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December, 2010
Summary
Operational highlights of Scheduled Commercial Banks (SCBs) Key attributes of balance sheet: Contribution of CASA in incremental deposits touched 48.4% in FY10 (21.7% in FY09) PSBs gained market share in FY10, foreign banks saw contraction Asset-liability management: ALM mismatch was noticeable for PSBs with a shift in liabilities towards short end and assets towards the longer end New private banks shifted deposits towards medium and long term, while loans moved closer towards the term shorter end Attributes of P&L account: Modest growth in earnings due to slow NII and other income growth ROAs and ROEs (sector) contracted; however new pvt. banks showed improvement Asset quality deteriorated: Gross NPL ratio increased; however, private banks showed improvement Slippages increased (to INR 657 bn) in FY10; recoveries remained weak (at INR 390 bn) Weaker sections have shown steady decline in NPA ratio in recent years, corroborating the point that weaker sections are in fact not less creditworthy than other sections Other highlights: Gross NPL ratio increased; however, private banks showed improvement however Global banks are faced with three major challenges: Refinancing a large portion of their liabilities Ending their dependence on emergency support measures by the public sector Redressing balance sheet weaknesses and reducing operating costs
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Liability composition As a funding option (system level), contribution of CASA increased by 2.2% pts while that of TD/borrowings declined 1 2% pts TD/b i d li d 1.2% t PSB had higher dependence on term deposits compared with other groups F private and f d foreign b k borrowings was i i For i t banks, b an important source of funding In Indian operations, foreign banks have lower leverage Asset composition Y-o-Y, contribution of investments (up 87bps), working capital loans (up 39bps) and term loans (up 40bps) increased New private sector banks had higher proportion of term loans in their assets
(%)
Borrowings
Asset composition
100.0 80.0
(%)
60.0 40.0 20.0 0.0 00 PSB Private Old pvt New pvt Foreign SCBs Fixed & other assets Bills pur./disc. Govt. sec. Term loans Non approved sec. Cash & call money Cash credits Other approved sec.
New private banks and foreign banks have higher exposure to non-approved securities Foreign banks were heavily invested in GSECs and fixed assets compared with other groups
Source: RBI
Y-o-Y, asset growth moderated for PSBs, but remained ahead of other banking groups Foreign banks witnessed contraction in assets, a break in th t b k i the trend observed i th recent past d b d in the t t
Despite the moderation in growth of assets of PSBs, their relative share in the total assets of the banking sector rose in FY10 The share of old private sector banks stood almost unchanged Y-o-Y, while foreign and private banks saw a decline
(%)
70.5
69.9
71.9
73.7
2008
2010
51.6
(%)
While overall borrowings slowed down, foreign banks saw a contraction in borrowings
Industry CD ratio remained stable - Foreign/new private bank saw decline, while it increased for PSBs/old private banks
SCBs Foreign
(INR tn)
(%)
21 14 7 0
New pvt Old pvt PSB FY10 20.0 40.0 60.0 80.0 FY08 100.0
(%) FY09
(% %)
( (%)
The regression used: Ln(industrial credit) = 2.01 + 2.08 Ln(industrial production) ( (1.40) ) ( (8.17)* ) * Significant at 1 per cent probability. R2 = 0.650.
Conclusion Taking monthly data on industrial credit and production April 2006 onwards, the elasticity of industrial credit with respect to industrial production worked out to 2.08
Source: RBI 8
Regional loan-deposit ratios - High in South; low in North-East and central regions
North-east Central East North West South All India 0 20 FY10 40 (%) 60 FY09 80 100
(%)
17.8 16 12.7
17 15.1 15 1 11.7
16.6 14.5 11
16.1 14 10.4
ALM profile
Maturity profile - Deposits
75.0 60.0 45.0 30.0 15.0 0.0 Public Up to 1 year
Source: RBI
(%)
Private
SCBs
(%)
Public Up to 1 year
Private
Foreign
SCBs
Over 3 years
Over 3 years
Key takeaways In FY10, there was a shift towards short and medium-term deposits mobilised by banks; there was a decline in the share of deposits with long-term maturity of over three years While the maturity distribution of loans and advances remained largely unchanged in FY10, there was a shift in favour of long-term investments by banks Asset liability mismatch was noticeable for public sector banks with a shift in their deposit liabilities during FY10 towards the short-term end of the maturity spectrum, alongside a shift in their loans and investments towards the long-term end New private sector banks, which normally relied heavily on short-term deposits, exhibited a shift in favour of p , y y p , medium- and long term deposits in FY10, while their loans moved closer to the short end of the spectrum
10
H1FY10 (INR bn) C ommercial Paper Shares PSB Private Bonds/debentures PSB Private Units of MFs Instruments issued by Fis Total
Source: RBI
FY10 (%) 17.7 17 7 15.2 2.9 10.9 42.7 8.1 20.3 13.6 10.8 100.0 (INR bn) 252 302 46 255 937 227 401 529 326 2,345 (%) 10.7 10 7 12.9 2.0 10.9 39.9 9.7 17.1 22.5 13.9 100.0
11
Mar 09 513 190.9 190 9 1,376 483 1,859 37.5 1,346 14.5
Key takeaways During the period, strong growth was observed in bank's investments in Debt Oriented Mutual Funds (DOMFs) However, growth in investments of DOMFs outpaced the bank's investments in DOMFs Banks were net borrowers since December 2008 and not net lenders to MFs g g y g , g When banks were arranged in descending order by the amount of their net borrowings from MFs, PSB figured prominently 90% of investments in DOMFS by SCBs was held by 14 banks in November 2008; it increased to 24 banks in November 2009
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(IN bn) NR
(IN bn) NR
Nostro ba alances
Other assets r
FY09
FY10
FY09
FY10
Key takeaways Inflows from FCNR (B)/NRE deposits remained weak in FY10 This could be explained by: FY10. A steady fall in the benchmark LIBOR during FY10, resulting in a fall in the effective rate of interest payable Appreciation in the exchange rate of INR with respect to major international currencies during this period
(%)
Unallocated
FY10
13
ADRs/G GDRs
Loans to NR
thers Ot
F FCNR
NRE
FCB
NRO
Off balance sheet exposure: New private and foreign banks have significant off balance sheet exposure
100.0 80.0 60.0
(%)
40.0 20.0 0.0 PSB Old private banks New private banks Foreign banks On balance On-balance sheet liabilities
Source: RBI 14
FY09 Growth (%) 25.9 26.5 26 5 24.7 24.6 15.9 20.1 20 1 42.3 32.7 23.5 3,885 2,632 2 632 1,253 752 896 480 581 1,109 528 4,158 2,721 2 721 1,437 785 998 552 653 1,224 571
FY10 INR bn Growth (%) 7.0 3.4 34 14.7 4.4 11.4 15.0 15 0 12.3 10.4 8.3
Key takeaways Moderate NII/PAT growth in FY10 over FY09 Other income growth moderated (due to decline in treasury profits) Wage bill up 15% Y-o-Y
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Yield/profitability analysis
Cost of funds declined 87bps Y-o-Y; drop high for foreign/new Y o Y; private banks (>150bps)
7.5 6.0
ROEs contracted 113bps Y-o-Y; against the industry trend, Y o Y; new private banks showed improvement of 118bps
20.0 16.0
(% %)
(%) Nationalised New priv vate Public S SBI Old priv vate Fore eign Priv vate SC CBs
4.5
Nationalis sed
Fore ign
P SB
Priva ate
FY09
FY10
FY09
FY10
Return on funds fell 95bps Y-o-Y; decline high at 225bps for foreign banks and 140bps for new private
12.5 10.0
ROAs declined 8bps Y-o-Y; against the industry trend, new private banks showed improvement of 26bps
2.5 2.0
(%)
(%)
Nationalised
SBI group
New private
PSB
Old private
Foreign
Private
Nationalised
New private
Public
Old private
Foreign
Private
SCBs
FY09
Source: RBI
FY10
FY09
FY10
16
SCBs
SBI
SC CBs
Net NPL ratio increased 7bps to 1.12%; nationalised banks showed above average deterioration
2.0 1.6
(%)
3.0
SBI Group
Foreign
N Nationalised
N Nationalised
Old private
Old private
Foreign
Private
Private
SCB
New private
FY09
FY10
FY09
FY10
(INR bn)
(I INR bn)
657
103
524
373
847
New private
690
Recovery y
Write offs
Closing g
Recovery
Write offs
Closing
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SCB
PSB
PSB
Estimate The estimation was carried out for contemporaneous credit growth and credit growth with lags up to three years. The regression with lags showing significant coefficients is reported below: NPA growth = + 0.62*Credit growth (t-2) + 1.41*Credit growth (t-3) (1.9)* (5.8)** * Significant at 5% probability ** Significant at 1% probability
Source: RBI 18
New private banks: doubtful assets increase by 8% pts, while loss assets increased by 5% pts FY09- non std. assets at 3.1% of total assets FY10- non std. assets 2.9% of total assets
Loss 7% Doubtful 27% Doubtful 35% Sub standard 53% Loss 12% %
Scheduled Commercial Banks: doubtful assets increased by 2% pts while loss assets increased by 1% pt FY09- non std. assets at 2.3% of total assets
Loss 9%
Doubtful 38%
Doubtful 40%
Source: RBI
19
Increase in NPLs for priority sector higher than that for nonpriority sector
4.0 3.2 32 2.4 1.6 0.8 3.18 3.37
(INR bn)
PrioritySSI
PriorityOthers
PriorityAgri
Nonpriority sector
Public sector
(%)
2.07
2.1
SCBs
Source: RBI
New private
Old private
SBI group
Note: PSL stands for priority sector lending; NPSL stands for non-priority sector lending
Key takeaways Sectoral distribution of NPAs showed a growing proportion of priority sector NPAs between FY09 and FY10 Priority sector NPAs, which constituted little over half of the total NPAs of domestic banks up to FY08, had shown a steep decline in FY09, attributable primarily to the Agricultural Debt Waiver and Debt Relief Scheme of 2008 Between FY09 and FY10, however, the share of priority sector NPAs, in general, and SSIs, in particular, went up, partly a reflection of the impact of the financial crisis and economic slowdown At end of FY10, the percentage of priority sector NPAs in total NPAs was 53.8% for PSBs against 27.6% for private banks
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6.0 4.8
(%)
(%)
3.6 2.4 1.2 0.0 FY07 FY08 FY09 FY10 Weaker section
0.0
Nationalised
SBI group
Private banks
NPA percent
Source: RBI
Key takeaways
Weaker W k sections have shown a steady decline i th NPA ratio i recent years, corroborating th point th t ti h h t d d li in the ti in t b ti the i t that weaker sections are, in fact, not less creditworthy than other sections and strengthens the argument for furthering the process of financial inclusion At end of FY10, the NPA ratio for weaker sections stood at 2.73% for domestic banks, a little higher than the NPA ratio for non-priority sectors NPA ratio for weaker sections for public sector banks was higher at 3.0% than 0.5% for private sector banks at end of FY10
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PSBs
(%)
(%)
PSB SBI group Old private Real Estate New private Foreign banks Commodities Capital market
22
Source: RBI
(bps)
Marginal reduction in exposure (expressed as % of loans) to sensitive sectors in FY10 over FY09 Decline sharper in real estate vis--vis capital markets PSBs reduced exposure to both capital markets and l h d real estate; h however, SBI, contrary to the group trend, increased its exposure to real estate, while maintaining exposure to capital markets Old private banks decreased exposure to all three (commodities, segments (commodities real estate and capital markets) New private banks decreased exposure to real estate, but increased their exposure to capital markets Foreign banks increased their exposure to both capital g p p markets and real estate (but overall, foreign banks saw overall 3% contraction in assets)
Global comparison
Global scenario
In the wake of crises: Bank credit to private sector decelerated in the mature markets Securitisation markets outside those supported by public sector remained weak Low quality borrowers lacked access to capital funding
What has changed? Despite credit and quantitative easing policies, global real private borrowing rates remained stable since April 2009 Public sector interventions increased public sector indebtedness By October 2009, market and liquidity risks fell as interbank markets and some channels of private wholesale 2009 funding markets reopened Stronger banks faced no difficulty obtaining funding; some weaker banks were less able to access interbank and capital markets or only at penal rates Credit recovery expected to respond slowly as banks were still engaged in repairing their balance sheets
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According to the IMF, the huge refinancing need of ~EUR 300 bn for maturing bonds in the PIIGS has the potential t spill over t other regions t ti l to ill to th i Going forward, the large and significant rollover needs in the PIIGS would create insurmountable pressure on bond markets as simultaneous funding , , p , needs of US, UK, Japan, and Euro zone of the order of ~USD 4 tn for bonds due for redemption in the 3rd and 4th quarters come to fore
(%)
(%)
Q2FY09 UK
Q3FY09 France
Q4FY09 Germany
Q1FY10
Q2FY10
Japan
(%)
Germany
Pakistan
Greece
Philippines
Indonesia
Thailand
Spain
Brazil
Malaysia
Portugal
Ireland
France
Mexico
Russia
2008
Source: RBI
2009
Key takeaways
For 2007-10, IMFs GSFR of October 2009 estimated the total write downs and loan provisions of the global banking 2007 10, IMF s system would amount to ~USD 2.8 tn on account of loan losses (US:USD 1.025 tn, UK: USD 604 bn) GSFR for April 2010 reduced the size of estimated global write downs and LLP to USD 2.3 tn, taking account of the estimated decline in the implied cumulative loss rate from 5.0% to 4.1% Despite this moderation, th D it thi d ti there i littl evidence t suggest th t l is little id to t that losses h have fi ll abated d finally b t d due t th uncertainty to the t i t surrounding the estimates of delinquencies as a result of differences in accounting procedures, reporting lags across regions, uncertain path of future delinquencies and covert concealment of losses through extension of maturities of loans sold by banks
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China
Italy
India
UK
US
(% %)
(%) ) Switzerla and Indone esia Euro are ea* Philippin nes Germa any Malay sia Portug gal Thaila and Gree ece Mex ico Russia Jap pan Bra azil Belgiu um Ind dia Spa ain Fran nce Chi ina Ita aly U UK U US
0.0
German ny
Indones sia
Philippine es
Thailan nd
Greec ce
zil Braz
Spa in
Malaysia
2008
Source: RBI
2009
2008
2009
27
Portugal
ce Franc
Mexic co
Japa an
Russia
Chin na
India
Ita ly
U UK
U US
28
29
30
NBFCs
750 500 250 0 Assets FY09 Deposits FY10 Net Owned funds
9,000 6,000 3,000 0 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 NBFCs-D Regd NBFCs
Source: RBI
32
2.8 2.1 1.4 0.7 0.0 00 March 2009 Gross NPA to gross advances
Source: RBI
(%)
33
(%) )
< 9%
15-20%
20-30%
> 50%
34
NBFCs-ND-SI: NPLs deteriorate marginally in FY10; however subsequent quarter showed some improvement
3.5 2.8
7,500 6,000
(INR bn n)
(%)
2.1 21 1.4 0.7 0.0 March 2009 March 2010 June 2010 Gross NPA to gross advances
4,500 4 500 3,000 1,500 0 Net Profit FY09 FY10 Assets Q1FY11
Source: RBI
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