Impact Of Recession On Banking Sector

Published Date: 02 Nov 2017

Banks act as vital players in the financial marketplaces. They show a vibrant role in the economy of a country. The Recession that instigated in December 2007 obstructed the revenues and productivity of businesses worldwide. The Indian banking system is comparatively protected from the factors leading to the havoc in the global banking industry. Going through the performance intended for the calendar year 2008, Indian public division banks have not merely been able to weather the storm of global recession however have been able to reasonable its impact on the Indian economy by way of well, associated with its peers between the foreign and private banks. Indian banks plus institutions have come out moderately unharmed from the recession.Constructed on strong financial fundamentals, stringent vigil on risk craving and firm monetary strategies, Indian banks have verified among the strongest and sound banking Organizations in the world.

India’s Public division Banks plus Recession Effect

There has been considerable discrepancy in the performance of the numerous banking institutions in the country as also between the public, private along with foreign banks operating in India. The facts put out by the Reserve Bank of India proposes that banking action in the country sustained unabated throughout the main phase of recession, thanks to the superior than predictable performance of public area banks. This was while the properties and liabilities of both foreign plus private sector banks immersed during the equivalent period last year. Nevertheless public sector banks appear to have more than made up for the deficit from foreign and private sector banks plus the development inflow of bank resources to the different sectors of the Indian economy has continued undiminished.C:\Users\MAMUN\Desktop\ECON project\ORIGINAL THINGS\Indian-Economy1.jpg

Indian Public Sector Banks Staffs throughout Recession

However, thousands of people worldwide have been obtainable over pink slips as a portion in addition to section of the global hold back, Indian public sector banks motionless have numerous jobs. Indian public sector banks such as State Bank of India, Syndicate Bank, Union Bank of India Central Bank, Corporation Bank, Andhra Bank ,Punjab National Bank then Nabard.It was affirmed that Union Bank are forecasting to utilize more than 4000 officers plus 1000 clerks this year. State Bank of India has superior plans. Through year end it plans to employee 20,000 clerical personnel and about 5000 officers.While the recession has knockout innumerable other sectors, manpower is motionless a predictability in the public Banking sector. The necessities of extending credit to principal sectors, and development Plans of several banks in the rural marketplace make this an obligatory move. Allowing to Industry evaluations around 40, 000 people were until that time hired in the present fiscal year as complementary to 15,000 last year.C:\Users\MAMUN\Desktop\ECON project\ORIGINAL THINGS\Indian-economy123344.jpg

Indian Banks Revenue, Even in This Recession

The banks are undertaking so well in this period of recession. The 5 reasons that large banks are able to exhausted the recession besides rake in the revenues are:

1. Financing increases give investment banks with more revenue as trades go to investment banks. Banks that does the supporting gather fees, besides if they strictly make the loans, they also gather the interest.

2. Trading profits is also up as investors attempt to play the marketplace, getting in when prices are low as well as trading to take profits on the convention. numerous of the big banks (like Goldman) do over the argue against trades, so they obtain commissions as well.

3. Fewer competition is the consequence of failed banks and invasion. This means a superior piece of the pie intended for those banks that are not here.

4. Contaminated assets have been working their method through the system. furthermore, some banks (like Goldman) had imperfect exposure to toxic assets to instigate with.

5. Retail banking has been given that a boost up. People still necessitate a place to continue them money. With a inferior Fed funds rate, they be able to pay less in interest to their savings consumers, while still charging among 5% and 10% interest (more intended for credit cards) on loans they construct That dissimilarity is resulting in prosperity.

The connection and association Of Indian banks

Reserve Bank of India

Central bank and supreme monetary authority

Schedule Banks

Commercial Banks

Co-operatives

State Coorperatives (16)

Forign Banks (40)

Regional Rural Bank(196)

Urban Coorperatives (52)

Public Sector Banks(30)

Private Sector Banks(27)

New

(8)

Old

(22)

State Bank Of IndiaAnd associates Bank(8)

Other nationalized Banks( 19)

Deciede wether India has been hit by the crisisor not???

extreme leverage (too much debt put side by side to equity) is the general culprit in all financial marketplace crashes – be it in 1929 or else 1987 in addition to 1994 or 1998 or else 2001 or else 2008 .whereas banks traditionally have superior leverage than further businesses, countries where banks either evaded, or else were barred from investing in difficult-to-value imitative, and as a result did not leverage exceptionally, have been left relatively unharmed.

ICICI Bank's overseas process have reported marketplace to market losses of $264.34 million (Rs1,060 crore) on account of its revelation to credit derivatives as well as investments as on January 31, 2008 This could wipe off up to 9% of this year’s revenue for ICICI and its contributory abroad have an cumulative exposure of $2.2 billion in credit derivatives. Other banks resembling the Axis bank, SBI in addition to Bank of Baroda also have such exposures.

although it's not a disaster for Indian banks as none of the banks have straight exposure to subprime loans It is just a one time profit matter which they can easily finance this through their equity Only $1 billion out of India's entirety banking assets of more than $500 billion lose your balance into toxic assets or associated investments.

Problems countenance by Indian Banks…. during recessions

enormous liquidity contraction by the Reserve Bank of India (RBI) in near the beginning and mid part of 2008, short of up the expenditure of funds for business and vulnerable growth.Domestic banking is motionless generally secure particularly because publicly owned banking remains the core of the method.

Credit growth throughout the period among December 19, 2008 in addition to February 13, `09 was Rs. 8,091 crore–as per RBI data–was piercingly lower than that of Rs. 86,978 crore in the matching period of the preceding year.

The entirety flow of resources to the profitable sector from banks as well as non-banks during fiscal 2008-09–up to February 13– next to Rs 4,98,136 crore was subordinate than Rs6, 08,351 crore throughout the corresponding phase of the last financial.

regardless of a steep cut in policy rates through the Reserve Bank of India (RBI) since October 2008, there has not been a corresponding reduction in lending rates through banks as fears of rising terrible loans have made them watchful in increasing advances/lending. C:\Users\MAMUN\Desktop\ECON project\ORIGINAL THINGS\financial-crisis.jpg

in addition commercial banks carry on to refuse to fire up demand in the method.suitable to the banks not lending, the sectors most awful affected are realty, automobile plus SME’s.Given a state of affairs where the FIIs are still in go out mode plus trade at an all time near to the ground, only bank lending has to get the lead to rev up the financial system.The majority of the banks has pulled out totally from FII’sexcet for DeutcheBank and Citirou.

What Steps Has been in use to come out from the resession

The cause of lower impact of recession in India was the quick adoption of corrective measures by the Reserve Bank Of India. The RBI saved the Indians from overspending by changing the interest rates, wherever required, on time. RBI first lowered interest rates during the global slowdown in order to boost demand in the economy. At the same time, RBI ensured tightening of credit in the more speculation oriented industries like real estate, which was sustained very high property prices. To manage inflation and promote growth the RBI has raised its key policy rates six times since March 2010.

When the crisis began in September 2008 the RBI rapidly reversed its earlier tightening of credit to meet the new and changed circumstances of the global scenario. Signs of panic withdrawals from private sector banks were met with strong reassurance by both the government and the RBI. Instructions were issued like designing financial regulations to avoid excessive risk taking, keeping in mind that banks must protect their balance sheets from cyclical variations. C:\Users\MAMUN\Desktop\ECON project\ORIGINAL THINGS\48975_w640_h640_sinessgrowthpushingcoinsup.jpg

"Slow & steady wins the race." This holds true for India, the way it maneuvered its path through the global recession. The prosperity of the advanced nations was certainly attractive and tempting, but excess of anything is harmful. It’s a bubble waiting to burst. It is better to move slowly and cautiously, observing and learning from our own as well as from the world experiences.

Indian Banking Sector remains a bright spot

In India, it is the real economy that got impacted first on account of exports and the Drying up of overseas finance for many firms. Banks are affected indirectly by the Slowing down of the economy. The direct impact of the crisis on the Indian banking The system has been small because Indian banks do not have big exposures to the subprime Market. Indian banks are well placed to weather this impact. This is not a contrarian View. The RBI itself exudes optimism about the outlook for Indian banking in its latest Report on Trend and Progress in Banking. The underlying fundamentals of the Indian economy would continue to underpin the robust performance of the banking sector which remains profitable and well capitalized.

Experts view on Indian Banks and Recession

THERE is a saying many Indians have heard from their grandmothers: "Spend only as much as you earn." It now seems that this piece of advice, apparently firmly ingrained in an average Indian mindset, has helped the survival of the Indian banking system which,Experts and politicians maintain with increasing confidence, has emerged unscathed from the global economic meltdown.

Indian banks have not just survived the crisis but appear to have emerged even stronger from the recession and even gone ahead and posted reasonable profits in the year 2008- 2009. But do generally sensible borrowing practices explain why Indian banks emerge even stronger in such hard times?Rana Kapoor, Founder-Chairman of one of the fastest-growing private banks in India,Yes Bank, echoes this view: "The customer — private or corporate — can very well see for himself that the Government of India and even the RBI has never differentiated amongst the public-sector or private banks. We realized this especially during recessionary times that the common man in India did not differentiate between governments or a private bank and his trust remained as before. The private banks on their part have also followed the RBI banking guidelines which paid off very well."

Another important factor is the limit over the Indian banks’ use of foreign capital. As a result of this constraint, an economic meltdown situation, wen foreign companies start withdrawing capital, the Indian banks remained unaffected. C:\Users\MAMUN\Desktop\ECON project\ORIGINAL THINGS\18709818.cms.jpg

Indian Banking sector challenged by domestic, not global, factors

The reasons for tight liquidity conditions in the Indian market in recent weeks are quite different from the factors driving the global liquidity crisis. Some reasons include large selling by Foreign Institutional Investors (FIIs) and subsequent Reserve Bank of India (RBI) interventions in the foreign currency market, continuing growth in advances, and earlier increases in cash reserve ratio (CRR) to contain inflation.

The profitability of Indian banks is expected to remain under pressure due to increased cost of borrowing, declining interest spreads, and lower fee income due to slowdown in retail lending. Profit levels are also likely to be impacted by mark-to-market provisions on investment portfolios and considerably lower profit on sale of investments, as compared with previous years.

How Are Indian Banks Doing Today?

In spite of the sinking ships and crashing boats in the stormy ocean of international business particularly the banking sector some countries have managed to hold on and sail through the troubled waters. Indian and Chinese banking houses are a fine example. Though Indian share markets have plunged by more than half of their value in one year the banking sector has managed to post profits in the third quarter of 2008.It has upheld the trust of Indian investors and FDIs with this good news. This achievement could be a reason of its direct backing by Government of India.Probably peoples trust in the largest Indian banking firm was buoyed by the decision of other governments worldwide to sanction bailout packages to save the leading business houses. Manpower and staffing Consultants for banking and broking sector are making the most of this opportunity. One Of my friends works at ICICI bank that posted a growth of 1% over last quarter. He got In the trade during this time of crunch through a leading manpower consultancy in India. I can say things are easy but he is doing a great job.

Conclusion

The prudential norms adopted by the Indian banking system and the better regulatory

Framework in the country has helped the banking system remain stronger even during

The global slowdown.The money of the people is Safe in Indian banks, unlike the western banks. The Indian banking system has the rule of Dharma, which has taught the sector not to have greed. In the end, the banking industry Is likely to be just fine. While some individual banks went down, and continue to The struggle, the financial sector as a whole is doing okay, and is likely to recover from this Recession without too much trouble. Hopefully, these profits mean that the banks will be more willing to help other companies that need access to credit.C:\Users\MAMUN\Desktop\ECON project\ORIGINAL THINGS\thumb_recession1.jpg