India’s banking industry is in turmoil after a sharp fall in online lending as the government cut its staff by more than half to more than 6,000 in the first six months of the year, according to a report from the government.
HSBC said it would slash 2,000 jobs across the country, while Vodabank said it will cut 5,000 positions across India.
The report, based on interviews with a dozen senior officials, banks, and other industry players, said there was a “very strong and sustained impact on our business”.
It was based on a review of data provided by the Reserve Bank of India (RBI) and the Financial Stability Board (FSB), which oversee the Indian economy.
The data comes amid a slowdown in business, and the government is under pressure to stem the flow of capital into the country.
India’s economy shrank by 7.9 per cent in the second quarter, with the sector in recession for the first time in more than five years.
At the same time, the FSB has cut its growth forecast for the year to 6.6 per cent, which is down from 7 per cent previously.
RBI Governor Raghuram Rajan has said the government will review the role of banks and other financial institutions in the economy to better serve the country’s growing middle class.
“The growth of the sector is not sustainable and is driven by the need for capital, and not by the desire to lend,” he said.
Vodabanks, which operates in over 700 cities and towns, and HSBC have already scaled back hiring, with 1,500 jobs cut and 5,500 fewer staff since the end of February, according the report.
While the report said the cut was in line with RBI and FSB guidance, it said HSBC and Vodapacks decisions were a “big blow” to the banking industry, which relies on technology to make transactions, and that “this is not the case for other Indian banks”.
Last week, the country announced it was slashing its annual budget deficit target by 15 per to 18 per cent of GDP. “
While the industry is seeing a rapid recovery in recent months, the sector faces a shortage of skilled personnel and limited capital, which has caused the overall outlook for the sector to deteriorate,” the report added.
Last week, the country announced it was slashing its annual budget deficit target by 15 per to 18 per cent of GDP.
In response, the banking sector has been lobbying the government for further cuts, with some of the banks now calling for the central bank to intervene in their business models.
A spokesperson for HSBC told Reuters that the bank is focused on providing customers with a faster, more efficient and more secure banking experience.
HSBC did not respond to a request for comment on the report’s findings.
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