Synopsis–Policymakers in India have acted swiftly and decisively on both fiscal and monetary fronts to cushion the impact. The slew of measures introduced over the last nine months have allowed banks to help the stressed and most impacted sectors of the economy to weather the shock effectively.
While economic activity has been limping back to normalcy, it would be naïve to assume that post-Covid life will be as before any time soon. The after-effects of this shock are likely to linger for another 12-18 months. The severity of this crisis has evoked an unprecedented policy response across the world, and India has been no exception.
Policymakers in India have acted swiftly and decisively on both fiscal and monetary fronts to cushion the impact. The slew of measures introduced over the last nine months have allowed banks to help the stressed and most impacted sectors of the economy to weather the shock effectively. Historically, lowest interest rates and easy liquidity in the financial system have helped corporates and individuals to lower their borrowing costs. Likewise, forbearance measures have helped stressed borrowers tide over cash-flow difficulties and avoid defaults. Some of this stress is likely to start showing up on banks’ balance sheets, as these forbearance measures are unwound.
The impact of the Covid pandemic on the Indian economy has been quite severe. Full recovery will require sustained policy support for some more time. While GoI has limited fiscal space to provide direct support to boost demand, it has been using this period to usher some of the structural reforms, particularly in agricultural, manufacturing and labour laws. These changes will, hopefully, provide triggers for fresh investments by both public and private sectors over the medium term. On its part, the banking sector will need to step up to support these investments.
Meaningful steps have been taken to fortify balance sheets through substantial excess provisioning and raising fresh capital, with enough cushion to weather the impact of this crisis and prepare ourselves for next round of growth as economic activity normalises. This pandemic has also taught us new ways of working together — socially and physically distant but brought together closer virtually by technology. We have learnt to collaborate effectively over online platforms, as working from home (WFH) has become the new norm. This is, perhaps, an irreversible and permanent change. Not only will we have to adapt our workplace norms to make way for it but will also have to find newer ways of using it to attract and retain diverse talent pool.
One of the most enduring impacts of this crisis will be the adoption of technology in the banking industry. Digital banking was already in play much before the pandemic. But its impact was largely seen in retail payments. Covid-19 has, however, brought to the fore the need for accelerated change across the entire business model. Technology spend is likely to be in the front and centre of new capital expenditure for the industry.
Open banking, seamless and superior customer journeys across various channels, accelerated use of big data analytics for delivering hyper-personalised experience, use of artificial intelligence (AI) and machine learning in credit decisions for retail and corporate customers are likely to be the areas where banks will have to invest the most.
The long-term impact of the current pandemic is hard to judge. But as in the aftermath of the Black Death caused by the bubonic plague across Eurasia and Europe in the 14th century leading ultimately to the Renaissance in Europe, we, too, could well be at the cusp of a Digital Renaissance that the banking industry will have to rapidly adapt to take advantage of.
The writer is MD-CEO, Axis Bank