global average of, close to 170 per cent.”

He said the BFSI sector should avoid the phenomenon of accelerating credit, and braking when bad loans mount, if credit expansion has to happen in a sustained manner to push economic growth.

“It is very important for credit expansion to happen at a consistent pace without the usual accelerator brake phenomenon that has been the characteristic of the Indian financial sector ever since liberalisation where, when the economy starts doing well, credit expands significantly oftentimes in the process. The credit underwriting norms are relaxed, and as a result, the seeds for a crisis are sown during good times,” he said.

Leveraging tech, data analytics

Underscoring the importance of technology and data analytics, Subramanian said banks and financial institutions which were very efficiently leveraging data and analytics had much lower bad loans, and their balance sheet expansion did not come under pressure. “Those banks were also able to grow consistently, and thereby contribute to the economy. That is the objective that the Indian BFSI sector must have,” he said.

The CEA said a lot of the private sector banks have used data and analytics for retail lending, but the usage of the same is very low for large ticket lending and SME lending. “The Indian BFSI sector should hire far more engineer MBAs to bring this technology driven in banking,” he said.

“In BFSI sector leaders need to be those that are technologically very well drained not only to be able to come up with models for retail lending, but also models for large-ticket corporate lending,” Subramanian said.



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