Banking During Covid and Beyond

Presently humanity is going through a major challenge, a challenge to survive. No one can predict the future so everyone is trying to hold himself in a confined environment looking for the new sunshine to begin wherein everything will be normal and we all can breathe freely in the unmasked environment and live a happy and healthy life.

No one could have predicted that situation during wave II would be so bad that so many people would lose their lives without getting proper medical care and attention. There is huge shortage of life savings medicines, oxygen cylinders, ICU and ventilators. News are coming that people are dying outside the hospitals in the ambulances as there is no bed available in the hospitals.

Medical and para medical personnel is under huge pressure as they are on duty to serve the large number of infected patients.

Govt. is trying its best to cope up with the situation but as the number is increasing day by day, things are looking out of control and only almighty can save this world.

In this critical situation if we talk about banking industry in India,it is really under pressure and as the O2 level of Covid infected people is coming down banks should also be warry of its saturation level.

State of Indian Economy and Banking-A Data Story:To understand the impact of Covid pandemic on the Banking it is important to analyze some of the key data related to Economy and Banking in India.

1. GDP Growth Forecast:GDP growth projection by some of the international agencies are as below:

Even after the outbreak of Covid 19 wave 2, different rating agencies has revised the FY22 GDP forecast like Moody revises to 9.% , crisil to 8.2%,Fitch 9.5% S & P 9.8% which shows that still the GDP growth will be around 9%.

The above projections shows that there is nothing more to worry regarding overall economic activity in India.

1. GST Collection: GST revenue collection in April 2021 hit a record high of Rs. 1.41 lakh crore. April GST Receipts was high because of high March Sales. From the graph we can see dip in GST collection (April 2020) is a temporary phenomenon only.Even there is expectation of another dip in GST collection but it will bounce back in the coming months.
2. Hiring Activity/Unemployment rate: Hiring Activity falls by 15% in April 2021 due to covid second wave as per Naukri job report. 34 lakh salaried Indians lost their jobs in April 2021, Unemployment rate touches 8% which is cause of concern for bankers as repayment of retail loans will be under pressure.
3. Credit-Investment:The below chart shows (source RBI) that during 2020-21, banks invested `7.2 lakh crore in government securities, nearly double of their investment in the previous year. Banks’ investment in 2020-21 outpaced overall credit extended – a phenomenon not seen in nearly twenty years, barring the year of demonetization. Looking at the data we can interpretate that the Banks in India are moving towards Narrow Banking and their will be negative impact on their profitability.

RBI MEASURES TO TACKLE SECOND COVID WAVE:In light of resurgence of Covid-19 pandemic in India, Reserve Bank of India (RBI), vide notifications dated May 5, 2021, has announced certain measures – Resolution Framework 2 and Resolution for MSMEs – to alleviate uncertainties and stress on individual borrowers and small businesses and Micro, Small and Medium Enterprises (MSMEs), many of whom are finding it difficult to repay loans on time. These measures are going to help the hard-pressed corpoarate, msme and individual.

1. Term liquidity of Rs 50,000 crore for emergency healthcare services

To ease access to emergency health services,“On-tap liquidity” of Rs 50,000 crore with tenor up to three years at repo rate.These loans will be continued to classified under the ‘priority sector’ till repayment or maturity, whichever is earlier.

2. Special long-term repo operations (SLTRO) for small finance banks (SFBs):

It has been decided to conduct special 3-year long-term repo operations (3-year SLTRO) of Rs 10,000 crore at repo rate for SFBs.The facility will help them with fresh lending of up to Rs 10 lakh per borrowers and it will be available till October 31, 2021.

3. Priority lending by SFBs to MFIs

SFBs are now being permitted to lend to smaller MFIs with asset size of up to Rs 500 crore which will be classified as priority sector lending and this is likely to help individual borrowers.

4. Credit to ‘unbanked’ MSME entrepreneurs

RBI allowed Scheduled Commercial Banks (SCBs) to deduct credit disbursed to new MSME borrowers from their net demand and time liabilities (NDTL) for calculation of cash reserve ratio (CRR).This exemption currently available for exposures up to Rs 25 lakh and for credit disbursed up to the fortnight ending October 1, 2021 is being extended till December 31, 2021.

5. Resolution 2.0 for individuals, small businesses

The RBI has allowed borrowers (individuals, small businesses and MSMEs) with aggregate exposure of up to Rs 25 crore — who have not availed restructuring under earlier frameworks and classified as ‘Standard’ on March 31, 2021 — shall be eligible to be considered under Resolution 2.0 framework.

6. Rationalisation of KYC compliance requirements

The RBI has also rationalised certain compliance requirements in view of the Covid-19 second wave. These include:

1. The scope of video KYC known as V-CIP (video-based customer identification process) for new categories of customers such as proprietorship firms, authorised signatories and beneficial owners of Legal Entities and for periodic updation of KYC
2. Conversion of limited KYC accounts opened on the basis of Aadhaar e-KYC authentication in non-face-to-face mode to fully KYC compliant accounts
3. Enabling the use of KYC Identifier of Centralised KYC Registry (CKYCR) for V-CIP and submission of electronic documents (including identity documents issued through DigiLocker) as identify proof
4. Introduction of more customer-friendly options, including the use of digital channels for the purpose of periodic updation of KYC details of customers.
5. In view of Covid-19, no punitive restriction on operations of customer account(s) shall be imposed till December 31, 2021, unless warranted due to any other reason or under instructions of any regulator/enforcement agency/court of law, etc.

Digital Banking in the times of a Covid-19 epidemic

With the advent of Video KYC and rationalization of KYC compliance requirement by RBI (as mentioned above) it is apparent that our regulator wants that all banks in India shouldgo digital and provide maximum services to their customer through digital mode. So many banks have already started giving maximum services on digital mode through mobile banking like:

• Online Opening of accounts through mobile banking asVideo KYC is permitted.
• Online sanctioning of loan through Straight Through Process (STP) and thereafter direct credit to their accounts as Digital Documentation can be done.
• Enhanced Customer Service through live chat bots and virtual interaction by the Branch people.
• Virtual Banking through Whats App.
• Marketing of products through automated platform and using Big Data for upselling and cross-selling services.

In these unsettling times, banks will have to take drastic measures to contend with an unprecedented number of challenges in the months ahead.To reduce cost and increase customer base,digitization will play a crucial role to fill in the blanks.How individual bank is responding to this change will determine their survival as post covid banking will be different.