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Faster Digital Adoption Helping Banks Stay Afloat Amid Covid-19 Impact

Author: Dasari Sreenivasa Rao/Wednesday, December 30, 2020/Categories: Exclusive

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Faster Digital Adoption Helping Banks Stay Afloat Amid Covid-19 Impact

Indian banks including public-sector and private lenders are managing the show in times of Covid-19 pandemic thanks to faster digital adoption and rejig in business models, observes Indian Banks’ Association (IBA), while highlighted the need of risk management. Sunil Mehta, chief executive at Indian Banks’ Association (IBA), said “the emerging reputational, environmental, and people risk over and above the traditional credit, market and operational risks in this context. Trust, transparency and confidence are the foundation of the BFSI sector.” IBA welcomed efforts by the Professional Risk Managers’ International Association (PRMIA), a global forum for the development and promotion of the risk profession. PRMIA recently launched its Delhi chapter, which is 50th chapter globally and fourth in India. PRMIA has been promoting risk management ecosystems and recommended building enablers to mitigate risks emerging from Covid-19 like events in the future.

“Reputation risk arising from small internal control failure can cause more loss than the total of all risks taken together. Indian banking and economy have sailed through the Covid rather smoothly due to faster digital adoption and proactive policies and strategies adopted by the government, regulators, leading players and public,” remarked Mehta. Experts from the financial sector highlighted that India has sailed through the pandemic rather smoothly due to faster digital adoption and proactive policies adopted by the government. PRMIA has been alerting banks on the unforeseen challenges being faced due to the Covid-19 pandemic, various challenges faced and lessons learned from the crisis, the playbook towards standards and best practices to ensure operational resilience in the future.

Srinivasa Rao Sureddi, deputy managing director & chief risk officer at State Bank of India (SBI), highlighted how pandemic had been a high dimension stress test. “Lessons learned include adopting an agile and standardized risk management framework, building a local supply chain and liquidity for financial and non-financial institutions,” said Sureddi. PRMIA recently organized a virtual panel discussion. Experts from several banks discussed the challenges, dimensions, impacts, and lessons from a risk management perspective.  Ken Radigan, CEO of PRMIA Global, adds: “The ways and means to adopt cost-effective, future-proofing digital infrastructure, deeper digital integration, mitigants to work from home, liquidity-driven demand creation, analytical stress tests, a sharper focus on people and reputational risk, and continuous compliance monitoring to mitigate data and privacy risk to stay ahead of such crisis in the future.” PRMIA announced a partnership with SRICHID Academy to boost risk training and job placement assistance to its members in India. Nirakar Pradhan, CEO of PRMIA India, highlighted its impressive journey in India during the last two years. Even though a late starter in the country, PRMIA has opened four chapters and conducted 16 market events.

 

Beating predictions, India pulling out of Covid impact: RBI

Indian banking regulator Reserve Bank of India (RBI) has expressed confidence of real recovery in gross domestic product (GDP) in next quarter, while adding that the economy is pulling out of Covid-19’s negative impact at a faster pace than most predictions.

RBI in its monthly bulletin for December, said: “Since the assessment presented in the last month's article, more evidence has been turned in to show that the Indian economy is pulling out of Covid-19's deep abyss and is reflating at a pace that beats most predictions. Although headwinds blow, steadfast efforts by all stakeholders could put India on a faster growth trajectory.” RBI in the bulletin said that pandemic-induced retrenchment during the first quarter (Q1FY21) of the current financial year turned out to be much shallower in second quarter (Q2) and the economy is recover faster than the most predictions. “Second, the update of the economic activity index (EAI) in the nowcasting assessment presented in last month's bulletin indicates that the real GDP growth is expected to break out into positive territory in Q3 -- albeit, to a slender 0.1 per cent,” further added RBI.

“Third, the fourth bi-monthly resolution of the monetary policy committee (MPC) did maintain status quo on the policy rate and stance; but a powerful message was conveyed: growth projections -- the intermediate target under a flexible inflation targeting framework and the most potent communication tool -- were revised upwards by 200 basis points from October and if they hold, the Indian economy will clock a growth rate of 14.2 per cent in the first half of 2021-22 on top of 0.4 per cent in the second half of 2020-21.” The RBI bulletin further stated that two important forces are conspiring to bless this turning of the page on the virus. First, India is bending the Covid infection curve: since mid-September, barring localised surges, infections are slanting downwards week after week, and the recovery rate is nudging 95 per cent.

“Second, it is now getting clearer that there is a system to the fiscal stimulus, a 'method' if you will. Starting out with liquidity or guarantee and cash or kind support to the economy -- the need of the hour when the pandemic struck and displaced crores from their lives and livelihoods -- it is transiting in a calibrated fashion to supporting investment and consumption demand,” the bulletin said. "The fiscal measures have been sequenced in a designed shift in focus from consumption expenditure in Pradhan Mantri Garib Kalyan Package (PMGKP) to investment expenditure in Aatmanirbhar 2.0 and 3.0 fiscal stimulus will boost growth by close to two per cent of GDP in 2020-21,” forecasts RBI. In other words, it is prudent to look beyond the volatility inherent in high frequency indicators.

Furthermore, it pointed out that companies are doing so already -- an analysis of 12-months ahead forward earnings revealed an improvement in the outlook for a large number of companies. RBI further added that auto and capital goods sectors, which were hit hard by the lockdown, are expecting a turnaround in forward earnings. The banking regulator also forecasts encouraging earnings outlook for healthcare, IT and fast moving consumer goods (FMCG) sectors. “Moreover, intrinsic strength in the manufacturing and services sectors is being built as debt servicing capacity is getting reinforced and leverage is being brought down. India's farm sector is also forging ahead, backed by path-breaking marketing reforms,” remarked RBI.

The writer is a business journalist with 27 years of experience

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