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Indian Banking Sector: Edgy but Resilient Indian Banking sector is dominated by Public sector banks (PSBs) which accounted for 72.6% of total advances for all SCBs as on 31st March 2008. PSBs have rapidly expanded their foot prints after nationalisation of banks in India in 1969 and further in 1980. Although there is a restrictive entry/expansion for private and foreign banks in India, these banks have increased their presence and business over last 5 years.
Peculiar characteristic of Indian banks unlike their western counterparts such as high share of household savings in deposits (57.4% of total deposits), adequate capitalisation, stricter regulations and lower leverage makes them less prone to financial crisis, as was seen in the western world in mid FY09. The Scheduled Commercial Banks (SCBs) in India have shown an impressive growth from FY04 to the mid of FY09. Total deposits, advances and net profit grew at CAGR of 19.6%, 27.4% and 20.2% respectively from FY03 to FY08. Banking sector recorded credit growth of 33.3% in FY05 which was highest in last 2 and half decades and credit growth in excess of 30% for three consecutive years from FY04 to FY07, which is best in the banking industry so far. Increase in economic activity and robust primary and secondary markets during this period have helped the banks to garner larger increase in their fee based incomes. A significant improvement in recovering the NPAs, lowest ever increase in new NPAs combined with a sharp increase in gross advances for SCBs translated into the best asset quality ratio for banking sector in last two decades. Gross NPAs to gross advances ratio for SCBs decreased from the high of 14% in FY2000 to 2.3% in FY08.
With in the group of banks, foreign and private sector banks grew at higher rate than the industry from FY03 to FY08 primarily because of lower base effect and rapid expansion undertaken by these banks. In FY09, overall growth in credit and deposits was led by PSBs. However, growth of private and foreign banks was significantly lower in FY09 due to their high exposure to stressed sectors and problem at parent level for foreign banks. Unsecured bank credit has risen over the years and stood at 23.3% of bank credit in FY08 as compared to just 10.9% in FY2000. Lending to sensitive sector has also grown at CAGR of 46.1% from FY05 to FY08. In the backdrop of the economic downturn, CARE Research feels that the excellent performance seen in last five years ended FY08 will be difficult to repeat in coming years. CARE Research expects that with the downturn in the economy, credit and deposit growth will moderate in coming years. Credit growth will be led by spending on the infrastructure while retail credit will show a moderate growth. Margin pressures due to lag effect of rate cuts between interest rate on deposits and advances, lower treasury gains and core fee income and increasing in provisions for NPAs is likely to put pressure in the bottom line of the banks. Going forward, PSBs’ which are close to the required lower level of government stake and have concentrated presence in particular region are likely to consider its merger with other PSB as an important option if they want to sustain the growth seen in past.
With the downturn in the economy, CARE Research expects that credit and deposit growth will moderate in coming years. Credit growth will be led by spending on the infrastructure while retail credit will show a moderate growth. Margin pressures due to lag effect of rate cuts between interest rate on deposits and advances, lower treasury gains and core fee income and increasing in provisions for NPAs is likely to put pressure in the bottom line of the banks.
The report elucidates facts about the Indian Banking Sector, supplemented by latest statistical data and comprehensive analysis. The report, comprising of 16 chapters provides an in-depth view of the Banking Sector with FY09 result analysis and Statistics on banks from FY04-FY08.
History of Indian Banking sector since inception followed by role of regulator and policy measures adopted in FY09.
Detail study of total resources of the banks from FY01 onwards, trend in deposits mobilisation by various bank groups, low cost deposits and movements in interest rate on deposits and on competing instruments.
Trend in credit offtake since FY01 with detailed analysis of credit offtake in FY09. Trend in sectoral credit, sensitive and priority sector lending, Industrial credit, type-wise and securitiywise credit for SCBs and for various banking groups. The report also includes bank group-wise analysis of maturity mismatch between deposits and advances.
Analysis of trend in SLR and Non-SLR investments over the years and bank-group wise analysis of credit to deposit and investment to deposit ratio.
Break-up of total income and its trend analysis. Comprehensive study of trend in operating cost and staff cost of the SCBs as a whole and various banking groups.
In-depth analysis of spread and Net Interest Margins (NIMs) for banking sector and various banking groups.
Analysis of trend in profitability for the sector and bank-groups over last 5 years including the growth drivers and factor impacting the bottomline.
Trend in Non-performing Assets (NPAs) since year 2000 for the sector and various bank groups. Sectoral break-up of the NPAs and recovery in NPAs over the years. Detailed study of the restructuring regulations and impact on banks
Need for high capital adequacy ratio and soundness of banking system in Indian is envisaged by presenting the trend in CAR over the years and resources raised by the banks over the years.
Comprehensive study on the need for consolidation with in the banking industry as a viable option to sustain growth with detailed reasoning Quick analysis of FY09 results by dividing banks into PSBs and private sector banks. Analysis of trend in CASA ratio and restructured assets for FY09
Outlook on Advances and deposit growth in FY10 and FY11 for the banking sector and various banking groups along with the detailed presentation of the methodology adopted for the projections. Outlook on investments and treasury gains, fee income for the banks, Net Interest Margins and NPAs and overall profitability going forward in FY10 and FY11.
A section which focuses on the profile of the Top-11 players in the Indian banking sector. It includes
profit and loss account analysis from FY05 to FY09,
analysis of results of last 8 quarters i.e. Q1FY08 to Q4FY09,
balance sheet analysis & ratio analysis,
trend in shareholding pattern in the last 5 years and
pictorial presentation of trend in NPAs in last 8 quarters.
Table of Contents :
1 History of Banking Sector in India
1.1 History of SBI and Associates1.2 History of Other (Nationalised,Private and Foreign) Banks1.2.1 Pre Independence (1840 to 1947)1.2.2 Post Independence toNationalisation (1947 to 1969)1.2.3 Nationalisation toLiberalisation (1969 to 1991)1.2.4 Liberalisation to current date (1991 to 2008)1.3 Various Banking Groups1.4 Regional Distribution of Branches
2 Role of Reserve Bank of India2.1 RBI monetary and Credit Policy2.2 Development in FY09 and role of RBI2.3 Liquidity Adjustment Facility (LAF)2.4 Cash Reserve Ratio (CRR)
3 Deposits3.1 Sources of Funds for Banks3.2 Distribution of Deposits of Banks3.2.1 Distribution of Deposits bypopulation3.2.2 Distribution of Deposits byOwnership3.3 Deposits mobilisation fromhousehold Sector
3.4 Type of Deposits3.4.1 CASA Deposits3.4.2 Term Deposits3.5 Bank Group-wise DepositsPerformance3.5.1 SBI and Associates3.5.2 Nationalised Banks3.5.3 Private Sector Banks3.5.4 Foreign Banks
4 Advances4.1 Total Advances and growth for SCBs4.2 Credit offtake in FY094.3 Sectoral Bank Credit4.4 Retail loans4.5 Lending to Sensitive Sector4.6 Priority Sector lending4.6.1 Priority Sector Lending forPSU and Private Banks4.6.2 Priority Sector Lending forForeign Banks4.7 Bank Group-wise Performance4.7.1 SBI and Associates4.7.2 Nationalised Banks4.7.3 Private Sector Banks4.7.4 Foreign Banks4.8 Bank group-wise deposit andadvance maturity matching
5 Investments5.1 SLR Investments5.2 Non SLR Investments5.3 Bank group-wise Credit andInvestment to deposit ratios
6 Total Income6.1 Interest on Advances andInvestments6.2 Other Income6.2.1 Core Fee Income6.2.2 Non-fee Income
7 Total Expenses7.1 Operating Expenses7.1.1 Staff Cost7.1.2 Non-staff Cost
8 Spread and Net Interest Margin8.1 Spread for SCBs8.2 Bank Group-Wise Performance
9 Profitability9.1 Profitability for SCBs9.2 Bank Group-Wise Performance9.2.1 SBI and Associates9.2.2 Nationalised Banks9.2.3 Private Sector Banks9.2.4 Foreign Banks
10 Non-Performing Assets (NPAs)10.1 Trend in NPAs for SCBs10.2 NPAs, Provisions and write back forbanking groups
10.3 Sector-wise NPA Break-up10.4 Recovery of NPAs10.5 Bank Group-wise Performance10.5.1 PSU Banks10.5.2 Old Private Sector Banks10.5.3 New Private Sector Banks10.5.4 Foreign Banks
11 Capital Adequacy Ratio (CAR)
12 Consolidation: Is it imminent for theIndian banking sector??
13 FY09 Result Analysis
14 Outlook on Indian Banking Industry14.1 Advances14.2 Deposits14.3 Investments14.4 Core Fee Income14.5 Net Interest Margins (NIMs)14.6 Non-Performing Assets (NPAs) andProvisioning14.6.1 Restructuring of Assets14.7 Profitability
15 Statistics on Banks from FY04 to FY0815.1 No. of Branches of banks15.2 Total Business for banks15.3 Net Profit for the banks15.4 Net interest Margins for the banks15.5 Return on Asset for the banks15.6 Return on Equity for the banks
15.7 CASA for the banks15.8 Core spread for the banks15.9 Capital Adequacy Ratio for the banks15.10 Tier 1 Capital Adequacy Ratio for thebanks15.11 Ratio of Gross NPAs to GrossAdvances for the banks15.12 Ratio of Net NPAs to Net Advancesfor the banks15.13 Ratio of Unsecured advances to totaladvances for the banks15.14 3 Year (FY05 to FY08) CAGR intotal advances15.15 3 Year (FY05 to FY08) CAGR intotal deposits15.16 3 Year (FY05 to FY08) CAGR in Netprofit15.17 Business per Branch for the banks15.18 Profit per Branch for the banks15.19 Profit per employee for the banks
16 Players16.1 Axis Bank16.2 Bank of Baroda16.3 Bank of india16.4 Canara Bank16.5 Central Bank of india16.6 HDFC Bank16.7 ICICI Bank16.8 IDBI Bank16.9 State bank of India16.10 Syndicate Bank16.11 Union Bank of India