Practice Test 26

The banking sector in India has undergone profound structural transformation over the past decade, with the government and regulatory authorities implementing far-reaching reforms to improve the financial health of public sector banks, extend the reach of formal financial services to the unbanked population, combat non-performing assets that had accumulated to alarming levels in bank balance sheets, and harness digital technology to revolutionise the customer experience and operational efficiency of the banking system. The Insolvency and Bankruptcy Code of 2016 created a time-bound, creditor-friendly resolution framework for insolvent companies and individuals, replacing the ad hoc and slow process of debt recovery under previous legislation, and providing banks with a more effective mechanism for recovering value from defaulted loans and imposing commercial consequences on promoters of failed companies. The massive recapitalisation of public sector banks undertaken by the government through direct capital infusion, recapitalisation bonds, and market borrowings restored the capital adequacy ratios of banks that had been severely stressed by non-performing asset accumulation and enabled them to resume normal lending activity. The consolidation of public sector banks through the merger of associate banks into State Bank of India, the merger of Bank of Baroda, Dena Bank, and Vijaya Bank, the merger of Punjab National Bank, Oriental Bank of Commerce, and United Bank of India, and other mergers has created fewer but larger and more viable public sector banking entities with stronger capital bases, wider branch networks, and greater capacity to absorb technology investment. Digital payments have been the most visible and impactful dimension of banking sector transformation, with the Unified Payments Interface developed by the National Payments Corporation of India enabling real-time person-to-person and person-to-merchant transfers that have been adopted by hundreds of millions of Indians and processed transactions worth trillions of rupees monthly. The RuPay card network, an indigenous domestic card payment scheme, has captured a large share of the debit card market and is being promoted for use in international markets through bilateral arrangements with several countries. The Bharat Bill Payment System provides a unified interoperable platform for payment of utility bills including electricity, water, gas, and telephone, enabling customers to pay bills from any bank or payment app to any biller registered on the platform. The Account Aggregator framework, developed by the Reserve Bank of India, enables customers to securely share their financial data held across multiple financial institutions with lenders, insurance companies, and investment managers, facilitating faster and more accurate assessment of creditworthiness for digital lending and other financial services. The Small Finance Banks and Payment Banks licensed by the Reserve Bank of India have extended formal banking services to segments of the population that commercial banks had historically underserved.