Indian banks are likely to face pressure on their earnings with financial disintermediation getting broad-based due to growth in market-based financing of the real sector, the RBI said in its Financial Stability Report on Friday. The banks’ share in the flow of credit, which was around 50 per cent in 2015-16, declined sharply to 38 per cent in 2016-17, the RBI said. However, the aggregate flow of resources to the commercial sector was not affected due to a sharp increase in private placements of debt by non-financial entities and net issuance of commercial papers (CPs). The aggregate share of these two in the total credit flow to the commercial sector increased to 24.3 per cent in 2016- 17.
According to the data, primary issuances in the corporate bond market have increased to Rs 6.7 lakh crore in 2016-17 from Rs 1.74 lakh crore in 2007-08. The secondary market activities, both in the terms of number of trades and volumes are also on the rise, with 2016-17 witnessing growth of 26 per cent in terms of number of trades and 44 per cent in terms of volume as compared to the previous year, the central bank said.
“These developments, although envisaged under regulatory frameworks, will have inevitable side-effects like increased competition and downward pressure on traditional earning modes of commercial banks,” the RBI said. “The need of the hour is to take this as opportunity for their business models.” Various initiatives taken by Sebi and the RBI to develop the market for corporate bonds over the last few years seem to be bearing fruit now, the RBI said. FE