: Opinion: Buoyant year for banks #IndiaNEWS #News By Dr K Srinivasa Rao Much of how the banks shape their growth strategies in 2023 will depend upon the evolving macroeconomic dynamics whose roots

Opinion: Buoyant year for banks #IndiaNEWS #News
By Dr K Srinivasa Rao
Much of how the banks shape their growth strategies in 2023 will depend upon the evolving macroeconomic dynamics whose roots lie in 2022. Banks face domestic and external sector risks in an integrated world order. It can be recalled that when Covid was receding in early 2022, major central banks in the world were on a binge to normalise easy money policies that were aligned to fight the pandemic ills. But the invasion of Ukraine by Russia in February 2022 overturned the global economic landscape.
Sanctions against Russia, surge in energy and commodity prices, continued supply-side disruptions, aftermath of ‘Zero Covid policy’ in China and increasing polarisation of economies exacerbated geopolitical risks. Inflation made a galloping rise, interest rates soared and volatility became the watchword on markets ranging from stocks and bonds to cryptocurrencies and Chinese real estate. The appreciation of the US dollar against domestic currencies and the flight of overseas funds back to developed economies exacerbated exchange rate challenges.
While the fears of the resurgence of Covid19 in many parts of the world now cannot be ignored, India is said to be better placed with its strong immunisation campaign and wider exposure of society to the virus, forming hybrid immunity.
RBI Strategies
The Reserve Bank of India (RBI) joined the policy normalisation along with its global peers while customising it to domestic needs. It opted for a tectonic shift in monetary policy beginning in May 2022 steeply raising the repo rate by 225 basis points to fight inflation. It was coupled with absorbing excess liquidity using the variable rate reverse repo (VRRR) tool and retained low fixed rate reverse repo intact at 3. 35%.
Banks quickly needed to fine-tune liquidity risk management as the cost of funds soared and resource inflows slowed. At the same time, the RBI continued its innovative strategies by introducing Standing Deposit Facility (SDF) on April 8 at an interest rate of 3. 75%, which now stands at 6%, for absorbing excess liquidity.
As the impact of fiscal and monetary policy actions of 2022 and external sector dynamics work their way to shape the challenges and opportunities in the economy, the banking industry is set to enter another aggressive growth orbit in 2023. Banks will have to sync their functional barometer in line with the evolving macroeconomic ecosystem to make the most out of it.
Influenced by the demand for credit from reviving trade and industry, bank credit growth rose fast during 2022 to reach 17. 5% while deposits were sluggish at 9. 9% as on December 2, 2022. The incremental credit deposit (CD) ratio has been staying above 100% since August 2022.

Stock Market NEWS Best intraday tips Intraday Stocks below 100