Budget is round the corner and we are expecting some sectors to outperform , one of the sectors we are banking upon is the PSU Banking sector and certain private banking players too. India has seen consistent increase in working population who will be entering the banking system every year and with that banks have smartly raised their fee based services for non interest based revenue.
Technology has penetrated deep via mobile & internet banking services and once its well spread across the rural sector the PSU Banks will benefit a lot & accordingly Bank’s are also investing heavily in technology infrastructure to enhance customer’s overall experience as well as give banks a competitive edge over others .
India’s digital lending stood at US$ 75 billion in FY18 and is estimated to reach US$ 1 trillion by FY23 driven by the five-fold increase in the digital disbursements. By 2025, India’s fintech market is expected to reach Rs. 6.2 trillion (US$ 83.48 billion).
- In October 2021, Unified Payments Interface (UPI) recorded 4.21 billion transactions worth Rs. 7.71 trillion (US$ 103.9 billion).
- According to the RBI, India’s foreign exchange reserves reached US$ 642.20 billion as of October 29, 2021.
- To improve infrastructure in villages, 204,000 point of sale (PoS) terminals have been sanctioned from the Financial Inclusion Fund by National Bank for Agriculture & Rural Development (NABARD).
- The number of transactions through immediate payment service (IMPS) reached 430.67 million and amounted to Rs. 3.70 trillion (US$ 49.75 billion) in October 2021. ( Source : IBEF) .
Banks like SBI & Bank of baroda are having a large customer based a 1% increase in their fee based incomes with 0.50% reduction in NPA progressively will impact the bottom line significantly and the banks will command premium valuation based on their forward looking earnings. On the other hand large retail banks like HDFC Bank & ICICI will benefit from high spenders and urban population which are using their integrated banking services.
Banks represent almost 7.7% of India’s GDP and are hence an important sector for us to see credit growth , spending by govt and healthy liquidity across the banking system. We expect budget to announce reduction on taxes on digital transactions to push digital initiatives and reduce tax burden and encourage digital banking.