Big Challenges in Indian Banking amidst Covid 19 & Omicron

* Prakash.P., Assistant Professor, SIMS

Indian banking system is very strong when compared to other banks in the world. The system maintained by RBI is one of the best around the world & as a result all banks are comparatively doing well under the RBI. When so many banks around the world were struggling in ancient time but even at the time of crisis, the Indian banks did manage very well, thanks to RBI. However, some Indian banks are struggling because, they fail to meet the norms described by world bank. Let us discuss what are the challenges that Indian banks are facing. In bird’s eye view we could easily conclude that the main problem is NPA but there are other issues too. Before covid 19, the NPAs were slightly low but after this pandemic, the entire system in banking has become problematic. Banks are playing a crucial role towards the liquidity crunch but they have to ensure to reduce inflation & increase money supply in the same time.

The present Capital Adequacy Ratio (CAR) for Public Sector Banks (PSBs) is not looking too bad, but the tolerances announced by government has played significant negative impact among Indian Banks as the NPAs are soared like anything. Given the moratorium announced by Indian government, which has made banks very difficult to collect the NPAs. Since the government itself told not to be harsh on receiving EMIs, the NPAs are keep on increasing thanks to covid 19 pandemic. Now omicron also around the corner, the corona second wave was just over as so many people still trust, but now Omicron is all set to challenge the people lives in a negative aspect. As a result, once again we could expect complete lock down which will show the way for jobless people & again NPA will go up. So obviously it’s uphill task for all banks in India & world as well, particularly Public Sector Banks (PSBs) will face a huge challenge & cooperative banks especially.

In loan lending system where PSBs are playing an important role, the capital levels of banks are essential for increasing loan lending activities or taking risk by giving more loans. Covid hit sectors in MSME, need more funds for restarting / restructuring their business. The PSBs valuation in stock exchange is too low and as a result the PSBs can’t rise much money from FPO through stock exchange. Moreover, if the PSBs releases more shares to public, then the PSBs ownership will come to a question mark, that’s very dangerous. So the obvious question is how the PSBs will get money to lend more? The simple but the hardest answer for the above question is, “The Government”, but we all should be knowing that the government’s balance sheet for the past two years especially. So it’s not easy for banks to cherish & smile at present till next few years.

People may think about privatization of banks may be solution for all problems regarding NPA but it may be a temporary solution but not the permanent solution. It’s because being private may lead to reduce loan lending to the needy people. The priority sector loans like agriculture, education & housing loans will come down because the private banks may move towards more of a profit than service what PSBs do. Now it’s all in the hands of government to do something new in order to save all PSBs from NPAs. Moreover, Basel IV norms also needs to be satisfied for all PSBs for that, capital infusion from government is mandatory.

To conclude, the government desperately need to finance PSBs for two reasons: one for meeting NPAs & giving finance for the needy & the other for satisfying Basel IV norms.