Growth of Indian Banking Sector

PRESENTED BY

The banking sector developments in India were started as a follow up measures of the economic liberalization and financial sector reforms in the country.
The banking sector being the life line of the economy

INTRODUCTION

A combination of strong regulation and supervision and a will to evolve policies that lean against the wind helped insulate the Indian financial system from the crisis.

KEY DRIVERS FOR PROPELLING INDIAN BANKING SECTOR Public sector banks which account for nearly three fourths of the one million people working in Indian banks face the prospect of retirement of nearly 55 per cent of their people in the next decade.

External Drivers A. Financial Inclusion B. Competition, Consolidation and Globalisation Regulatory Drivers A. Fair Treatment to Customers B. Knowing Your Customer C. Risk Management Migration to advanced approaches under Basel II (a) Capital (b) Addressing Too-Big to Fail Internal Drivers A. Managing Human Resources B. Leveraging Technology C. Improving Managing Information Systems D. Business Plan, Strategy and Vision

MANAGING CHANGE IN THE EMERGING REGULATORY AND SUPERVISORY LANDSCAPE They need to build on their strengths and rectify their weaknesses to prepare and adapt themselves for the challenges which these

external, regulatory and internal drivers are going to entail.

SUPERVISORS PERFORMANCE The existing supervisory framework for commercial banks in India has fared rather well over the years and drawn praise from

peer supervisory agencies, global standard setters and the FSAP assessors for the regulatory and supervisory regime

As the Indian banking system remained largely stable during the global financial crisis.

INDIAN BANKING SECTOR: CHALLENGES UNLIKELY TO DERAIL THE PROGRESS MADE

Indian banks, the dominant financial intermediaries in India, have made good progress over the last five years, as is evident from several parameters, including annual credit growth, profitability, and trend in gross non-performing assets (NPAs). Overall capital adequacy touching 14% as on March 31, 2011. Banks accounted for nearly 86% of the total credit, NBFCs for around 10%, and HFCs for around 4%.

Strong growth in infrastructure credit drives credit growth in 2010-11; pace of deposit growth slows

Large government borrowings may allow for just 17-18% credit growth in 2011-12
On asset quality, PSBs report some deterioration while private banks show improvement

ASSET QUALITY RELATED CHALLENGES AHEAD

Spill-over from restructuring window not over yet Exposure to State utilities remains an area of concern Credit loss from exposure to micro lending institutions in AP likely

Gross NPA percentage could rise to 2.3-2.7% by end-year 2011-12 Higher interest rates could ensure better deposits growth in 2011-12

High proportion of certificates of deposits could impact NIM and liquidity negatively

COMFORTABLE CAPITALISATION AGAINST CURRENT NORMS

Unamortised pension/gratuity liability could lower Tier I of PSBs (excluding SBI) by 30-35 bps Most banks may not require significant capital now Some banks may require capital to meet Basel III norms

Profitability profile stable; higher operating expenses, credit provisions offset increase in NIMs

Increase in interest rate on savings deposits could reduce NIM by 5-15 bps Interest rate sensitivity may rise; ability to pass on increase in cost of funds to influence trend in NIMs

Operating expenses may remain at an elevated level in the short term

Credit costs may decline from 2010-11 levels

Profitability may remain in line with long-term trends

Summing up Indian banks continue to enjoy a comfortable capitalisation as compared with existing RBI norms with their Tier I capital close to 9%. Thus, apart from SBI, none of the PSBs may need significant Tier I capital in the short term. However, some of the fast-growing small private sector banks may need Tier I capital over short to medium term.

GROWTH DRIVERS OF INDIAN BANKING INDUSTRY

GROWTH DRIVERS High growth of Indian Economy Rising per capita income New channel Mobile banking is expected to become the second largest channel for banking after ATMs Financial Inclusion Program

CONCERNED More stringent capital requirements to achieve as per Basel III

Increasing non-performing and restructured assets Intensifying competition Managing Human Resources and Development

FUTURE OUTLOOK FOR THIS INDUSTRY The Indian economy will require additional banks and expansion of existing banks to meet its credit needs.

We have assigned colour codes to the 10 YEAR X-RAY and Future Prospects of the companies, as Green (Very Good), Orange (Somewhat Good) and Red (Not Good).

CASE STUDY
AN ANALYSIS OF FINANCIAL STRENGTH OF INDIAN BANKING SECTOR THROUGH ANALYTICAL FINANCIAL PERFORMANCE OF PRE AND PAST GLOBAL RECESSION IMPACT

Banks are the main participants of any financial system, because they play a vital role in an inclusive growth of economy. India is one of the most preferred banking destinations as its economy is not only growing at +8 percent annually, but it is also going through a transformation to the next level of maturity. The purpose of this attempt is to analyze the financial performance of public and private banking in post Indian banking reforms era in the light of pre global recessionary period (Before year 2006) and post global recessionary period (2006 onwards).

Introduction

The recent global financial crisis has triggered fall of many economies, contributed by financial losses and large non performance assets in banking sector.

Objectives of the study: 1. To know the study of deposit performance of Indian Public banks and Private Banks during two session Pre-recessionary period (i.e. 2004-05 to 2006-07) and Post-recessionary period (2007-08 to 2010-11) 2. To evaluate the lending performance of Indian Public banks and Private Banks during two session (i.e. 2004-05 to 2006-07) and (2007-08 to 2010-11) 3. To present the major finding and conclusion as outcome of the study. Research Methodology:

To achieve the above stated objectives and to calculate the value of various performance parameters, the secondary data was used. The secondary data that are mainly used are published in annual reports of various banks and survey reports of leading business magazines.

Analysis:

Part A Analysis of Deposit Performance of selected Public and Private Banks

Deposit mobilization has greater significance because of the confinement of credit policies and tough competition for deposits among banks, between banks and non-banking companies.

In case of overall performance of all the three banks in the post recessionary period of 2008- 2011 we can observe the increasing trend throughout in the deposits in the selected Banks of our study.

Year 2011 growth has been witnessed positively with 11.6 % for the bank and making its deposits at Rs 22560211 but surprisingly the share has again decreased by 4% due to consistent performance of HDFC banks and rapid upwards growth of AXIS banks in the selected banking sector of our study.

Findings of the Study:

1. The deposit had grown continuously for all selected public banks and the growth of 51% was recorded in the pre-recessionary period (2004-05 to 2006-07)
2. The growth of 97% was recorded in the total volume of deposits for all selected public banks during the post recessionary period.

3. In case of selected private sector banks, the share of ICICI bank was continuously increased as compared to HDFC and AXIS banks
4. The amount of deposit was increased by 44% in case of post recessionary period (2007-08 to 2010-11) for all selected private banks

5. The lending performance of selected public bank was continuously increased during prerecessionary period (200405 to 2006-07) and overall growth of 75% was recorded and the share of BOB 6. During the post-recessionary period (2007-08 to 2010-11) the overall growth of 92% recorded 7. In case of all selected private banks the lending performance was overall increased by 117% during the pre-recessionary period (2004-05 to 2006-07) 8. During the post-recessionary period (2007-08 to 2010-11) the overall growth of 48% was recorded

Conclusion: This study throws light onto the performance of the public and private sector banks both for 2004-2007 and 2008-2011 to whom researchers had considered prerecessionary and postrecessionary period respectively. Moreover, the academic researchers in a developing economy like India can gain further, by using the result of this study for similar studies.

CONCLUSION
The Indian banking system has come a long way in terms of technology, business systems and processes. The lodestone of external impulses would be financial inclusion and the other key stones would be competition, consolidation and globalisation. But at the same time the reform has failed to bring up a banking system which is at par with the international level and still the Indian banking sector is mainly controlled by the govt. as public sector banks being the leader in all the spheres of the banking network in the country.

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