How India's banking and financial sector will shape up in post-COVID 2021

How India's banking and financial sector will shape up in post-COVID 2021

• By Staff Writer

How India's banking and financial sector will shape up in post-COVID 2021

Home loans to stay soft

According to a report by TOI, housing loans hit an all-time low in 2020. While many lenders feel rates have bottomed out, we’re in uncharted region as far as policy rates go. Real interest rates (adjusting for inflation) are negative. Globally, $17-trillion debt is yielding negative returns and more countries, possibly the UK, may join the ranks. With banks riding on surplus liquidity and no significant pick-up in credit, home loan rates could remain soft.

Overseas education & travel

Continuing portfolio flows are keeping the rupee strong vis-a-vis the dollar. Retail dollar demand has not picked up as both overseas education and foreign travel were hit hard by COVID-19. But a new administration in the US and ‘retribution travel’ are expected to revive demand for dollars in both sectors.

digital-payments-bccl

Over the years, most banking services got asset. Given RBI’s concerns of systemic stability, the intense regulation could turn banks into utilities. But since there is no stopping the march of technology, the space for alteration is being seized by neo-banks and fintechs. The lack of a banking licence is not seen as a handicap as many smaller banks are willing to lend their ‘bank identification number’. The account aggregators and UPI are expected to do to banking what portability did to telecom services.

Debt’s a four-letter word

As crashing interest rates turned the traditional safe haven of fixed deposits unattractive, the write-down of Yes Bank and Lakshmi Vilas Bank bonds in 2020 also showed that debt could be riskier than equity. As a result, banks will find it tough to sell bonds to retail investors.

New bankers in town

Machines took over most jobs in manufacturing, but it was assumed humans would be needed for credit decisions. 2020 proved that wrong as lenders like HDFC Bank automated most personal loans. RBI’s ban on fresh launches has delayed its auto loan portal, but there’s no stopping the e-juggernaut.

Foreign ‘helping’ hand

RBI’s earlier solution for troubled banks was a shotgun wedding. Acquiring banks would have the advantage of additional branches. Now with branches no longer attractive and many private banks facing stress, the RBI may open doors to foreigners to take over weak banks like it did for CSB and Lakshmi Vilas Bank.

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