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State of play: India’s banks in 2021

As they come through the pandemic, India’s large public sector banks are completing mergers with smaller banks, while both public and private sector banks are expanding their digital offerings. Rekha Gupta Menon reports on their progress. 
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State of play: India’s banks in 2021

Top seven Indian public sector banks

State Bank of India 

India’s largest bank, the government-owned State Bank of India (SBI), ranks 56th globally by Tier 1 capital, according to The Banker’s Top 1000 World Banks ranking. With Tier 1 capital of $37.5bn, assets worth $659.3bn and a vast network of more than 22,000 branches and 58,555 ATMs serving over 440 million customers, SBI enjoys a 20% to 25% market share.

In the financial year 2020-21, SBI reported pre-tax profits of $4.4bn, a small dip of 0.13% from the previous financial year. Its total deposits grew by 13.5%, while loans grew by 5.7% growth. Domestic loan growth was driven by the retail segment where loans against gold jewellery grew over four-fold. Corporate credit, however, dropped by more than 3% on a year-on-year basis. SBI showed improvements on asset quality, with the proportion of bad loans to total loans — the gross non-performing assets (NPA) ratio — dropping to 4.95% from 6.07% the previous financial year.

Digital remains a key focus at the bank. In the financial year 2020-21, SBI’s internet banking user base grew 20% to 88.9 million and mobile banking users grew 15% to 19.7 million. The bank’s flagship digital offering, Yono — an integrated digital banking platform offering various financial services that can be accessed via a mobile app or website — has around 37 million registered users. According to SBI, 68% of new savings accounts were opened through Yono in the fourth quarter of the financial year 2020-21. The bank has started leveraging analytics across all functions to improve outcomes and reduce fraud.   

In response to Reserve Bank of India (RBI) guidelines to provide Covid-19 lending support, SBI announced that it would be launching loan products to businesses involved in the healthcare and medical supplies sectors, as well as to patients to assist them with Covid treatment. expenses. 

Punjab National Bank

On April 1, 2020, Punjab National Bank (PNB) officially merged with two smaller public sector banks, Oriental Bank of Commerce and United Bank of India. The technology integration was completed later in the year.

PNB has emerged as the second largest public sector bank in the country both in terms of business and number of branches [Note: It does not appear in the 2021 Top 1000 World Banks ranking because its financial data was not submitted in time]. However, the challenge of low asset quality persists. Before the merger, at the end of March 2019, the gross NPA ratio was 15.9% at PNB; 12.7% at Oriental Bank of Commerce; and 16.5% at United Bank of India. Post-merger, NPA levels have remained worryingly high. In March 2020, PNB’s gross NPA ratio was 13.8%; 14.7% in December 2020; and 14.1% in March 2021. 

PNB has 10,769 domestic branches, two international branches and 13,781 ATMs. According to the bank, it is strongly focused on digitisation and expanding its digital footprint: 48% of all its banking transactions take place digitally. Meanwhile, the bank offers end-to-end digital lending through pre-approved personal loans through the use of data analytics. In the financial year 2020-21, PNB’s internet banking users grew 15.84% to touch 25.6 million users by the end of March 2021. 

Bank of Baroda 

Bank of Baroda (BoB), the third largest public sector bank in the country, has assets worth $163.6bn and Tier 1 capital of $11.8bn. For the financial year 2020-21, BoB declared pre-tax profits of $867m. It reported a subdued domestic loan growth of 4.9%, though a notable aspect for the financial year was the improvement in asset quality. The proportion of bad loans to total loans, the gross NPA ratio, at the bank dropped to 8.9% at the end of March 2021, from 9.4% in March 2020. 

The post-merger integration of BoB with Vijaya Bank and Dena Bank was completed in December 2020, nearly 18 months after the merger came into effect. BoB has more than 8200 branches, more than 11,000 ATMs and around 1200 self-service e-lobbies. As part of the merger effort, which involved migrating more than 50 million customer accounts, it rationalised 1310 branches and 1135 ATMs to avoid an overlap in footprint of the two smaller banks and achieve greater synergies.

Notably, in this period, BoB increased its business correspondent network by 5200 to 23,320 as of March 31, 2021. The business correspondent model allows banks to deploy intermediaries to enhance their reach and ensure financial inclusion. In the next two years, BoB plans to have 50,000 customer touch points – including business correspondents and new branch formats that are light on infrastructure. 

Digital is a key focus area for BoB, which aims to make its mobile application the primary interface so customers need to visit the bank branch only when essential. Even at the branch, the focus will be to nudge customers to process their requests digitally. In the financial year 2020-21, the bank saw a 127% growth in mobile banking registrations and in the fourth quarter of the financial year it onboarded 4.9 million new users on its digital platform.

In December 2020, BoB launched its digital lending platform, which offers end-to-end digitisation of the loan process in retail and micro, small and medium-sized enterprise (MSME) segments from sourcing to sanction to disbursement. According to the bank, small-ticket personal loans have already been digitised and the other segments will be progressively moved to this platform.

Union Bank of India

Union Bank of India (UBI) has assets worth $147.6bn and Tier 1 capital of $7.8bn. The core banking system integration after the three-way merger of UBI, Andhra Bank and Corporation Bank, which came into effect from April last year, has been completed. The bank currently has a network of 9300 branches and 12,900 ATMs.

All three banks suffered from asset quality issues, a problem that persists though NPA levels have reduced. UBI reported a gross NPA ratio of 13.7% for the financial year 2020-21, as against 14.6% in March 2020. The bank reported pre-tax profits of $317m for the financial year 2020-21.

The bank is making efforts to expand its digital footprint, and mobile banking users grew from 8.2 million to 12.1 million between March 2020 and March 2021. In the same period, internet banking users grew from 5.9 million to 6.4 million. According to the bank, 130,000 fixed deposits were opened through the bank’s mobile app in the fourth quarter of the financial year 2020-21. 

Canara Bank

After Canara Bank’s merger with Syndicate Bank in April 2020, the bank has reported pre-tax profits of $528m for the financial year 2020-21. It is estimated to have assets worth $160.5bn and Tier 1 capital of $7.3bn. At the end of March this year, the bank had 10,416 branches and 13,452 ATMs.

Over the financial year 2020-21, bank deposits grew above expected rates, but credit growth was slow. While corporate credit slowed for a year, overall credit growth was still positive though muted, and was led by retail and agricultural loans. The bank’s gross NPA ratio stood at 8.9% as of March 2021 as against 7.5% at December 2020, and 9.4% as of March 2020. 

In the last week of May 2021, Canara Bank’s board of directors approved a capital raising plan for the financial year 2021-22, of up to Rs90bn ($1.2bn) by way of equity and debt instruments. This includes raising equity share capital amounting up to Rs25bn by way of a qualified institutional placement. Additionally, the board approved raising capital through Tier I and Tier II Basel III compliant bonds up to Rs40bn and Rs25bn, respectively. 

Bank of India

Bank of India (BoI) is among the few public sector banks that were not part of the mega-consolidation exercise in the past three years. It has assets worth $99.7bn and Tier 1 capital of $4.9bn. The bank has been rationalising its domestic and overseas branches as well as ATMs to reduce operational costs. Currently, it has a network of 5551 branches and 5107 ATMs.

For the financial year 2020-21, BoI reported pre-tax profits of $446m. Due to a contraction in overseas lending, BoI’s advances shrunk by 1.5% in the financial year 2020-21. At the same time, the bank saw a modest growth of 1.35% in domestic lending, largely because of a 15% fall in corporate loans. Asset quality has long been a concern at the bank and still remains high. BoI’s gross NPA ratio stood at 13.8% at the end of March 2021, as compared with 14.8% a year back. Large corporates account for nearly half of the bank’s NPAs. 

Some of the key recent initiatives being implemented at BoI include a tech-driven credit monitoring system for tracking of ‘early warning signals’ and an enterprise-wide fraud risk management framework for real-time fraud monitoring. The bank has also upgraded its mobile and internet banking system with enhanced features for better customer experience. At the end of March 2021, BoI had 7.6 million internet banking users and 4.3 million mobile banking users. 

Indian Bank

The Indian Bank and Allahabad Bank merger came into effect from April 1, 2020, and it completed its technology integration process in February 2021. The amalgamated entity has 6068 branches, 4567 ATMs and more than 109 million customers.

Currently, Indian Bank has assets worth $85.2bn and Tier 1 capital of $4.8bn. In the financial year 2020-21, the bank reported pre-tax profits of $395m — nearly double the aggregated results for both banks in March 2020.

The bank also reported improvements in its asset quality. The gross NPA ratio fell to 9.9% in March 2021, from 11.4% in March 2020. Of the two merging entities, it was Allahabad Bank that had been suffering from very high NPA levels, at 17.6% in March 2019 and 18.9% in December 2019.

Corporate loans account for around half of all the NPAs at the bank. Between March 2020 and March 2021, the proportion of corporate loans reduced from 57% to 47% of the total NPA portfolio at the bank. However, in the same period, the MSME sector’s share of NPAs increased from 15% to 23%. In the financial year 2020-21, advances at Indian Bank rose by 6%, with domestic advances growing at 5% while international advances grew by 28%. Indian Bank’s customers are migrating to digital channels, and digital transactions at the bank grew from 27% to 40% in the financial year 2020-21.

Top four Indian private sector banks 

HDFC Bank

The largest private sector bank in the country, HDFC Bank is ranked globally at 68th position by Tier 1 capital according to The Banker’s Top 1000 World Banks ranking. It has a network of 5608 branches and 16,087 ATMs and cash machines serving a customer base of 56 million.

While it may be the second largest bank in the country, both in terms of assets and Tier 1 capital, HDFC Bank is the most valued bank in the country with the highest market capitalisation. This is largely attributed to the bank’s consistent performance over the years. In the financial year 2020-21, it reported pre-tax profits of $5.8bn, a 14.9% increase from the previous year. In the same period, total deposits grew by 16.3%, while advances grew by 14%.

The proportion of retail loans in the bank’s loan portfolio has steadily decreased in recent years, from 57% in the financial year 2017-18, to 47% in the financial year 2020-21. Though retail loans have usually enjoyed an above-industry growth rate, in the financial year 2020-21 domestic retail loans grew by just 6.7%. And while HDFC Bank preserved its track record for healthy asset quality, its gross NPA ratio marginally increased to 1.5% from 1.4% in the financial year 2019-20. 

Nearly 95% of the bank’s transactions take place digitally compared to 35% in 2010. However, HDFC Bank’s reputation as a leader in technology and digitisation took a beating this year. In December 2020, the banking industry regulator, RBI, ordered the bank to freeze all new digital banking initiatives until it satisfactorily addressed lapses that had led to the bank’s customers experiencing multiple technical glitches to their internet and mobile banking service over the past two years.

HDFC has also been barred from issuing more credit cards, a segment where it enjoys market leadership with 14.5 million credit cards. Since then, the bank has embarked on a technology overhaul. In February this year, the regulator also appointed an external firm to conduct a special audit of the entire IT infrastructure at the bank. 

ICICI Bank

India’s third largest bank and second largest private sector bank, ICICI Bank, reported pre-tax profits of $3.5bn, a 43.6% growth over the financial year 2019-20. With assets worth $214.1bn and Tier 1 capital of $20.8bn, ICICI Bank has a network of 5266 branches and 14136 ATMs.

In the financial year 2020-21, the bank displayed a 21% increase in deposits and 18% growth in domestic advances. Retail loans comprise 67% of ICICI Bank’s total loan portfolio, and grew by 20% in the financial year. NPAs as a proportion to total loans at the bank have been reducing over the years but are still high among ICICI’s peer group of private sector banks. The gross NPA ratio at ICICI Bank dropped from 6.7% in the financial year 2018-19, to 5.5% in the financial year 2019-20, and 5.0% in the financial year 2020-21. 

ICICI Bank has long been a leader in digital banking, and more than 90% of savings account transactions occur through digital channels. The bank experienced a 61.3% growth in mobile banking transactions in the fourth quarter of the financial year 2020-21, and it says there is also increasing digital adoption among business banking customers.

ICICI Bank regularly offers innovative digital solutions. In December, it opened up its mobile banking platform to customers of all banks, enabling users of any bank to link their account to the app and start making payments and transactions digitally. It also offered them access to an entire range of ICICI Bank services, including savings accounts, home loans, credit cards and personal loans, from the comfort and safety of their home. According to the bank, within five months, two million customers of other banks are using this platform. 

In August 2020, in anticipation of a loan impairment impact because of the pandemic, ICICI Bank raised about Rs150bn through a qualified institutional placement. Local media reports suggest that some of the prominent investors that participated in the issue include the Monetary Authority of Singapore, Morgan Stanley Investment Management and French bank Société Générale. More recently, ICICI Bank raised Rs2.83bn by issuing bonds on a private placement basis. The bank’s total capital adequacy on March 31, 2021 was 19.12%. The Indian banking regulator mandates that Indian banks maintain a capital to risk-weighted asset ratio of 9%. 

Axis Bank

Axis Bank, India’s third largest private sector bank, has assets worth $137.5bn and Tier 1 capital of $14.8bn. It has a footprint of 4594 domestic branches and 11,333 ATMs spread across the country. For the financial year 2020-21 the bank reported pre-tax profits of $1.3bn, an 89.4% rise from the previous financial year. In the same period, the bank’s total deposits grew by 10%, while advances grew by 12%. Axis Bank’s corporate loan book grew by 16%, domestic retail loans grew 11% and the SME loan book grew 13%. The bank’s asset quality has gradually improved in recent years. The proportion of gross NPAs to total loans, which was 5.3% in March 2019, reduced to 5.1% in March 2020, and went down to 3.9% in March 2021. 

Axis Bank is among the leading players in the digital space in India: nearly 90% of banking transactions are digital in nature. The bank saw 169% growth in mobile banking transaction volume in the fourth quarter of the financial year 2020-21 against the same period in the previous year, and has launched some innovative digital products in recent months.

It enabled digital outward remittance and digital foreign exchange (FX) card issuance, allowing customers to access FX easily via the bank’s digital channels. Axis Bank’s “WhatsApp Banking” allows customers to seek information regarding their banking transactions, as well as getting their queries answered in real time. They can also block their credit or debit card using the secure end-to-end encrypted messaging channel. To answer customer queries intelligently, Axis Bank launched an automated voice assistant powered by artificial intelligence-based business algorithms.

In August 2020, Axis Bank raised Rs100bn through a qualified institutional placement of shares to enhance its capital adequacy in accordance with regulatory requirements, address business needs and address the risks from the Covid-19 pandemic, the bank said in a statement. It added that despite a challenging macroeconomic environment, the placement witnessed strong reception from global and domestic investor communities, including several large foreign portfolio investors, domestic mutual funds and insurance companies. According to Axis Bank, at the end of March 2021, its overall capital adequacy ratio (including profit for the financial year 2020-21) stood at 19.1%. 

Kotak Mahindra Bank

With assets worth $65.2bn and Tier 1 capital of $10.6bn, Kotak Mahindra Bank is the sixth largest private sector bank in India. The bank is part of the Kotak Mahindra Group, one of the country’s leading financial services conglomerates. In 2003, the group’s flagship company became the first non-banking finance company in the country to convert into a bank. In the financial year 2020-21, the bank reported pre-tax profits of $1.8bn, an 18.3% increase compared to the previous year. Deposits in the financial year ending March 2021 grew by 5.6%, while advances grew by 4.5%.

Asset quality has moderately deteriorated in recent years. Gross NPAs as a proportion of total loans grew from 1.9% in March 2019, to 2.2% in March 2020, and further 3.2% in March 2021. Retail loans constitute nearly 65% of the total advances, and the proportion of unsecured retail loans has dropped from 7.5% to 5.8% over the course of the last financial year. 

Digital is a key focus at Kotak Mahindra Bank, accounting for more than 94% of savings account transactions. In the financial year 2020-21, the bank revamped its internet banking platform, and saw mobile banking transaction volume increase by 75% and WhatsApp banking monthly active users increase by 110%. Some other digital products include providing an end-to-end digital journey for consumer finance loans for new customers.

In February 2020, Kotak Mahindra Bank announced a partnership with Amazon.in, enabling Kotak customers to shop on Amazon.in from the Kotak mobile banking app using any payment mode of their choice (such as credit card, debit card and internet banking). The bank has also been selected as a digital payments partner for the National Agriculture Market’s electronic trading platform (eNAM). Under this initiative, the bank will provide payment, clearing and settlement services on the eNAM platform to facilitate trade between a buyer and seller of agricultural produce.

In May last year the bank raised around Rs74bn through a qualified institutional placement. Local media reports suggest that some of the institutional investors included Invesco Oppenheimer Developing Markets Fund, Canada Pension Plan Investment Board and ICICI Prudential Asset Management. Recently, the bank said that its board has approved a proposal to raise up to Rs50bn by issuing debt securities.

Kotak Mahindra Bank’s total capital adequacy ratio on March 31, 2021 was 22.3%, an improvement compared to 17.9% at the end of March 2020.

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