Covid-19, Finance

Banking Beyond Covid-19

  • Backdrop

Now, we are surviving under the pandemic of the century, Covid-19. From its epicentre Wuhan, China, Covid-19 became a global pandemic within three months off its origin. Now the entire globe is under lockdown. As a result of that, we are also now under global financial crisis. As the world is still waiting for its vaccine, it is quite difficult to forecast when the globe will be on its own track of the normal economic activities.

  • Current Scenario

As a part of the financial crisis, the entire banking industry is facing severe disorder. The first hit was on the market capitalisation. The crash in the stock market led the reduction in the value of the firms. Moreover, as the manufacturing sector is entirely under lockdown, the demand for funds hit the rock bottom. So, for banks, the credit growth has been collapsed.

In order to infuse liquidity in the market and to accelerate the credit growth, the Reserve Bank of India cuts its policy rates. Though, it helps to reduce the expenditure of interest payments by banks, the reduction in the interest earnings curbs out the benefit. As a result of that revenue of the banks get hampered.

Moreover, the Reserve Bank of India also issued regulatory package to stabilise the market liquidity. Under this package banks and financial institutions are allowed to issue three months moratorium on the instalment payments on loan during the period March-May. As a result of that the banks revenue for that period is going to be reduced.

  • The Future

The global managing consulting company Accenture, in its open letter to retail and commercial CEOs, clearly sorted out four key areas that the banks need to be addressed.

Credit Management

As a support of government actions, banks have rescheduled the payments of term loans and working capital facilities. Moreover, the productions of the manufacturing sectors hit the bottom due to this lockdown. So, there is a lesser demand of credits from these sectors. Also, due to the lack of economic activities, there may be more loan defaults. In this regard, the central bank also revised the asset classification norm. But, irrespective of the steps taken, it is quite expected that the non-performing assets will go up significantly.

Now, the government has given special attention to the MSME sector by issuing financial supports. As the intermediary between the government and MSME sector, it will somehow boost the credit growth for the banks.

Reduction in Revenue

            The largest source of banks’ income arises out of their lending activities. But the global lockdown squeezed the demand for the funds from different economic units. Till now there is no such evidence that this situation is going to be changed soon. Moreover the rate cuts by the central bank also led the reduction in the net interest margin of the banks. But the situation may change when the moratorium period is over and the banks will start getting back their instalments. In this regard, it is also expected that banks will increase the service charges of its various products.

Customer Services

This global pandemic changed the scenario of customer experiences. Customers are now relying upon the online or electronic mode of banking transactions. We have already experienced the card-less ATM transactions, UPI system. We are also experiencing the touch-free cards. These services should be promoted further. Banks are also opening mini branches in the rural areas to reduce the pressure of customers on the big urban branches. Various banking facilities are available with those mini branches. But still, the customers’ need to visit the bank branches will be there, but these services will certainly help to reduce the interaction with bank branches and will reduce the gatherings. Also, there is a need for customer education and training, mostly for rural and elderly people, regarding the use of the online channels of banking.

Cost Control

            It is very much clear that the revenue generation of banks got hampered due to the global pandemic and no one can say how long it is going to continue. So, banks have to focus on the control over its costs also. Generally, the cost control technique varies from bank to bank. This cost control measure should not be the traditional but differentiating. The application of the traditional cost control technique may be backfired and lead to the loss of revenue for the banks. On the other hand, under differentiating technique the cost control is done on a selective way. It can be applied by way of investment portfolio review, reduction of expenses in a selective manner, outsourcing of non-core functions of banks etc. In current global business scenario, differentiating or strategic cost control technique is the most accepted measure for cost control.

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