MINI PROJECT - 2

IMPACT OF COVID-19 ON BFSI

Date of Submission - ....../....../............

SUBMITTED TO: SUBMITTED BY:

Dr. Rashi Baliyan Akash Kumar Singh

Roll No. : 2108010700021

M. B. A. 1st Year - 2nd Semester

 COLLEGE CERTIFICATE

This is to certify that the mini project entitled “IMPACT OF COVID-19 ON

BFSI” is submitted by “AKASH KUMAR SINGH” for Mini Project Report – 2 at the
“GL BAJAJ INSTITUTE OF MANAGEMENT AND RESEARCH” is an authentic
work carried out by him under my supervision and guidance.
To the best of my knowledge. The matter embodied in the project report has not been
submitted to any other University / Institute for the award of any Degree or Diploma.

Dr. RASHI BALIYAN Date: ....../....../................

Project Mentor

GL Bajaj Institute of Management and Research,

Greater Noida
 DECLARATION
I, AKASH KUMAR SINGH, Student of MASTER OF BUSINESS
ADMINISTRATION,

Hereby declare that all information, facts, and figures in this mini project report are
all my findings and original in nature which is collected from various e – sources and
as per public opinion. The same has never been submitted undersigned either in part
or in full to part or in full to anyinstitution.

This information is true to the best of my knowledge.

AKASH KUMAR SINGH Date: ....../....../................

Roll No. - 2108010700021
M. B. A. 1st Year – 2ND Semester
GL BAJAJ INSTITUTE OF MANAGEMENT AND RESEARCH
 INDEX
1 INTRODUCTION

2 MAJOR PLAYERS IN BFSI

3 CHALLENGES FACED

4 EMERGING TECHNOLOGY

5 COVID-19 IMPACT

6 MEASURES TAKEN

7 CONCLUSION

8 CASE-LET
 INTRODUCTION

INDUSTRY TYPE- Banking Financial Services and Insurance Sector

Banking, financial services, and insurance (BFSI) is an industry term for companies that
provide a range of such financial products or services. This includes universal banks that
provide a range of financial services or companies that operate in one or more of these
financial sectors. BFSI comprises commercial banks, insurance companies, non-banking
financial companies, cooperatives, pensions funds, mutual funds, and other smaller financial
entities.

The Banking part of BFSI may include core banking, retail, private, corporate, investment and
cards. Financial services may include stock-broking, payment gateways, and mutual funds.
Insurance covers both life insurance and general insurance.

BFSI Industry consists of 3 Categories: -

The First Broad category of BFSI covers Banking.

The Indian banking system consists of 12 public sector banks, 22 private sector banks, 44
foreign banks, 56 regional rural banks, 1,485 urban cooperative banks, and 96,000 rural
cooperative banks in addition to cooperative credit institutions. As of August 2020, the total
number of ATMs in India increased to 209,110 and is expected to reach 407,000 by 2021.

As per the Reserve Bank of India (RBI), India's banking sector is sufficiently capitalized and
well-regulated. The financial and economic conditions in the country are far superior to any
other country in the world. Credit, market, and liquidity risk studies suggest that Indian banks
are generally resilient and have withstood the global downturn well.

The Indian banking industry has recently witnessed the roll-out of innovative banking models
like payments and small finance banks. RBI's new measures may go a long way in helping the
restructuring of the domestic banking industry.
The digital payments system in India has evolved the most among 25 countries with India's
Immediate Payment Service (IMPS) being the only system at level five in the Faster Payments
Innovation Index (FPII).

Market Size

The Indian banking system consists of 12 public sector banks, 22 private sector banks, 46
foreign banks, 56 regional rural banks, 1485 urban cooperative banks and 96,000 rural
cooperative banks in addition to cooperative credit institutions. As of September 2020, the
total number of ATMs in
India increased to 210,049 and is further expected to increase to 407,000 by 2021.

Asset of public sector banks stood at Rs. 107.83 lakh crore (US$ 1.52 trillion) in FY20.

During FY16-FY20, bank credit grew at a CAGR of 3.57%. As of FY20, total credit extended
surged to US$ 1,698.97 billion.

During FY16-FY20, deposits grew at a CAGR of 13.93% and reached US$ 1.93 trillion by
FY20. Credit to non-food industries stood at Rs. 103.46 trillion (US$ 1.40 trillion) as of
November 20, 2020.

Second Broad category of BFSI covers financial services.

India has a diversified financial sector undergoing rapid expansion, both in terms of strong
growth of existing financial services firms and new entities entering the market. The sector
comprises commercial banks, insurance companies, non-banking financial companies,
cooperatives, pension funds, mutual funds, and other smaller financial entities. The banking
regulator has allowed new entities such as payment banks to be created recently, thereby
adding to the type of entities operating in the sector. However, financial sector in India is
predominantly a banking sector with commercial banks accounting for more than 64% of the
total assets held by the financial system.

The Government of India has introduced several reforms to liberalize, regulate and enhance
this industry. The Government and Reserve Bank of India (RBI) have taken various measures
to facilitate easy access to finance for Micro, Small and Medium Enterprises (MSMEs).
 MAJOR PLAYERS IN BFSI

Major Players in BFSI are: -

1. State bank Of India (SBI) - The State Bank of India was founded in the year 1955 and is
headquartered in Mumbai. The State Bank of India is an Indian multinational, public sector
banking and financial services statutory body. SBI is ranked 236th in the Fortune Global
500 list of the world's biggest corporations of 2019. It has branches in overseas and India.
Its subsidiaries are — SBI Life Insurance Ltd, SBI Cards and Payment Services Ltd, SBI
General Insurance, Jio Payments Bank, etc.
2. Bajaj Finance Ltd. - The company was founded by Srinivas Chaudhry Bajaj. It is
headquartered in Pune, Maharashtra. Bajaj Finance's main products are Fixed Deposits,
Mutual Funds, and Landing. Its various subsidiaries are Bajaj Financial Services Ltd, and
Bajaj Housing Finance Ltd. Bajaj Finance is dealing with commercial lending, consumer
finance, SME, and wealth management. It is one of the Top 10 BFSI Companies in India.
3. HDFC Bank ltd -HDFC Bank was founded in the year 1994 and is headquartered in
Mumbai. The bank offers- Investment Banking, Wealth Management, Investment
Management, Corporate Banking, Private Equity, Credit Cards, Finance & Insurance,
Consumer Banking, and Mortgages. HDFC Bank is India's largest private sector lender by
assets. It is the largest bank in India by market capitalization as of March 2020. It is one of
the Top 10 BFSI Companies in India.
4. ICICI Prudential life insurance company ltd-is a private insurance service company founded
in December 2000. It is headquartered in Mumbai, India. ICICI Prudential Life Insurance
Company is a joint venture between Prudential PLC and ICICI bank.
5. Life Insurance Corporation of India (LIC) -It is the top insurance company in India.LIC is a
state-owned enterprise and government corporation. The company was founded in 1956 and
is headquartered in Mumbai. Its range of products includes health insurance, life insurance,
investment management, pension plans, mutual funds, etc.
 CHALLENGES FACED

Banks in India are different from other countries, because they have a large branch network
and diverse needs specific to regions and customers, signifying the importance of highly
customized technologies. But the concern when implementing complex technologies is safety
and security. Of the list of the top challenges faced by the banking sector, the following might
beat the forefront:

1. Cloud Computing

When a bank adopts cloud computing, the confidentiality and security of commercial and
personal data and applications are paramount. The security breach is out of the question. One
main aspect that the banks should focus on is if in case important data is lost, can the cloud
provider restore the data completely. Because users, who use the cloud, do not know about the
hosted data and since the cloud is typically in a shared environment there is a danger of data
loss. Also, in case of a security breach, Cloud technology services are difficult to investigate,
because logging and data for multiple customers may be co-located and may also be spread
across an ever-changing set of hosts and data centers.

2. Mobile Banking risks

Millions of consumers are already using a wide range of mobile devices to conduct banking
for its ease of access. But with that come a whole set of threats: mobile malware, third-party
apps, unsecured Wi-Fi networks, etc. Consumers love their smartphone and tablet applications
most of which could be created by fraudsters and loaded with malware.
 EMERGING TECHNOLOGY

Existing technology

The banking industry is the backbone of the Indian economy. It caters to the financial needs of
138 crore citizens. As an early adopter of technological advancements, the banking industry
has constantly reinvented itself to improve business as well as the economy. The recent digital
transformation has ensured seamless banking services to customers, and banks are
transforming themselves from traditional brick and mortar institutions to adaptable financial
service providers.

The advent of cutting-edge technologies enabled banks to reimagine their operations.

Emerging technologies including artificial intelligence (Al), machine learning (ML), Internet
of things (IOT), Cloud computing, block chain and robotic process automation (RPA) have
contributed to the expansion of business to under-served areas. In fact, the way of banking has
shifted from being conventional to convenient — making financial products and services
available practically at the touch of a button. Welcome, Banking 4.0!

Al-ML
Al-ML is one of the most important components of Banking 4.0 since the benefits are
abundant. It plays a pivotal role in core banking services, back-office operations, customer
experience, compliance, risk management, and product delivery to name a few. Several
manual operations are automated, and we witness enhanced agility as the system algorithm
makes fact-based, unbiased decisions by analyzing a large history of data at an appropriate
time.

Block chain

Block chain is going to transform the banking industry altogether. This technology, on one
hand, improves efficiency and is cost-effective, and on the other hand, it gives heightened
security for the entire spectrum of financial services. This helps banks in fraud reduction, loan
processing, know your customer (KYC) processes, inter-bank transactions, smart contacts, and
many other banking services. The extent of opportunities that blockchain offers is yet to be
explored by many of our banks

COVID-19 IMPACT

Non-Performing Assets (NPAs)

According to a report released by S&P Global Ratings, Indian banks are likely to see an
increase in their NPA ratio by 1.9% in 2020, following the economic slowdown caused by the
COVID-19 pandemic. Going by the report, this can further worsen the banks' credit cost
ratios by around
130 basis points (bps).

this can further worsen the banks' credit cost ratios by around 130 basis points (bps).

The looming NPÄ risk

Gross NPA ratio Cf all banks in India taken together was under as Of
September. Ha,vever. in both medium severe stress scenarios, the ratio
coulC cross 10% later this year.
Projections Of gross NPA ratios in various stress scenarios* 13.213-413.5

Source: REI'sFinancialStability Report. December -,019

Central banks like the Reserve Bank of India (RBI) have taken measures that include
increasing liquidity, implementing rate cuts, and providing targeted loans to affected
industries. By relaxing its regulations, the RBI is providing a temporary moratorium to
affected individuals and companies, who will only need to start repayments from June 2020.
2. Impact on bank loans
NPAs seem to be only the tip of the iceberg. The current crisis has definitely increased the
liquidity in India's banking system with surplus cash growing to over 4 lakh crores. However,
high liquidity has not encouraged fresh banking loans, as most banks continue to play it safe
because of the prevailing economic uncertainty.

Cash Avvash

Additionally, banks in India could see a major spike in bad loans as more borrowing
companies begin to default on their loan payments due to the lack of economic activity. RBI
has already implemented multiple measures including a rate cut of 75 basis points, interest
deferment on working capital, and a 3-month moratorium on all term loans — all aimed
towards boosting lending.

3. Stressed assets

Although such RBI measures may boost the lending of fresh loans, banks seem to be facing
the consequences of past loans as they try to deal with the growing number of bad loans in
their balance sheets. Such loans have been the outcome of years of easy money lending.
Defaulting cases on large corporate loans are now seeking a resolution under India's
bankruptcy code.

STRESS TEST
PSB All banks
 March 2019 (actual) 12.6 9.3
March 2020 (projection)

Baseline 12.0 9.0

Medium stress 12.1 9.2

Severe stress 12.2 9.6

With reduced economic activity, banking executives are projecting few buyers for stressed
assets. The asset quality pressure for both banks and NBFCs is expected to rise in the financial
year 2021. As a result, credit costs for NBFCs could grow by 50-100% over the next quarters.
Which also brings us to the next impact.

4. Bank profitability
Such credit costs coupled with low credit growth is projecting record low profitability for the
financial sector, measured by the Return on Assets (ROA) ratio. ROA is likely to reduce by
50-
90 basis points in the financial year 2021.

LAGGING THEIR PRIVATE PEERS

New PrivateBanks Public Sector Banks
On the positive side, India's largest bank, SBI is expecting a 4-year high on ROA in this fiscal
year. This has been enabled mainly by higher margins on net interest and higher income from
interests.

5. NIM and other impact

COVID-19 is also impacting the Net Interest Margin (NIM) of the financial sector. NIM
growth mainly depends on internal factors such as Capital Adequacy Ratio (CAR) and Current
& Savings Account Ratio (CASA) that have been on the decline. In the coming weeks, NIM is
further likely to reduce due to an increase in bank NPAs.
As reported on April 1 st, here are the 5 best — and worst — banks ranked by its CASA ratio.

Apart from NIM and the CASA ratio, banks are likely to be adversely impacted by the
increased cost of deposits and lower interest income. However, with the RBI lowering its
reverse repo rates, banks can improve their retail asset business towards the end of the year.

MEASURES TAKEN

As the world is battling on all fronts against the outbreak of COVID-19, India has also been
considerably affected by the pandemic. In order to contain the spread of the pandemic,
Government of India announced a nationwide lockdown starting from March 25, 2020. The
ongoing pandemic has posed a sizeable impact on life as well as business of the world's
largest democracy. Though, the magnitude of impact on different sectors varies, none of the
sectors are completely out of the reach of its repercussions.

The battle with COVID-19 is not only to save the country and its people but also to ensure
that the banking channels are working round the clock to cater to the needs of the public as
well as financial market. Needless to say, that banking system is the backbone of any
country, and its failure or slowdown could lead to multiple issues for developing countries
like India. Hence, in order to ease out the unforeseen difficulties being faced by numerous
sectors, Reserve Bank of India (RBI) being the central bank of the country came up with a
number of measures and reliefs post nationwide lockdown which have been discussed in this
article at length.

Measures to Support Exports and Imports:

Due to COVID-19, the exporters have been facing genuine difficulties such as
delay/postponement of orders, delay in realization of bills, etc.

Relaxation in Realization and Repatriation of export Proceeds

RBI vide notification dated April 1, 2020, had announced that the time period for realization
and repatriation of export proceeds for exports made up to or on July 31, 2020, has been
extended from nine months to fifteen months from the date of export. This measure is
expected to help exporters by providing greater flexibility to negotiate future export contracts
with buyers abroad and will realize their receipts, especially from COVID-19-affected
countries within the extended period.

Export Credit

The maximum permissible period of pre-shipment and post-shipment export credit sanctioned
by banks is increased from the existing one year to fifteen months, for disbursements made up
to July 31, 2020. RBI vide notification dated May 23, 2020, has announced this measure as
this is expected to alleviate difficulties being faced by exporters in their production and
realization cycles. This will also solve the working capital woes of traders to a considerable
extent and ease the pressure of making immediate payments.

Liquidity Facility for Exim Bank of India

In order to enable EXIM Bank to meet its foreign currency resource requirements, RBI has
decided to extend a line of credit of Rs 15,000 crore to Exim Bank for a period of 90 days
(with rollover up to one year) so as to enable it to avail a US dollar swap facility. This
measure is expected to give the export-import sector more time and liquidity to tackle the
ongoing coronavirus crisis. But while exporters are lauding the timely measure, their call for
more government support and a detailed package continues.
Extension of Time forPayment for Imports

The RBI has decided to extend the time period for completion of outward remittances against
normal imports (i.e., excluding import of gold/diamonds and precious stonejewelryry) into
India from six months to twelve months from the date of shipment for such imports made on
or before July 31, 2020. This is expected to provide importers liquidity support, extra time to
manage their dues and greater flexibility in managing their operating cycles in a COVID-19
environment, thereby businesses will get a breather to deal with the crisis and not stress their
ledgers.

Debt Management Measures:

This measure is intended to ease debt management constraints on State Government finances
by enabling States to meet a larger proportion of their redemption of market borrowings
falling due in the current financial year from the CSF.

Consolidated Sinking Fund (CSF) ofState Governments - Relaxation of Guidelines

The CSF is a reserve fund created by states for amortization of their debt obligations. In order
to provide more resources to states, RBI vide notification dated May 22, 2020, eased the rules
governing withdrawal from the CSF which will remain valid till March 31, 2021, resulting in
release of additional? 13,300 crore to the states.

The states that will benefit the most are those which have managed to keep large amounts in
the CSF reserves, namely Maharashtra, Gujarat, Odisha, West Bengal, Andhra Pradesh, Bihar,
and Tamil Nadu. With the relaxation in rules, it is expected that more states would benefit
from this measure as they will be able to meet about 45 per cent of their redemptions due in
2020-21. While this measure will help check the upward thrust of public sector borrowing
cost, on the other hand, the lower interest rates may prove to be unfavorable to the household
sector saving rate which may suffer due to both income and price effects.
 CONCLUSION

Though the measures adopted and implemented by RBI are temporary, so far these have been
very effective to stabilize the volatile situation going on in the financial market. As COVID-19
continues to spread, both borrowers and lenders should be watchful of the compliance
requirements which have not been relaxed and take appropriate steps to fulfill such obligations
in a timely manner.

Although all the previous measures introduced by RBI are already a part of the Relief Package
announced by the Central Government, RBI may also need to consider a degree of prudential
forbearance in terms of other policies as well, which could be on similar lines to the Relief
Package. RBI may consider introducing the much-talked COVID-19 bond consoles. Given the
risk of using currency notes in times of pandemic, incentivizing digital payments further could
be an effective solution in the current circumstances. Furthermore, the domestic economy is
also expected to shrink to a great extent until the vaccine for COVID-19 is developed. In
response to all this and assuming the effect of the pandemic will continue beyond May 31,
2020, it is expected that RBI would come up with more additional measures to contain the
economic stresses.
CASELET
 INTRO

Banking, financial services, and insurance (BFSI) is an industry term for companies that
provide a range of such financial products or services. This includes universal banks that
provide a range of financial services or companies that operate in one or more of these
financial sectors. BFSI comprises commercial banks, insurance companies, non-banking
financial companies, cooperatives, pensions funds, mutual funds, and other smaller financial
entities.

MAJOR PLAYERS IN BFSI

Major Players in BFSI are: -

1 .State bank Of India (SBI) - The State Bank of India was founded in the year 1955 and is
headquartered in Mumbai. The State Bank of India is an Indian multinational, public sector
banking and financial services statutory body.
2. Bajaj Finance Ltd. - The company was founded by Srinivas Chaudhry Bajaj.. Its various
subsidiaries are Bajaj Financial Services Ltd and Bajaj Housing Finance
3. HDFC Bank ltd -HDFC Bank was founded in the year 1994 and is headquartered in
Mumbai. The bank offers- Investment Banking, Wealth Management, Investment
Management, Corporate Banking, Private Equity, Credit Cards, Finance & Insurance,
Consumer Banking, and Mortgages. It is one of the Top 10 BFSI Companies in India.
4. ICICI Prudential life insurance company ltd-is a private insurance service company
founded in December 2000. It is headquartered in Mumbai, India. ICICI Prudential Life
Insurance Company is a joint venture between Prudential PLC and ICICI bank.
6. Life Insurance Corporation of India (LIC) -It is the top insurance company in India.LIC is a
state-owned enterprise and government corporation. Its range of products includes health
insurance, life insurance, investment management, pension plans, mutual funds, etc.

CHALLENGES FACED

Banks in India are different from other countries, because they have a large branch network
and diverse needs specific to regions and customers, signifying the importance of highly
customized technologies. But the concern when implementing complex technologies is safety
and security. Of the list of the top challenges faced by the banking sector, the following might
be at the forefront:

2. Cloud Computing

When a bank adopts cloud computing, the confidentiality and security of commercial and
personal data and applications are paramount. Cloud technology services are difficult to
investigate because logging and data for multiple customers may be co-located and may also
be spread across an ever-changing set of hosts and data centers.

2. Mobile Banking risks

Millions of consumers are already using a wide range of mobile devices to conduct banking
for its ease of access. Consumers love their smartphone and tablet applications most of which
could be created by fraudsters and loaded with malware.

EMERGING TECHNOLOGY

Existing technology

The banking industry is the backbone of the Indian economy. It caters to the financial needs of
138 crore citizens. As an early adopter of technological advancements, the banking industry
has constantly reinvented itself to improve business as well as the economy. The recent digital
transformation has ensured seamless banking services to customers, and banks are
transforming themselves from traditional brick and mortar institutions to adaptable financial
service providers..

Blockchain

Blockchain is going to transform the banking industry altogether. This technology, on one
hand, improves efficiency and is cost-effective, and on the other hand, it gives heightened
security for the entire spectrum of financial services. This helps banks in fraud reduction, loan
processing, know your customer (KYC) processes, inter-bank transactions, smart contacts, and
many other banking services. The extent of opportunities that blockchain offers is yet to be
explored by many of our banks
 COVID-19 EFFECT

Non-Performing Assets (NPAs)

According to a report released by S&P Global Ratings, Indian banks are likely to see an
increase in their NPA ratio by 1.9% in 2020, following the economic slowdown caused by the
COVID-19 pandemic. Going by the report, this can further worsen the banks' credit cost
ratios by around
130 sis points (bps).
1. Impact on bank loans
NPAs seems to be only the tip of the iceberg. The current crisis has definitely increased the
liquidity in India's banking system with surplus cash growing to over 4 lakh crores.

2. Bank profitability
Such credit costs coupled with low credit growth are projecting record low profitability for the
financial sector, measured by the Return on Assets (ROA) ratio.

5. NIM and other impacts

COVID-19 is also impacting the Net Interest Margin (NIM) of the financial sector. NIM
growth mainly depends on internal factors such as Capital Adequacy Ratio (CAR) and the
Current & Savings Account Ratio (CASA) which have been on the decline. In the coming
weeks, NIM is further likely to reduce due to an increase in bank NPAs.

MEASURES TAKEN

As the world is battling on all fronts against the outbreak of COVID-19, India has also been
considerably affected by the pandemic. In order to contain the spread of the pandemic, the
Government of India announced a nationwide lockdown starting on March 25, 2020. The
ongoing pandemic has posed a sizeable impact on life as well as the business of the world's
largest democracy. Though the magnitude of impact on different sectors varies, none of the
sectors are completely out of the reach of its repercussions.

Q-1 Which are the major players in BFSI?

Q-2 What is the impact of COVID-19 on Bank loans?

Q-3 What are the measures to support export and Import?