Vault Matters | The sudden rush of action in financial services sector

The continued stress in the microfinance space and its resultant impact on the financials of banks is yet another thing which remains a sour point for the sector.

Till about mid-January this year, one of the sectors which could be easily termed as boring was the financial services space. But six months from there it’s been a complete U-turn and a period, for a journalist tracking the sector, which could be termed as a phase difficult to cope with given the amount of news flow.

Interestingly, bankers also feel the same.

Nonetheless from January to now, it’s a period of mixed action - that of good, bad and ugly.

The good thing is the start of the easing of RBI’s policy rate scenario. Now with 100 basis points reduction in the repo rate, it could be said that this is the best thing that has happened in the financial services sector. The next best thing is seemingly the closure of SBI stake sale in Yes Bank, which potentially ushers a large Japanese financial conglomerate into India, Sumitomo Mitsui Banking Corporation. The progress of a deal which has been stuck for more than 12 months, has sent a gush of optimism among mid-size banks. Equally positive is Emirates NBD getting a wholly owned subsidiary status in India, which could help it get a step closer to closing the IDBI Bank transaction.

The list of bad is a little longer than this. At a macro level, the continuous ebbing of loan growth and how soon it will revive, is the single most talked about point by observers of the financial services sector. Equally bad are certain developments unravelling in India’s largest private sector bank, HDFC Bank.

The drama that is unravelling in the Lilavati Hospital case has set tongues wagging. There are questions in a few circles about the governance standards of the bank, a doubt that should never have crept into the minds of investors, peers, and even the common man, given the stature of the bank. While not extremely significant in terms of quantum, a relationship manager who ended up amassing over Rs 4 crore of money by cheating depositors sent a wave of chill given it happened at ICICI Bank.

The continued stress in the microfinance space and its resultant impact on the financials of banks is yet another thing which remains a sour point for the sector. Both the industry and investors are crystal grazing about when the sector’s fortune will change.

The ugly things are the unexpected developments at IndusInd Bank. What started as an accounting lapse in treatment of derivatives has snowballed into a huge financial mess. While recently Nomura came out with a report stating that the bank could be behind its worst, global rating agencies believe revival in financials and fortune is at least two years away. Now which one is a correct thesis seems to be anyone’s guess, and a tough one to make till one has a good handle of FY26 financials.

A mass scale staff change is underway at IndusInd Bank, including leadership positions and that of CEO, which should conclude in a few months.

But whether good bad or ugly, each of these developments will have a long standing implication in shaping the sector, whether it is renewed thinking towards rate setting or a notched-up supervision of banks.

Clearly, picture abhi baaki hai. For those on the other side of the pen, we have more ground to cover and for readers, don’t lose track of the news!