2022 was a rollercoaster ride for banks, what 2023 holds for them?

As we know well, for India's banking industry, 2022 wasn't an eventful year. In fact, the year 2023 is also not likely to be too different. Of course, the year gone by was a rollercoaster ride for country's banks - RBI's unprecedented aggression on inflation, arrest of a top banker in a loan scam and continuing collapse of India's cooperative banks. What's 2023 holding? Let's take a look what all will likely make it to news headlines in 2023.

Reserve Bank of India's catch up with inflation will continue. The highlight of the year 2022 was RBI's unprecedented aggression on inflation. The monetary policy committee (MPC) exercised abundant caution in the first half of the year to support growth, and in the process ignored the warning signals reflected in a persistently high inflation data, repeatedly saying inflation is transient. But that hypothesis failed by the second half of 2022 when inflation spiralled into a monster, compelling the RBI to write a formal response to the government explaining the reasons of failure in keeping inflation in the 2-6 per cent band.

In 2023, the RBI hopes to see the result of its aggressive rate actions (225 bps since May) reflecting in the inflation numbers by the first quarter of this year. The central bank may go for another round of rate hikes, though moderately.

The successive rate hike was return of relatively higher interest rates in the fixed deposits. But the year 2022 changed all that. Interest rates on time deposits look much better now with banks offering as much as seven per cent on 18-24 months deposits and NBFCs even offering higher rates. For average Indian investors who still consider bank FDs as better options vis-à-vis equity/MFs, this will be a good year. But former ICICI Bank CEO, Chanda Kochhar's arrest, along with that of her husband Deepak and Videocon chief Venugopal Dhoot could send shivers down the spine of other bankers when it comes to large-ticket corporate loan deals.

Year 2022 continued to see the sad state of India's struggling co-operative banks. The Reserve Bank of India cancelled the licences of 12 crisis-ridden co-operative banks in 2022 and imposed penalties around 110 times on wrongdoers. This was in line with the trends seen in previous years. The central bank has been clamping down on errant cooperative banks in the last few years. Cooperative banks, which have played a critical role in extending banking services in the villages, have been confronting a range of issues, including dual regulation, weak finances and interference by local politicians. Each bank closure meant difficulties to thousands of depositors in these entities, even though the deposit insurance over would help a majority of the depositors get their money back. The RBI clampdown is likely to continue on erring and weak cooperative banks in 2023 unless there is an overhaul in the way these banks are operated and governed.