After a marathon year, it’s time for banks to run even harder. Will they overcome?

IIPM BEST B-SCHOOL

The era of consumer profligacy has now finally arrived in India. And thanks to this new found spirit of indulgence, Indian banks have been smiling all their way to the bank! Statistics speak for themselves. Chetan Ahya, Executive Director, Morgan Stanley, India shares his view on the changing economic balance, “Led by leveraged purchases of new homes & automobiles, consumer debt in India has tripled, from four years earlier, to Rs.6 trillion or about 15% of annual GDP.” The Reserve Bank of India data indicates that on an average, one out of every four Indians is over-leveraged.

In FY07, banks harvested some of the best incomes and profits in the recent years. The earnings of PSU banks grew by a record 39% in the last quarter of 2007, while the figure was 24% for private sector banks. But consider a scenario, wherein the Indian consumers, who have been lately loosening their purse strings quite liberally, decide to hold back? What happens then to the fortunes of the banks? After all, it’s actually this huge appetite for money (no matter what the consequences are!), which is driving the top-line growth of the banking industry.

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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