Indian Banking Sector

Indian Banks ---Good progress

Over the last five years
Evident from parameters, such as annual credit
growth, profitability, and trend in gross non-performing
assets (NPAs).
Annual rate of credit growth clocked 23%
Profitability (average Return on Net Worth) was
maintained at around 15% during the same period
Gross NPAs fell from 3.3% as on March 31, 2006 to 2.3%
as on March 31, 2011.
Good internal capital generation, reasonably active
capital markets, and governmental support ensured
good capitalisation for most banks during this 5 year
period
Overall capital adequacy touching 14% as on March 31,
2011.
High levels of public deposit ensured most banks had a
comfortable liquidity profile

Significant gains

Benefited from an overall good economic growth

Implementation of SARFAESI
setting up of credit information bureaus
Internal improvements such as upgrade of technology
infrastructure, tightening of the appraisal and
monitoring processes, and strengthening of the risk
management platform have also contributed to
the improvement.
Improvement in performance despite several hurdles,
like temporary slowdown in economic activity (in the
second half of 2008-09), a tightening liquidity situation,
increases in wages following revision, and changes
in regulations by the RBI
Higher credit provisions or higher capital allocations.

Current challenges
Increase in interest rates on saving deposits
Possible deregulation of interest rates on
saving deposits
Tighter monetary policy
Large government deficit
Increased stress in some sectors (such as,
State utilities, airlines, and microfinance)
Restructured loan accounts
Unamortised pension/gratuity liabilities
Increasing infrastructure loans
Implementation of Basel III.

Credit portfolio as at 31.03.2011

Rs.49 trillion
Banks-86%, NBFCs-10%, HFCs-4%
Amongst Banks, PSBs share-76%
Top 10 banks accounted for 57% share of
the total credit as on March 31, 2011.

Performance of Top 10 Indian Banks 31.03.2011

Credit
Portfolio
(Rs.
billion)

Market
Share
(%)

NIMs
(201011)

Tier
Capital
%

Return
On Net
Worth
(2010-11)

Gross
NPA %

State Bank of India

7,567

18%

2.9%

7.8%

13%

3.3%

Punjab National Bank

2,421

6%

3.5%

8.4%

24%

1.8%

Bank of Baroda

2,287

5%

2.8%

10.0%

24%

1.4%

ICICI Bank

2,164

5%

2.3%

13.2%

10%

4.5%

Bank of India

2,131

5%

2.5%

8.3%

17%

2.2%

Canara Bank

2,125

5%

2.6%

10.9%

26%

1.5%

HDFC Bank

1,600

4%

4.2%

12.2%

17%

1.1%

IDBI Bank

1,571

4%

1.8%

8.1%

16%

1.8%

Axis Bank

1,424

3%

3.1%

9.4%

19%

1.1%

Central Bank of India

1,297

3%

2.7%

6.4%

18%

2.2%

Total banking sector3

42,874

2.9%

9.7%

17%

2.3%

Name of Bank

100%

SCBs

Trend in Asset Quality Indicators of

FY06
FY07
FY08
FY09
SCBs

FY10

FY115

Gross NPAs (%)

3.3

2.5

2.3

2.3

2.4

2.3

Net NPAs (%)

1.2

1.0

1.0

1.1

1.1

0.9

Fresh NPA Generation Rate (%)

2.0

1.7

1.8

2.1

2.2

2.0

Net NPAs/Net Worth (%)

10.1

9.2

7.8

8.6

9.1

10.0

PSBs

FY06

FY07

FY08

FY09

FY10

FY11

Gross NPA (%)

3.6

2.7

2.2

2.0

2.2

2.3

Net NPA (%)

1.3

1.1

1.0

0.9

1.1

1.1

Net NPAs/Net Worth (%)

13.1

12.1

11.2

11.4

13.5

13.4

Private banks

FY06

FY07

FY08

FY09

FY10

FY11

Gross NPAs (%)

2.1

2.1

2.4

2.9

2.7

2.3

Net NPAs (%)

0.9

0.9

1.1

1.3

1.0

0.6

Net NPAs/Net Worth (%)

6.3

7.8

6.1

7.5

5.3

3.2

Credit profiles of borrowers could

weaken in 2011-12 because::
Moderation/slowdown in demand conditions;
Compression of operating profitability because of cost
pressures, and inability of companies to pass on the
higher costs in a scenario of increasing competitive
intensity;
Higher interest rates;
Lacklustre capital markets, which would constrain access
to equity; Project implementation related delays;
Reduced profitability of new projects (because of
competitive pressures, higher feedstock prices and higher
interest costs) funded with relatively higher leveraging; and
Increase in counterparty risks and increasing concerns
over fuel linkages in the power sector.

Capital Adequacy under Basel III vs.

Existing Norms Basel III Norm
Existing RBI Norm
Common equity (after
deductions)

4.50%

3.6% (9.2%)

Conservation buffer

2.50%

Nil

Countercyclical buffer

0-2.5%

Nil

Common equity + Conservation

buffer
+ Countercyclical buffer

7-9.5%

3.6% (9.2%)

Tier I (including the buffers)

8.5-11%

6% (10%)

Total capital (including the

buffers)

10.5-13%

9% (14.6%)