THE BANKING PARADOX

DESPITE HAVING A ROBUST BALANCE SHEET, THE BANKING SECTOR CONFRONTS AN ARRAY OF CHALLENGES. THE BTKPMG BEST BANKS AND NBFCs SURVEY 2022-23 HONOURS THOSE THAT HAVE SUCCEEDED IN SPITE OF THE HEADWINDS

- ANAND ADHIKARI

THE BANKING SECTOR hasn't looked this strong in years. With assets worth ₹243 lakh crore, backed by strong asset quality, robust capital buffers, soaring profitability, and the Reserve Bank of India's (RBI) proactive measures towards improving banks' governance frameworks, one would expect smooth sailing ahead. But why are bankers fidgety?

That's because they must contend with headwinds in the retail banking space, subdued private capex, falling low-cost deposit growth, competition from major corporates in the NBFC space, and must comply with the evolving regulations of a vigilant regulator.

That said, the best in the space will thrive. And the 28th edition of the BT-KPMG Best Banks and NBFCs Survey 2022-23 is proof of that. The study celebrates those that have weathered the storms in FY23, innovated in products and services, nurtured talent, and leveraged the strengths of fintech or technology partners to prepare for the future. (See box 'Meet the Brightest Stars').

But pain points persist. Here are the significant ones.

RETAIL BANKING PANGS

In recent years, the banking industry has seen a significant increase in retail assets, driven primarily by the rapid growth of the unsecured loan book - think personal loans, credit cards, and microloans. Sensing the possibility of overheating, the RBI has increased the risk weights for unsecured loans, requiring higher capital allocation for both banks and NBFCs. This is expected to slow consumer lending and reduce yields, as unsecured loans typically offer higher returns than mortgages.