Highlights of Annual FIBAC 2024 Conference held on September 5, 2024

Summary: The Annual FIBAC 2024 Conference, co-hosted by FICCI and the Indian Banks’ Association (IBA) in Mumbai on 5th September 2024, highlighted India’s robust economic rebound, with growth projected at 7.2% by the Reserve Bank of India and 7.0% by the World Bank and IMF. The event underscored the financial sector’s role in sustaining this momentum through enhanced financial inclusion, digital banking innovations, and support for MSMEs. Key discussions focused on improving access to credit and addressing barriers faced by MSMEs. The financial sector was encouraged to adopt more tailored services for MSMEs and promote female labor participation. Additionally, the conference emphasized the importance of technology and financial literacy in driving sustainable economic growth. Initiatives such as the Unified Payments Interface (UPI) and the forthcoming Unified Lending Interface (ULI) were highlighted as key contributors to India’s fintech ecosystem. The conference also stressed the importance of continued reforms and financial stability to maintain India’s growth trajectory amidst global uncertainties.

Organised by: Jointly by FICCI and IBA, Mumbai

What is FIBAC:

FIBAC is joint organisation of FICCI and IBA

Who is FICCI:

The Federation of Indian Chambers of Commerce & Industry (FICCI) is a non-governmental trade association and advocacy group based in India. Dr. Anish Shah, Group CEO and Managing Director of Mahindra & Mahindra, is the current President of FICCI.

Who is IBA:

The Indian Banks’ Association (IBA), formed on (26 September 1946), is an unregistered, voluntary association of like-minded banks and individuals in India—a representative body of Indian banks and financial institutions based in Mumbai. With an initial membership of 22 banks in India in 1946, IBA currently represents 247 banking companies operating in India. IBA was formed for the development, coordination, and strengthening of Indian banking and to assist the member banks in various ways, including the implementation of new systems and the adoption of standards among the members.

Certain Expectations from the financial sectors are listed as below:

I. Growth Prospects

• The Indian economy rebounded strongly from the COVID-19 induced contraction, growing at an impressive annual average rate of 8.3 % during the last three years. For the current financial year, the Reserve Bank has projected a growth rate of 7.2 %.
• The IMF has also revised India’s GDP growth upwards to 7.0 %, citing improved prospects for private consumption, particularly in rural areas.
• Two days ago, the World Bank has also upgraded India’s growth forecast to 7.0 % for 2024-25.
• The National Statistical Office (NSO) has placed India’s GDP growth at 6.7 % in Q1 of 2024-25.
• Notwithstanding the moderation in growth from the previous quarter and below our projection for Q1, the data shows that the fundamental growth drivers are gaining momentum. This gives us confidence to say that the Indian growth story remains intact.
• Private consumption, which is the mainstay of aggregate demand with a share of around 56 % in GDP, has rebounded to 7.4 % growth from a feeble 4 % growth in the second half of the previous year. This reconfirms the revival of rural demand.
• The other important driver of growth, i.e., investment, which accounts for around 35 % of GDP, grew at 7.5 %, keeping up with its recent momentum. Thus, more than 90 % of GDP expanded at a robust pace and materially above 7 %.
• The headline number, however, came lower against the backdrop of muted government expenditure of both the Centre and the States, perhaps due to the Lok Sabha elections. Excluding government consumption expenditure, GDP growth works out to 7.4 %.
• On the supply side, while agriculture grew modestly at 2 % in Q1, it is likely to perform better, going forward, on the back of good progress of monsoon, improved kharif sowing, and good moisture conditions for rabi crops.
• Industry and services recorded a growth of 7.4 % and 7.7 % respectively in Q1, underscoring continued strength in economic activity.
• Construction activity remained robust growing at 10.5 %.
• According to the RBI’s latest data, bank credit to agriculture and allied activities remained robust and increased by 18.1 % (y-o-y). Credit to industry surged by 10.2 % (y-o-y) in July 2024 as compared to 4.6 % in July 2023.
• Within industry, credit to MSMEs also grew at 14.4 % (y-o-y).
• Corporate profits (net) have grown by 14.2 % in Q1:2024-25.
• The supply side focus must encompass agriculture, industry and services.
• The MSME sector, in particular, holds a lot of promise to step up growth and employment opportunities. Overall, the manufacturing sector must take the lead in niche areas to compete globally.
• The services sector, which has remained the mainstay of growth over the last several decades, must explore new vistas of opportunities with focus on higher value-added services.
• From an economic perspective, reforms that have imparted paradigm shifts and buttressed our stability and growth story would include:
• (i) shifting from administered exchange rate of the rupee to a market determined regime;
• (ii) stoppage of automatic monetisation of budget deficit financing by the Reserve Bank;
• (iii) enactment of the FRBM Act;
• (iv) introduction of the flexible inflation targeting framework;
• (v) enactment of the Insolvency and Bankruptcy Code (IBC); and
• (vi) implementation of the Goods and Services Tax (GST).

II. Inflation and Monetary Policy

• The decisive steps taken by the Reserve Bank, supply side measures from the government and cooling of international commodity prices have led to downward shift in inflation from early 2023-24.
• Nevertheless, the pace of disinflation is frequently interrupted by volatile and elevated food inflation. It is the headline inflation with food inflation having a weight of 46 % that the people understand.
• The balance between inflation and growth is well-poised. The best contribution that monetary policy can make for sustainable growth is to maintain price stability.

III. Financial Sector – Strengthening the Foundations for Future

• India’s financial sector has repeatedly demonstrated its ability to overcome challenges and crises.
• In this milieu, the financial sector needs to even further deepen financial inclusion, broaden access to credit and other financial products, and support overall inclusive growth. It also needs to drive innovation in digital banking, foster sustainable finance, and build a robust financial ecosystem that can withstand emerging challenges and facilitate a higher trajectory of growth.
• With the financial sector now in a strong position, it is our collective responsibility to safeguard this stability, especially in an environment of heightened global uncertainty.
• Financial institutions must continuously assess and refine their business models, recognise and deal with the emerging risks, and remain focused on capitalising on every new opportunity.
• By expanding access to banking, credit and insurance, and by harnessing the power of digital platforms, the financial sector can drive inclusive growth that extends to the most marginalised sections.
• The Priority Sector Lending (PSL) programme remains crucial in addressing credit gaps for underserved segments.
• Introduction of Business Correspondents (BCs) has further enhanced financial outreach. The Financial Inclusion Index, introduced by the Reserve Bank, has improved from 53.9 in 2021 to 64.2, reflecting the strides made in providing access to financial services.
• Two more key drivers need to be prioritised: enhancing financial literacy and leveraging technology.
• The Reserve Bank has engaged in both self-driven and collaborative approaches to promote financial literacy.
• On the technology front, the Reserve Bank has taken a number of initiatives to facilitate development of digital public infrastructure and innovation.
• The Unified Payments Interface (UPI) has revolutionised the digital payments space. Other initiatives like the Regulatory Sandbox and the Innovation Hub, have fostered a robust environment for enriching our fintech ecosystem.
• The commencement of the Reserve Bank’s pilot project for frictionless credit, i.e. the end-to-end digital platform of the Unified Lending Interface (ULI) is expected to revolutionise access to credit, especially for farmers and MSMEs.

IV. Expectations from the Financial Sector

(a) Improving female labour participation

• India’s female labour force participation remains lower than the global average. This gap underscores the urgent need for targeted initiatives such as improving girls’ education, skill development, workplace safety, and addressing societal barriers.
• Entrepreneurship is a vital component of economic empowerment; yet in India, less than one fifth of MSMEs are owned by women. .

(b) Supporting MSMEs

• Despite their importance, many MSMEs remain small-sized and unable to scale up effectively due to various challenges, with access to affordable finance being one of the barriers.
• The financial sector may play an active role in supporting MSMEs. Banks and financial institutions may develop tailored financial products and services that cater specifically to the needs of MSMEs. This includes offering flexible credit options, improving access to working capital, and providing financial support that accommodates the unique cash flow cycles and growth stages of MSMEs. This can propel MSMEs to expand, enhance their productivity, and contribute more significantly to job creation.

Conclusion

• The Indian economy is forging ahead with macroeconomic and financial stability, and a favourable growth-inflation balance.
• The policy mix pursued in the recent years has strengthened the underlying fundamentals of the economy and augmented the buffers. Consumption, which had been our main driver of growth, has picked up pace, with recovery in rural demand. Investors’ confidence is at an all-time high; banks and corporates demonstrate robust balance sheets; and structural reforms are playing a big role in pushing forward our growth frontier.
• New opportunities are knocking at our doors and when I look at the entrepreneurial zeal and the talent of our younger population, it makes me more confident of India’s long-term growth prospects.