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

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

Number of Bank accounts ~ 430 Million

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. 

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. 

RBI has taken steps to enable mobile payments key enablers to growth, by removing the 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. 

Across the Top 10 banks in India banking assets are INR 145 Tn, and the top 5 are SBI at INR 45 Tn , HDFC Bank INR 17.5 Tn, PNB Bank INR 12.6 Tn, ICICI Bank INR 12.4 Tn and Bank of Baroda INR 11.6 Tn.

Total Loans and Deposits are projected to grow at CAGRs of 8.77% and 8.48% respectively from 2020-2025 with Total Loans expected at ~ $ 4 Trillion by 2025 and Deposits at $3.7 Trillion

Total Banking Assets are projected to grow at an average growth rate of 11.2% from 2020-25

Gross bank credit by commercial banks was up by 6.7% in August 2021, after expanding by 5.6% in 2020/21, and 6.8% in 2019/20.

Lending to industry growing by 2.3% and to services up by 3.5%. Credit to infrastructure—a major segment of industrial credit—rose by 5.9%.

Industries make up about 30% of the commercial banks' loan book, followed by the household sector (29%) and the services sector (27%).

Citibank (US) is the largest foreign-owned lender in India, followed by HSBC (UK), Standard Chartered (UK) and Deutsche Bank (Germany). In recent years, Singapore's DBS has been aggressive in expanding its presence in India.

GROWTH DRIVERS

  • Mobile banking transaction volume and value has been increasing

    Mobile banking transactions increased y/y in FY2021 by 83% and 59%. Banks have ramped up their efforts to expand their footprints in this platform since the trend is likely to continue even after the pandemic.

  • Increasing penetration of digital banking

    Increasing penetration of digital banking and payments services in tier 2-3 cities.

  • India has a diversified set of lenders and promising financial technology (fintech) firms

    including global technology firms, in the country's payments market.

  • Access to credit and banking products has improved

    over the past decade on the back of sustained efforts by the government.

  • The government is keen to drive cashless transactions,

    and has encouraged initiatives to improve payment infrastructure, leveraging the internet and mobile technology.

  • These forecasts are backed up by the rising prominence of the fintech market

    plus its potential is given the untapped population in India and the expected rise of both the middle- and high-income segments.

  • An increase in consumerism,

    the rising penetration of e-commerce and the formalisation of the economy will propel the use of cards and digital wallets.

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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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