India’s Leading BFSI and FinTech Companies 2022

16 Challenges • With growing usage of digitization there are growing chances of taking un-due advantages of hacking, mal-practices, frauds. Strengthening cyber security network to ensure the safety of the customers is a key challenge faced by banks. • The reach of private sector banks is limited to cities only. The coverage of bank network in rural or integrated parts are still limited therefore, chances of rural branches running into losses are more due to huge overhead cost. • As the economic activities increase, the demand for credit is expected to grow further, for this, banks need to ensure the availability of sufficient liquidity in the system to meet the growing demand of credit. • The lack of digital penetration in the rural areas as well as economically weaker sections is a key challenge faced by the Indian SCBs in promoting digital payment methods across all sections of the society. • With a select group of Russian banks being blocked from SWIFT arrangement, banks may witness issues like trading with Russia in US Dollars. Outlook • The asset quality of banks, though, has shown some improvement, it is because of the various relief measures that avoided increase in delinquencies during the pandemic. However, once the relief measures get withdrawn, the asset quality may witness some deterioration in the absence of meaningful recovery especially in the pandemic-hit sectors. The Russia-Ukraine crisis may also weigh on repayment of trade credit especially for businesses with higher exposure to these two countries. This may lead to increase in bank NPAs. • Digital payments will continue to witness expansion going forward. According to the RBI, the value of digital payments is expected to reach US$ 1 trillion by FY26 fromUS$ 300 billion in FY21. Growth in mobile payments will present huge business opportunities for players in the digital space. • In view of the current geo-political tensions and uncertainty in the global economy, banks might consider using digital techniques like data analytics, artificial intelligence and machine learning to understand the customer behaviour and their exposure to the key risk scenarios. This would help banks to manage credit risk and take informed decisions especially in trade finance. The surging global oil and commodity prices are exerting upward pressure on domestic inflation. This coupled with the widening of current account deficit may lead the RBI to tighten key policy rates. With policy rate hike transmission being generally higher and faster for borrowers as compared to the depositors, net interest income of banks would continue to remain healthy in FY23. Dun & Bradstreet