2. CONTENT
INTRODUCTION OF BANKING INDUSTRY IN
INDIA
01
INTRODUCTION OF BANKING INDUSTRY AT
GLOBAL LEVEL
02
.
CONTRIBUTION OF BANKING INDUSTRY IN
GDP
03
.
MONETARY & FISCAL POLICIES IMPACTING
BANKING INDUSTRY
04
IMPACT OF COVID ON BANKING INDUSTRY
& RECOMMENDATIONS
05
5. Banking Sector- Backbone of GDP Growth
• Capital Formation
• Promote Industrial Bloom
• Generate Employment
• Strengthens the Government
• Balances Economic Development
• 7.7% share of total GDP (ie Rs.2.72 lakh crores)
• Generated employment to the tune of 1.5 million
6. ROLE OF BANKS IN ECONOMIC GROWTH
BUSINESS CREDIT
INCREASE IN SUPPLY
RETAIL CREDIT
ECONOMIC GROWTH
INCREASE IN DEMAND
7.
8. IMPACT OF INFLATION
✔ Negative Rate of interest on fixed deposit.
✔ RBI sell securities in the money market which sucks out excess liquidity from the market.
✔ Fluctuating interest rates.
✔ RBI maintains inflation by using monetary policy tools. ( 2% - 6% inflation rate )
✔ Phillip Curve Affect.
9. Monetary Policies
✔ % of bank’s deposit to be kept with RBI.
✔ Higher CRR = Low Liquidity = Less
Investment & lendings.
✔ Lower CRR = High Liquidity = More
Investment & lendings.
1. Cash Reserve Ratio
Content Here
2. Repo Rate
✔ Rate at which RBI lends money to
commercial banks.
✔ Higher Repo Rate = Low Liquidity = Less
Investment & lendings.
✔ Lower Repo Rate = High Liquidity =
More Investment & lendings.
10. Monetary Policies
✔ Rate at which RBI borrows funds from
commercial banks.
✔ Higher Reverse Repo Rate = High Liquidity =
High Investment & lendings.
✔ Lower reverse Repo Rate = Low Liquidity = Less
Investment & lendings.
3. Reverse repo rate
Content Here
4. SLR
✔ % of aggregate deposits that commercial banks
have to invests in liquid assets.
✔ Higher SLR = Low Liquidity = Low Investment &
lendings
✔ Lower SLR = High Liquidity = High Investment
& lendings.
11. ✔ Credit Growth & financial discipline of banks. (NPA’S)
✔ Strong Fiscal policies = Increase in savings = Increase in
bank’s profitability
✔ Expansionary Fiscal policy = More borrowings by government
Expansionary
Contractionary
Neutral
Profits for banks NPA,s
✔ Tax Revenue-( E.g. GST, change in tax slab)
Increase in bank deposits Government borrows less
money.
12.
13. • Capital Formation,
• Promote Industrial Bloom
• Generate Employment.
• banking industry contributing nearly 7.7% to the national GDP
• employment generators for almost 1.5 million people in the
country.
Impact on
GDP
14. Inflation
Role of RBI in
controlling Inflation
What is
Inflation?
Impact of Inflation on
Banking Sector
15.
16. INTEREST
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❏ When interest rates are low,
individuals and businesses tend
to demand more loans.
❏ Each bank loan increases the
money supply in a fractional
reserve banking system.
❏ A growing money supply
increases inflation. Thus, low
interest rates tend to result in
more inflation. High interest rates
tend to lower inflation.
❏ Interest rates and inflation tend
to be inversely correlated.
❏ The banking sector's profitability
increases with interest rate hikes.
❏ When interest rates are higher,
banks make more money, by
taking advantage of the
difference between the interest
banks pay to customers and the
interest the bank can earn by
investing.
● The interest rate determines the price of
holding or loaning money.
● Banks pay an interest rate on savings in
order to attract depositors.
● Banks also receive an interest rate for
money that is loaned from their deposits.
17.
18. Government
Intervention
• Consolidation and capital infusion of ₹ 3.5 lakh
crore into public sector banks
• RBI ringfence banking system from fraudsters
such as revising the rules for co-operative banks
• Consolidating and reducing the ten Public Sector
Banks to four.
• To improve infrastructure in villages, 204,000
point of sale terminals have been sanctioned from
the Financial Inclusion Fund by NABARD
• Unified Payments Interface recorded 1.25
billion transactions in March 2020, valued at Rs
2.06 lakh crore
20. Impact of Corona
• The economic slowdown due to the corona
virus will also impact demand for loans
which will dent further profits of NBFCs
• The loan moratorium provided during the
lockdown months not only gave relief to
borrowers; it also helped banks to cut gross
non-performing assets.
• Banking sector performance had improved in
FY20. Several banks reported growth in
earnings.
• Gross NPA declined to 8.5% in 2020 from
9.3% in 2019. It is expected to increase to
12.5% in H1FY21.
21. RECOMMENDATIONS
• Increasing Autonomy for public sector banks
• More convenient and safe banking
• Technological Upgradation
• Collaboration and Partnerships
22. • A perfect balance between Customer
facing applications assistance and
direct to customer assistance.
• Lower interest rates and approval of
selective Loan application.
• Accessibility in backward regions of
the country as well.
• Upskilling employees.
Recommendation
