Snapshot

Banking for $1.37 bn

Total Banking Assets of $2.52 Tn in FY20 with a CAGR was at 2.25%

  • Respective breakdowns for PSUs ($1.53 Tn), Private Sector ($0.81 Tn) and Foreign Banks ($0.18 Tn) 

  • Assets of PSUs were nearly 60% of total banking assets. 

  • Historically Indian banking has benefited from high savings rates and growth in savings as well as disposable income growth 

  • The Banking industry in India has historically been one of the most stable systems globally, despite global upheavals. The government has consistently strived to promote financial inclusion through various initiatives targeted to bring the country’s underbanked population under the banking gamut.  

  • As a part of the Digital India initiative, the Govt. mandated an open API policy, known as India Stack, giving third-party providers access to the proprietary software for five key programs: Aadhaar (the Government’s biometric identity database), e–KYC, e–signing, privacy-protected data sharing and the UPI.  

For further information, please refer the FDI policy

  • Public sector banks

  • Private sector banks (PSUs)

  • Small Finance Bank

  • Foreign banks

  • Regional rural banks

High level of M&A activity with 32 M&A deals valued at $ 42 Bn (2019) 

India set to become the third-largest domestic banking sector by 2050 

Over 420 million bank accounts opened in India  

Industry Scenario

Bank accounts opened under GoI Pradhan Mantri Jan Dhan Yojana ~420 Mn and deposits in Jan Dhan Yojana accounts were around $18.4 Bn. 

Bank Credit from FY16-20 has registered a CAGR of 3.6% and as of FY20 and total credit extended stand at ~$1.7 Tn 

Investments stood as the 2nd largest component in the assets side of the total banks’ balance sheets after loans and advances, driven primarily by Government securities. 

As of 2020, the capital adequacy amongst Indian banks remained above regulatory requirements with RBI also further relaxing the leverage ratio for banks to boost lending. 

Deposits has registered a ~14% CAGR from $1.15 Tn (2016) to ~$2 Tn (2021). 

RBI has taken steps to enable mobile payments key enablers to growth, by removing transaction limit of $745 and allowing banks to set their own limits.  

Recovery of stressed assets improved during 2019-20 through the IBC, 2016 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002. 

GROWTH DRIVERS

  • Robust demand & incomes

    Increase in working population and growing disposable income, increased consumerism and easier access to credit.

  • Government initiatives and interventions

    This is to promote banking technology and expansion in unbanked and non-metro regions.

  • Rural Household

    High demand from rural households owing to higher real disposable income levels (expected to grow at 3.6% CAGR through FY’25).

  • Credit Increase

    Increasing credit (at a CAGR of ~13% from FY16-20) in the housing sector, driven by low and mid-income segments.

  • Loan Books

    Both corporate and retail loan books have seen increasing demand. Main sectoral drivers have been services, real estate, consumer durables and agri for credit growth expansion.

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FAQs

Frequently
Asked Questions

Whether Banks are required to capture the details of ATMs in registration certificate as a ‘place of business’?

No. Banks are not required to provide the details of ATMs while applying for registration. For the purposes of registration, ATM on its own does not constitute a place of business, as defined in the CGST Act, 2017.

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Is it necessary for banks/ insurers to report the details of exempt and non-GST supplies in Table 8 of GSTR-1?

Yes. In the absence of any specific exemption to the banks/ insurers, the information is required to be provided in the said table.

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Is a “Bill of Supply” to be issued by a bank for exempt services like interest on loans and advances, inter-se sale or purchase of foreign currency amongst banks?

As per clause (c) of sub-section (3) of section 31 of the CGST Act, 2017 read with Rule 49 of the CGST Rules, 2017, there is a requirement for issuance of bill of supply for supply of exempt services by Banks. It may be noted, however, that there is no need to issue a separate bill of supply in case any invoice or document has already been issued in accordance with the provisions of any other law. Further, in view of the provisions contained in sub-rule (5) of rule 54 of the CGST Rules, 2017, banks may issue any other document in lieu of bill of supply.

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Would services provided by banks to RBI be also taxable?

Yes. Services provided by banks to RBI would be taxable as these are not covered by any of the exemptions or excluded from the purview of GST under the CGST Act, 2017 or under the IGST Act, 2017.

For more information, click here.

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Is interest on debt instruments exempt from GST?

Yes. As debt instruments such as debentures, bonds etc. are in the nature of loans, interest thereon will be exempt from GST.

For more information, click here.

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