We have all heard of the great Indian consumer growth story
wherein every brand is eyeing for all the eyeballs & increasing spending power
of Next Gen India. The growing consumer base is tech savvy & is also
spending a lot more than the previous spend thrift generations. That got me
thinking on the future of Indian banking industry (15-20 years down the line)
in this context. Few data points to note while considering this:
o
Indian Household debt has been going up &
the average savings rate has been going down every year for a few years. There
has been a big change in investment, spending & saving behavior of the
consumer.
o
The tech
savvy next gen has newer avenues of investment (MF, P2P loans, simpler options
like sweep In FD’s/net banking) & is actively using these for their banking
needs.
o
Growing credit culture: The generation is
also not averse to debt as the rise of EMI culture has hit the Indian economy as
well which we believed to be the bane of western economies only.
The fallout of these data points could be:
-
Macro:
The increased household debt could be a problem in recessionary times. As
average Indian household income is lower, they will be more prone to such
shocks & might need bailouts/loan waivers. Govt borrowings could go up with
inflationary shocks being more rapid than regular business cycles.
-
Banking:
o
Liabilities: The SA book in CASA will surely go down as :
§
Lesser number of people are keeping money in
their bank savings accounts & are looking at other avenues of
investment/liquidity. This trend will only continue to grow.
o
Assets: The effect on assets might be :
§
This loss of SA base will lead to ALM /pricing
issues which might lead to higher
interest costs as the effect of SA loss will surely come back to effect the
loan pricing. The higher interest costs would affect corporate banking
customers as well.
§
Lower savings rate might lead to higher
delinquencies on loans as well. We already see higher credit card debt for
Indian consumers (It is a vicious cycle which is very difficult to get out of).
§
Margins for retail banking would be under
pressure & subsequently corporate bank as well.
-
MF
Industry: MF industry will surely benefit gathering this liability
business (It has been growing well over the past few years)
-
Fintech:
The fintech industry is tapping the payment landscape & will benefit from
the pie of market being taken from banks/new borrowers inducted into the formal
borrowing economy.
The current household debt figures are not at any alarming
levels & with a growing economy these figures should not go out of hand. But
a major point to consider is that Debt provides a good boost to consumption/GDP
growth in the short term but in the long term it can have catastrophic significance.
The only point to consider is that whether the necessary evil (debt) will have
more short term benefits or a higher long term negative.
