The year 2009-10 witnessed a relatively sluggish performance of the Indian banking sector
with some emerging concerns with respect to asset quality and a slow deposit growth. Gross
NPAs as ratio to gross advances for Scheduled Commercial Banks as a whole increased from
2.25 per cent in 2008-09 to 2.39 per cent in 2009-10. Notwithstanding the weakening asset
quality, the Capital to Risk-Weighted Assets Ratio (CRAR) of Indian banks remained strong
at 14.5 per cent, way above the regulatory minimum even after migration to the Basel II
framework, providing banks with adequate cushion for emerging losses. In 2009-10, the
profitability of Indian banks captured by the Return on Assets (RoA) was a notch lower at
1.05 per cent than 1.13 per cent during the previous year. Low levels of financial penetration
and inclusion in the global comparison continued to be an area of concern for the Indian
banking sector. In the short-term, the Indian banking sector needs to lend support to the
process of economic recovery, while in the medium to long-term, it needs to transform itself to
become more efficient and vibrant so as to ensure a more sustainable and inclusive pattern of
economic growth.
1. Introduction
4.1 Commercial banks form the most
important part of the Indian financial landscape
in terms of their role in channelling credit to
the commercial sector and facilitating the
process of financial inclusion. With the onset
of economic reforms, the commercial banking
sector, which has retained its predominantly
public character, has undergone a number of
changes in terms of size, efficiency of operation
and financial soundness. As per the analysis by
the World Bank for 2005, prior to the outbreak
of the global financial crisis, the operational
efficiency and financial soundness of the Indian
banking sector compared favourably with its
Asian peer group countries as well as developed
OECD countries.1 The global financial crisis,
which left the banking sector of most developed and even developing countries weakened, had
relatively limited impact on the Indian banking
sector. The Report on Trend and Progress of
Banking in India (RTP) - 2008-09 had concluded
that while the Indian banking system largely
withstood the pressures of the crisis, it was not
expected to remain insulated from the slowdown
of the Indian economy, which followed the crisis.
The analysis of the banking sector in 2009-10
is thus crucial in understanding the nature and
extent of medium- to long-term impact of the
crisis on the Indian banking system.
4.2 This chapter discusses developments in
the Indian banking sector in detail during 2009-
10 in a comparative perspective with the earlier
year/s to bring out trends in balance sheets,
financial performance and profitability, and
financial soundness of the sector based on data of 81 Scheduled Commercial Banks (SCBs).2 The
chapter also spells out key issues related to
several aspects of operation of the Indian banking
sector, such as financial inclusion, sectoral
distribution of credit, spatial and regional
distribution of banking services, customer
services, technological development apart from
separately analysing the trends in two segments
closely related to the SCB sector, namely Regional
Rural Banks and Local Area Banks.
2. Balance Sheet Operations of Scheduled
Commercial Banks
4.3 In continuation of the trend observed
during 2008-09, the growth in consolidated balance sheet of SCBs decelerated in 2009-10
(Tables IV.1 and IV.2). Foreign banks, in particular,
witnessed a contraction in their asset size to
the tune of 2.7 per cent in 2009-10 (Table IV.2).
This contraction in the assets of foreign banks
was a break in the trend observed in the recent
past, when assets of foreign banks had posted
an annual growth consistently exceeding 20 per
cent. There was a slowdown in the growth of
balance sheets of public sector banks
(comprising nationalised banks and State Bank
of India (SBI) group) as well as old private sector
banks in 2009-10. The only exception was new
private sector banks, which had underperformed
their old counterparts in 2008-09, recorded
accelerated growth in 2009-10.
Table IV.1: Consolidated Balance Sheet of Scheduled Commercial Banks |
(in ` crore) |
Item |
As at end-March 2010 |
Public sector banks |
Private sector
banks |
Old private sector banks |
New private sector banks |
Foreign banks |
All scheduled commercial banks |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
1. Capital |
13,544 |
4,549 |
1,273 |
3,276 |
30,555 |
48,648 |
2. Reserves and Surplus |
2,27,458 |
1,15,435 |
18,898 |
96,537 |
38,584 |
3,81,476 |
3. Deposits |
36,91,802 |
8,22,801 |
2,29,897 |
5,92,904 |
2,37,853 |
47,52,456 |
3.1. Demand Deposits |
3,68,528 |
1,34,589 |
21,597 |
1,12,992 |
67,902 |
5,71,019 |
3.2. Savings Bank Deposits |
8,87,267 |
1,86,220 |
43,567 |
1,42,653 |
36,427 |
11,09,915 |
3.3. Term Deposits |
24,36,006 |
5,01,992 |
1,64,733 |
3,37,259 |
1,33,524 |
30,71,522 |
4. Borrowings |
3,13,814 |
1,48,803 |
8,127 |
1,40,676 |
62,146 |
5,24,764 |
5. Other Liabilities and Provisions |
1,94,497 |
59,221 |
10,783 |
48,438 |
64,080 |
3,17,798 |
Total Liabilities/Assets |
44,41,114 |
11,50,809 |
2,68,977 |
8,81,831 |
4,33,219 |
60,25,141 |
1. Cash and Balances with RBI |
2,70,858 |
75,858 |
16,915 |
58,943 |
19,097 |
3,65,812 |
2. Balances with Banks and Money at Call and Short Notice |
1,24,216 |
38,681 |
5,692 |
32,989 |
20,559 |
1,83,455 |
3. Investments |
12,05,783 |
3,54,117 |
83,499 |
2,70,618 |
1,59,286 |
17,19,185 |
3.1 Government Securities (a+b) |
10,08,371 |
2,41,192 |
60,819 |
1,80,374 |
1,17,492 |
13,67,055 |
a) In India |
10,00,015 |
2,41,028 |
60,819 |
1,80,209 |
1,17,492 |
13,58,534 |
b) Outside India |
8,356 |
165 |
- |
165 |
- |
8,521 |
3.2 Other Approved Securities |
5,015 |
311 |
289 |
21 |
4 |
5,330 |
3.3 Non-Approved Securities |
1,92,396 |
1,12,614 |
22,391 |
90,223 |
41,790 |
3,46,800 |
4. Loans and Advances |
27,01,300 |
6,32,494 |
1,54,136 |
4,78,358 |
1,63,260 |
34,97,054 |
4.1 Bills purchased and Discounted |
1,40,817 |
27,462 |
8,957 |
18,505 |
21,306 |
1,89,585 |
4.2 Cash Credits, Overdrafts, etc. |
10,74,500 |
1,58,719 |
68,119 |
90,600 |
65,923 |
12,99,141 |
4.3 Term Loans |
14,85,984 |
4,46,313 |
77,060 |
3,69,252 |
76,031 |
20,08,328 |
5. Fixed Assets |
34,466 |
10,239 |
2,357 |
7,882 |
4,859 |
49,564 |
6. Other Assets |
1,04,491 |
39,421 |
6,378 |
33,043 |
66,158 |
2,10,070 |
Source: Balance sheets of respective banks. |
Table IV.2 : Growth in Balance Sheet of Scheduled Commercial Banks |
(Per cent) |
Item |
Public sector |
Private sector |
Old private
sector banks |
New private sector banks |
Foreign banks |
All scheduled commercial banks |
2008-09 |
2009-10 |
2008-09 |
2009-10 |
2008-09 |
2009-10 |
2008-09 |
2009-10 |
2008-09 |
2009-10 |
2008-09 |
2009-10 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 |
12 |
13 |
1. Capital |
3.6 |
0.1 |
-8.1 |
7.3 |
8.2 |
8.7 |
-13.1 |
6.7 |
14.5 |
19.8 |
8.3 |
12.4 |
2. Reserves and Surplus |
20.5 |
16.8 |
10.0 |
21.0 |
14.6 |
15.9 |
9.1 |
22.0 |
27.3 |
12.1 |
17.8 |
17.5 |
3. Deposits |
26.9 |
18.6 |
9.1 |
11.7 |
20.3 |
15.4 |
5.4 |
10.4 |
12.0 |
11.1 |
22.4 |
17.0 |
3.1. Demand Deposits |
9.9 |
18.4 |
1.3 |
33.5 |
1.8 |
22.5 |
1.1 |
35.9 |
2.3 |
12.1 |
6.9 |
20.8 |
3.2. Savings Bank Deposits |
18.4 |
25.8 |
14.9 |
32.8 |
15.6 |
26.2 |
14.7 |
34.9 |
9.7 |
26.5 |
17.5 |
26.9 |
3.3. Term Deposits |
33.1 |
16.2 |
9.2 |
1.3 |
24.2 |
12.0 |
3.9 |
-3.1 |
18.0 |
7.0 |
27.3 |
13.1 |
4. Borrowings |
65.3 |
21.4 |
56.6 |
8.1 |
77.4 |
31.8 |
55.7 |
6.9 |
32.9 |
-19.8 |
56.5 |
10.8 |
5. Other Liabilities and Provisions |
-21.4 |
4.4 |
-37.0 |
9.7 |
-7.8 |
15.0 |
-41.0 |
8.5 |
43.4 |
-31.6 |
-13.9 |
-4.8 |
Total Liabilities/Assets |
24.6 |
17.9 |
9.3 |
12.0 |
19.4 |
15.8 |
6.7 |
10.9 |
22.3 |
-2.7 |
21.1 |
15.0 |
1. Cash and Balances with RBI |
-2.4 |
20.8 |
-19.4 |
32.0 |
-14.6 |
27.7 |
-20.7 |
33.3 |
-28.9 |
22.1 |
-8.0 |
23.1 |
2. Balances with Banks and Money at Call and Short Notice |
106.5 |
-5.4 |
32.7 |
13.9 |
46.0 |
-43.3 |
27.8 |
38.0 |
56.8 |
-34.2 |
80.1 |
-6.6 |
3. Investments |
26.6 |
19.1 |
10.0 |
15.5 |
33.9 |
15.3 |
4.3 |
15.6 |
31.8 |
22.2 |
23.1 |
18.6 |
3.1 Government Securities (a+b) |
30.6 |
19.0 |
12.4 |
10.6 |
27.3 |
13.4 |
8.2 |
9.7 |
20.7 |
17.5 |
25.9 |
17.3 |
a) In India |
30.8 |
18.8 |
12.4 |
10.6 |
27.3 |
13.4 |
8.3 |
9.7 |
20.7 |
17.5 |
26.0 |
17.2 |
b) Outside India |
4.0 |
48.3 |
-32.0 |
72.6 |
- |
- |
-32.0 |
72.6 |
- |
- |
3.1 |
48.7 |
3.2 Other Approved Securities |
-22.8 |
-36.8 |
-22.8 |
43.4 |
-24.3 |
56.2 |
-12.0 |
-31.7 |
-80.7 |
-41.7 |
-23.0 |
-34.6 |
3.3 Non-Approved Securities |
11.9 |
22.2 |
4.7 |
27.6 |
58.8 |
20.5 |
-4.0 |
29.5 |
89.3 |
37.7 |
14.6 |
25.6 |
4. Loans and Advances |
25.7 |
19.6 |
11.0 |
9.9 |
15.1 |
19.9 |
9.9 |
7.1 |
2.6 |
-1.3 |
21.1 |
16.6 |
4.1 Bills purchased and Discounted |
18.3 |
10.4 |
-23.5 |
30.7 |
7.0 |
19.1 |
-33.9 |
37.2 |
-8.0 |
46.9 |
8.0 |
16.3 |
4.2 Cash Credits, Overdrafts, etc. |
29.3 |
20.0 |
11.5 |
9.6 |
15.0 |
20.8 |
9.3 |
2.5 |
7.0 |
-7.5 |
25.1 |
16.9 |
4.3 Term Loans |
24.0 |
20.2 |
13.4 |
9.0 |
16.2 |
19.3 |
12.9 |
7.0 |
1.1 |
-4.5 |
20.1 |
16.4 |
5. Fixed Assets |
17.2 |
2.1 |
2.6 |
3.6 |
8.0 |
8.0 |
1.2 |
2.4 |
19.4 |
2.6 |
14.1 |
2.5 |
6. Other Assets |
2.0 |
-0.2 |
21.6 |
-11.6 |
35.1 |
7.8 |
19.8 |
-14.5 |
68.1 |
-32.3 |
25.1 |
-15.0 |
Source: Balance sheets of respective banks. |
4.4 Consequent to the contraction in the
balance sheet of the group of foreign banks, the
share of foreign banks in total assets of the
banking sector witnessed a decline in 2009-10
(Chart IV.1). There was also a decline in the
share of new private sector banks in total assets
of the banking sector. Despite the decelerated
growth of assets of public sector banks, their
relative share in the total assets of the banking
sector posted an increase in 2009-10, while the
share of old private sector banks stood almost
unchanged at the last year’s level.
Major Liabilities of SCBs
Deposits
4.5 The slowdown in the growth of balance
sheets in 2009-10 largely emanated from
deposits, the major component of liabilities of
SCBs (Tables IV.1 and IV.2). Bank deposits, which constituted around 78 per cent of the total
liabilities of SCBs, registered a decelerated growth for the third consecutive year since 2007-
08. One of the factors responsible for a decline
in the deposits growth in 2009-10 was the
prevalence of low interest rates for a major part
of the year.
|
4.6 The composition of deposits, however,
indicated significant changes in 2009-10 with
the percentage of Current and Saving Accounts
(CASA) increasing from 33.2 per cent to 35.4
per cent between 2008-09 and 2009-10 in
contrast to the declining trend in the recent past.
Moreover, unlike in the past, CASA contributed
almost half of the incremental deposits in
2009-10 (Chart IV.2). Saving deposits alone
contributed about 34 per cent to the total
increment in deposits in 2009-10. The calculation
of interest rate on a daily product basis by banks
with effect from April 1, 2010 is expected to give
a further boost to saving deposits.
Borrowings
4.7 Borrowings, the major non-deposit
liability for banks, constituted 8.7 per cent of
their total liabilities in 2009-10. Similar to
deposits, borrowings also recorded a sharp
deceleration in growth adding to the overall
slowdown in banks’ balance sheets in 2009-10
(Tables IV.1 and IV.2). A decline in the growth
of borrowings could be seen across all bank
groups but was most striking in the case of
foreign banks (Table IV.2).
Major Assets of Scheduled Commercial Banks
Bank Credit
4.8 In 2009-10, there was a decline in the
growth in bank credit like in the previous year.
Bank credit, which had reached a high of over
30 per cent in 2004-05, exhibited a continued
decline in the subsequent years, reaching a low
of 16.6 per cent in 2009-10. As deposits are the most important source of funds for banks, a
slowdown in the growth of deposits was expected
to translate itself into a slowdown in bank credit
growth. Thus, notwithstanding the signs of
recovery of the Indian economy and a low interest
rate regime, on a year-on-year basis, bank credit
growth registered a slowdown in 2009-10.
However, on an intra-year basis, there were signs
of a pick up in bank credit after November 2009,
as economic recovery became more broad-based.3
Investments
4.9 In 2009-10, investments of SCBs, like
bank credit, showed a deceleration in growth.
Moreover, there was a perceptible change in
the composition of investments of SCBs, as
the percentage contribution of investments in
approved securities to incremental
investments showed a decline in 2009-10 in
contrast to a striking increase in 2008-09,
when banks had shown preference for low-risk
investments following market uncertainties
resulting from the global financial crisis
(Chart IV.3).
|
4.10 Non-SLR investments of banks, which
include investments in mutual funds, bonds/ debentures, shares and commercial papers,
showed significant increase in 2009-10. This
increase in non-SLR investments was primarily
on account of investments in mutual funds,
which increased to the tune of 42.8 per cent
during the year, though it showed large intrayear
volatility (Table IV.3). Bonds and
debentures, which constitute the largest portion
of banks’ non-SLR investments, showed a
declining trend in share in the recent years. The
share of investments in shares, which had
registered a steep fall in 2008-09 resulting from
the subdued conditions in the capital market
in the aftermath of the financial crisis, showed
a further – although marginal – fall in 2009-10
(Chart IV.4). Thus, as against the waning
importance of bonds/debentures and shares in
the investment portfolio of banks, the share of
investments in mutual funds showed a steady
increase in the recent years.4
Table IV.3: Non-SLR Investments of Scheduled Commercial Banks |
(Amount in ` crore) |
Instrument |
As on March
26, 2010 |
Per cent
to total |
As on September
24, 2010 |
Per cent
to total |
1 |
2 |
3 |
4 |
5 |
1. Commercial Paper |
25,188 |
10.7 |
43,818 |
17.7 |
|
(25.9) |
|
(195.5) |
|
2. Shares |
30,192 |
12.9 |
37,703 |
15.2 |
|
(6.9) |
|
(39.7) |
|
a) Of which, Public sector undertakings |
4,625 |
2.0 |
7,070 |
2.9 |
b) Of which, Private corporate sector |
25,481 |
10.9 |
27,029 |
10.9 |
3. Bonds/debentures |
93,679 |
39.9 |
1,05,664 |
42.7 |
|
(4.5) |
|
(13.3) |
|
a) Of which, Public sector undertakings |
22,710 |
9.7 |
20,153 |
8.1 |
b) Of which, Private corporate sector |
40,067 |
17.1 |
50,332 |
20.3 |
4. Units of MFs |
52,887 |
22.5 |
33,534 |
13.6 |
|
(42.8) |
|
(-46.3) |
|
5. Instruments issued by FIs* |
32,597 |
13.9 |
26,725 |
10.8 |
|
(0.04) |
|
(3.2) |
|
Total Investments (1 to 5) |
2,34,543 |
100.0 |
2,47,444 |
100.0 |
|
(13.0) |
|
(10.8) |
|
Note: 1) Figures in parentheses indicate percentage variation over the corresponding period in the previous year.
2) *: Instruments issued by FIs are being shown separately since 2008-09 onwards. For the earlier years, they were included as part of
bonds and debentures.
Source: Section 42(2) returns submitted by SCBs. |
|
4.11 World over, banks’ involvement in
mutual funds has increased significantly over
the last two decades. Banks have emerged as conduits for Mutual Funds (MFs) diverting a
large portion of their deposits towards
investments in such funds as well as have been
borrowing from these funds. However, there
are issues concerning systemic stability related
to the growing involvement of banks in mutual
funds, which have been discussed in Box IV.1.
International Liabilities and Assets of
Scheduled Commercial Banks
4.12 Both international liabilities and assets
of banks registered accelerated growth during
2009-10 (Tables IV.4 and IV.5). There was an
increase by about 17 per cent in the international
liabilities of banks (located in India) in 2009-
10, which far exceeded the growth of 7.4 per
cent in their international assets. The surge in international liabilities during the year was
primarily due to inflows through American/
Global Depository Receipts (ADRs/GDRs) and
equities of banks held by non-residents. There
was a fall in the inflows of FCNR(B)/NRE
deposits in 2009-10. A steady fall in the
benchmark London Inter-Bank Offered Rate
(LIBOR) during 2009-10 resulting in a fall in
the effective rate of interest payable on FCNR(B)/
NRE deposits could partly explain the fall in
the FCNR(B)/NRE inflows in 2009-10. The fall
could also be partly on account of an
appreciation in the exchange rate of Indian rupee with respect to major international
currencies during this period.
Box IV.1: Inter-linkages between Scheduled Commercial Banks and Mutual Funds
In advanced countries, such as the US, last two decades
have seen an increasing involvement of banks in mutual
funds channeling deposits mobilised from households
towards investments in such funds. The growing exposure
of banks to mutual funds could have a number of systemic
implications arising out of the quantum, direction and
concentration of such investments.
An analysis of inter-linkages between banks and Debt-
Oriented Mutual Funds (DOMFs) was carried out in the
Indian context using monthly data under OSMOS
returns, money market data received from Clearing
Corporation of India Limited (CCIL). The analysis was
restricted to Debt Oriented funds as these funds make
up almost the whole of banks’ investments in MFs. The
analysis covered data on banks’ investments in MFs and
MFs’ investments in banks through the money market
(Repo/CBLO) and Certificates of Deposits (CDs). The
time period chosen for this analysis was from December
2008 to November 2009.
The major conclusions emerging from this analysis were
the following: First, there was a significant growth in
banks’ investments in DOMFs during the period of
analysis. Growth in investments in DOMFs was higher
than the growth observed in the total investments of SCBs
as well as their total non-SLR investments during this
period (Table below). Secondly, banks were net borrowers
since December 2008 and not net lenders to MFs. The
net borrowing by SCBs from MFs for November 2009
was `1,56,317 crore. This was arrived at by taking the
difference between the investments by banks in DOMFs
and MFs’ funds with SCBs (including investments in
Certificates of Deposits (CDs) and MFs’ placements in Repo and CBLO that were held by banks). Thirdly, all
the banks investing in DOMFs were domestic and did
not include any foreign bank. When banks were arranged
in a descending order by the amount of their net
borrowings from MFs, public sector banks figured
prominently at the upper end as major borrowers, while
the new private sector banks along with SBI could be
seen as major lenders to MFs. Finally, in terms of
concentration, more than 90 per cent of total investments
in DOMFs by SCBs, which was held by 14 banks in
November 2008, increased to 24 banks in November
2009.
Table: Trends in Banks’ investments in Debt Oriented Mutual Funds and Mutual Funds’ investments in Banks |
(Amount in ` crore) |
|
Item |
Dec-08 |
Mar-09 |
Jun-09 |
Sep-09 |
Nov-09 |
1 |
Banks’ investments in Debt Oriented MFs* |
17,650 |
51,348 |
91,721 |
1,12,361 |
1,25,895 |
|
|
- |
(190.9) |
(78.6) |
(22.5) |
(12.0) |
2 |
MFs’ investments in CDs |
1,09,255 |
1,37,596 |
1,87,265 |
1,78,063 |
2,18,300 |
|
|
- |
(25.9) |
(36.1) |
-(4.9) |
(22.6) |
3 |
MFs’ funds placements in Repo/CBLO |
32,006 |
55,909 |
70,376 |
86,018 |
71,983 |
|
|
- |
(74.7) |
(25.9) |
(22.2) |
-(16.3) |
|
3.a Of which, held by banks |
25,960 |
48,310 |
63,664 |
78,674 |
63,912 |
|
|
- |
(86.1) |
(31.8) |
(23.6) |
-(18.8) |
4 |
MFs’ funds with SCBs (2+3a) |
1,35,215 |
1,85,907 |
2,50,929 |
2,56,737 |
2,82,212 |
|
|
- |
(37.5) |
(35.0) |
(2.3) |
(9.9) |
5 |
Net borrowings by banks from MFs (4 – 1) |
1,17,565 |
1,34,558 |
1,59,208 |
1,44,377 |
1,56,317 |
Note: 1) *- Monthly data were averaged to create a quarterly series as banks redeem
their DOMF investments in quarter ending months to book profits and reinvest
the funds at the beginning of the subsequent month. Data for
November 2009 is based on average for October and November 2009.
2) Figures in parentheses indicate percentage change over the previous period. |
Table IV.4: International Liabilities of Banks – By Type |
(As at end-March) |
(Amount in ` crore) |
Item |
2009 |
2010 |
1 |
2 |
3 |
1. Deposits and Loans |
3,23,205 |
3,38,574 |
|
(83.6) |
(74.9) |
of which: |
|
|
Foreign Currency Non Resident Deposits (Bank) [FCNR (B)] scheme |
72,783 |
72,234 |
|
(18.8) |
(16.0) |
Foreign Currency Borrowings * |
75,398 |
74,354 |
|
(19.5) |
(16.4) |
Non-resident External Rupee (NRE) Deposits |
1,24,488 |
1,22,380 |
|
(32.2) |
(27.1) |
Non-Resident Ordinary (NRO) Rupee Deposits |
20,686 |
30,824 |
|
(5.4) |
(6.8) |
2. Own Issues of Securities/Bonds |
6,864 |
5,439 |
|
(1.8) |
(1.2) |
3. Other Liabilities |
56,540 |
1,08,166 |
|
(14.6) |
(23.9) |
of which: |
|
|
ADRs/GDRs |
10,357 |
30,391 |
|
(2.7) |
(6.7) |
Equities of banks held by non-residents |
18,932 |
50,313 |
|
(4.9) |
(11.1) |
Capital/remittable Profits of Foreign Banks in India and other unclassified International Liabilities |
27,251 |
27,462 |
|
(7.0) |
(6.1) |
Total International Liabilities |
3,86,608 |
4,52,179 |
|
(100.0) |
(100.0) |
Note: 1) Figures in parentheses are percentages to total liabilities.
2) * : Includes inter-bank borrowings in India and from
abroad and external commercial borrowings of banks.
Source: Locational Banking Statistics. |
Table IV.5: International Assets of Banks - By Type |
(As at end-March) |
(Amount in ` crore) |
Item |
2009 |
2010 |
1 |
2 |
3 |
1. Loans and Deposits |
2,19,547 |
2,37,181 |
|
(95.7) |
(96.3) |
of which : |
|
|
a) Loans to Non-Residents* |
8,341 |
10,196 |
|
(3.6) |
(4.1) |
b) Foreign Currency Loans to Residents ** |
99,973 |
1,23,476 |
|
(43.6) |
(50.1) |
c) Outstanding Export Bills drawn on Non-Residents by Residents |
44,564 |
50,496 |
|
(19.4) |
(20.5) |
d) Nostro Balances@ |
66,496 |
52,135 |
|
(29.0) |
(21.2) |
2. Holdings of Debt Securities |
76 |
39 |
|
(0.03) |
(0.02) |
3. Other Assets @@ |
9,733 |
9,139 |
|
(4.2) |
(3.7) |
Total International Assets |
2,29,356 |
2,46,359 |
|
(100.0) |
(100.0) |
Note: 1) * : Includes rupee loans and Foreign Currency (FC)
loans out of non-residents (NR) deposits;
2) ** : Includes loans out of FCNR (B) deposits,
Packing Credit in Foreign Currency (PCFC), FC
lending to and FC deposits with banks in India, etc.
3) @ : Includes placements made abroad and
balances in term deposits with non-resident banks.
4) @@: Includes capital supplied to and receivable
profits from foreign branches/subsidiaries of Indian banks and other unclassified international assets.
5) Figures in parentheses are percentages to total assets.
Source: Locational Banking Statistics. |
Consolidated International Claims
4.13 There was a perceptible slowdown in the
growth of consolidated international claims of
banks (based on immediate country risk) from
32.6 per cent in 2008-09 to 3.7 per cent in 2009-10. The (residual) maturity composition
remained almost unchanged between 2008-09
and 2009-10 with claims having short term
maturity (of less than a year) comprising about two-thirds of the total international claims
indicating a preference of Indian banks towards
short-term international loans and investments
(Table IV.6).
4.14 As regards the country-wise
composition, the largest proportion of the total
international claims of Indian banks was
accounted for by the US followed by the UK (Table IV.7). However, there was a fall in the
absolute quantum as well as relative proportion
of claims held by Indian banks on the US in
2009-10. This was in contrast to 2008-09, the
year of financial crisis, when Indian banks’
claims on the US had witnessed a steep
increase, partly a reflection of the tight liquidity
conditions prevailing then in the US markets.
Table IV.6: Classification of Consolidated International Claims of Banks - By Maturity and Sector |
(As at end-March) |
(Amount in ` crore) |
Residual Maturity/Sector |
2009 |
2010 |
1 |
2 |
3 |
Total Consolidated |
2,24,665 |
2,33,071 |
International Claims |
(100.0) |
(100.0) |
a) Maturity-wise |
|
|
1) Short-term (residual maturity of less than one year) |
1,40,289 |
1,44,638 |
|
(62.4) |
(62.1) |
2) Long-term (residual maturity of one year and above) |
79,828 |
81,939 |
|
(35.5) |
(35.2) |
3) Unallocated |
4,548 |
6,494 |
|
(2.0) |
(2.7) |
b) Sector-wise |
|
|
1) Bank |
1,02,223 |
98,191 |
|
(45.5) |
(42.1) |
2) Non-Bank Public |
656 |
1,442 |
|
(0.3) |
(0.6) |
3) Non-Bank Private |
1,21,786 |
1,33,438 |
|
(54.2) |
(57.3) |
Note: 1) Figures in parentheses are percentages to total
claims.
2) Unallocated residual maturity comprises maturity
not applicable (e.g., for equities) and maturity
information not available from reporting bank
branches.
3) Bank sector includes official monetary institutions
(IFC, ECB, etc.) and central banks.
4) Prior to the quarter ended March 2005, ‘Non-bank
public sector’ comprised of companies/ institutions
other than banks in which shareholding of State/
Central Governments was at least 51 per cent,
including State/Central Governments and its
departments. From March 2005 quarter, ‘Non-bank
public sector’ comprises only State/Central
Governments and its departments.
Source: Consolidated Banking Statistics - Immediate Country Risk Basis. |
Table IV.7: Consolidated International Claims of Banks on Countries other than India |
(As at end-March) |
(Amount in ` crore) |
Item |
2009 |
2010 |
1 |
2 |
3 |
Total Consolidatd |
2,24,665 |
2,33,071 |
International Claims |
(100.0) |
(100.0) |
of which: |
|
|
a) United States of America |
55,734 |
53,394 |
|
(24.8) |
(22.9) |
b)United Kingdom |
29,753 |
36,141 |
|
(13.2) |
(15.5) |
c) Singapore |
15,762 |
18,437 |
|
(7.0) |
(7.9) |
d) Germany |
9,869 |
12,179 |
|
(4.4) |
(5.2) |
e) Hong Kong |
19,031 |
18,978 |
|
(8.5) |
(8.1) |
f) United Arab Emirates |
11,309 |
13,536 |
|
(5.0) |
(5.8) |
Note : Figures in the parentheses are percentage shares in total international claims.
Source: Consolidated Banking Statistics - Immediate Country
Risk Basis. |
Credit-Deposit and Investment-Deposit
Ratios of Scheduled Commercial Banks
4.15 In 2009-10, the series of incremental
credit-deposit and investment-deposit ratios
drifted away from each other since mid-October
2009 reflecting banks’ growing preference for
credit over investments (Chart IV.5). The
outstanding credit-deposit ratio at end-March
2010 was marginally lower at 73.6 per cent as
compared to 73.8 per cent at end-March 2009.
Conversely, the investment-deposit ratio was
marginally higher at 36.2 per cent at end-March
2010 as compared to 35.7 per cent at end March 2009. Foreign banks, which had the
highest (outstanding) credit-deposit ratio,
witnessed a steep fall in this ratio between 2008
and 2009, and then further between 2009 and
2010.5 At end-March 2010, foreign banks along
with old private sector banks were in the lowest
brackets with regard to credit-deposit ratio in
comparison with public and new private sector
banks (Chart IV.6).
Maturity Profile of Assets and Liabilities of
Banks
4.16 The asset liability management by banks
is critically dependent on the maturity profile
of their assets and liabilities. As banks generally
raise resources through short-term liabilities to
finance assets ranging from short- to long-term,
the liquidity and credit risks get multiplied
particularly during the periods of crisis.
4.17 The maturity profile of assets and
liabilities of Indian banks in general shows
greater reliance on short-term deposits matched
by short- and medium-term loans and advances, and long-term investments on the assets side.
In 2009-10, there was a shift towards the short-
(up to 1 year) and medium-term (over one and
up to three years) deposits mobilised by banks
(Table IV.8). As already noted, there was an
increase in the share of CASA in 2009-10.
Concurrently, 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
2009-10, there was a shift in favour of long-term
investments by banks.
4.18 The asset liability mismatch was
noticeable for public sector banks with a shift
in their deposit liabilities during 2009-10
towards the short-term end of the maturity
spectrum alongside a shift in their loans and
investments towards the long-term end.
Interestingly, new private sector banks, which
normally relied heavily on short-term deposits,
exhibited a shift in favour of medium- and longterm
deposits in 2009-10, while their loans
moved closer towards the short-term end of the
spectrum.
|
|
|
Table IV.8: Maturity Profile of Select Liabilities/Assets of Scheduled Commercial Banks |
(As at end-March) |
(Per cent to total under each item) |
Liabilities/assets |
Public
sector banks |
Private
sector banks |
Old private
sector banks |
New private
sector banks |
Foreign banks |
All SCBs |
2009 |
2010 |
2009 |
2010 |
2009 |
2010 |
2009 |
2010 |
2009 |
2010 |
2009 |
2010 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 |
12 |
13 |
I. Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
a) Up to 1 year |
46.6 |
48.9 |
52.5 |
47.7 |
48.3 |
47.6 |
54.0 |
47.7 |
63.8 |
64.1 |
48.6 |
49.4 |
b) Over 1 year and up to 3 years |
27.1 |
27.5 |
36.1 |
38.4 |
38.4 |
36.8 |
35.3 |
39.0 |
23.1 |
26.6 |
28.5 |
29.4 |
c) Over 3 years |
26.2 |
23.6 |
11.4 |
13.9 |
13.3 |
15.6 |
10.7 |
13.3 |
13.1 |
9.3 |
22.9 |
21.2 |
II. Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
a) Up to 1 year |
44.9 |
42.0 |
32.4 |
34.7 |
62.0 |
49.2 |
31.0 |
33.9 |
74.7 |
73.5 |
46.3 |
43.7 |
b) Over 1 year and up to 3 years |
18.8 |
11.0 |
22.2 |
23.9 |
7.9 |
15.7 |
22.8 |
24.4 |
15.1 |
14.8 |
19.2 |
15.3 |
c) Over 3 years |
36.3 |
46.9 |
45.4 |
41.4 |
30.1 |
35.1 |
46.2 |
41.7 |
10.2 |
11.7 |
34.5 |
41.0 |
III. Loans and Advances |
|
|
|
|
|
|
|
|
|
|
|
|
a) Up to 1 year |
38.8 |
38.0 |
34.2 |
37.1 |
40.8 |
40.5 |
32.4 |
36.0 |
55.8 |
61.3 |
38.9 |
38.9 |
b) Over 1 year and up to 3 years |
33.4 |
33.8 |
35.5 |
34.2 |
35.5 |
36.8 |
35.5 |
33.4 |
24.1 |
20.1 |
33.3 |
33.3 |
c) Over 3 years |
27.8 |
28.2 |
30.2 |
28.7 |
23.7 |
22.7 |
32.1 |
30.6 |
20.1 |
18.6 |
27.8 |
27.8 |
IV. Investments |
|
|
|
|
|
|
|
|
|
|
|
|
a) Up to 1 year |
22.8 |
18.1 |
44.1 |
38.1 |
37.2 |
24.4 |
46.3 |
42.4 |
69.0 |
76.4 |
31.2 |
27.7 |
b) Over 1 year and up to 3 years |
14.5 |
12.3 |
20.7 |
21.6 |
7.1 |
8.8 |
25.0 |
25.6 |
18.9 |
15.6 |
16.1 |
14.5 |
c) Over 3 years |
62.7 |
69.5 |
35.1 |
40.2 |
55.8 |
66.8 |
28.8 |
32.0 |
12.1 |
8.0 |
52.6 |
57.8 |
Source: Balance Sheets of respective banks. |
Off-Balance Sheet Operations of Scheduled
Commercial Banks
4.19 Off-balance sheet operations of the
banking system contributed in a major way in
the aggravation of the global financial crisis and
have thus been an important area of concern
for financial regulators worldwide. In India, the
Reserve Bank tightened the prudential norms
for off-balance sheet exposures of banks,
following which, there was a decline in this
exposure by 23.1 per cent in 2008-09 breaking
the trend of increase observed during the earlier
period. In 2009-10, there was a further decline
in the off-balance sheet exposure of banks,
although the rate of decline was relatively lower
at 5.6 per cent as compared to the previous year
(Appendix Table IV.1). The decline in 2009-10,
like in the previous year, was contributed by forward exchange contracts, which constituted
the largest portion of the off-balance sheet
liabilities of banks in India.
4.20 Among bank groups, off-balance sheet
exposure was generally the largest for foreign
banks. Notwithstanding the decline, the offbalance
sheet exposure continued to be the
largest for foreign banks at end-March 2010
constituting – in notional terms – about 1,599
per cent of their on-balance sheet liabilities
(Appendix Table IV.1). Off-balance sheet
(notional) liabilities occupied a share of 94.1
per cent in the total (on- plus off-balance sheet
(notional)) liabilities of foreign banks at end-
March 2010 (Chart IV.7). In contrast, for public
sector banks, off-balance sheet (notional)
liabilities held a share of 28.4 per cent in their
total liabilities.
3. Financial Performance of Scheduled
Commercial Banks
4.21 Similar to the slowdown in the balance
sheets of SCBs, there were signs of a
considerable slowdown in the income of SCBs
in 2009-10. The slowdown in total income
emanated from both interest and non-interest
incomes of SCBs. Furthermore, there was a
deceleration in the growth of total expenditure
of SCBs in 2009-10 attributable mainly to a
decline in the growth of interest expenditure
(Table IV.9).
4.22 With the growth in both income and
expenditure of SCBs recording a sharp decline,
there was a slowdown in the growth of operating
profits of SCBs in 2009-10. Operating profits
recorded a growth of 10.4 per cent, while
provisions and contingencies posted a relatively
high growth of 12.3 per cent resulting in a low
growth of 8.3 per cent in net profits of SCBs in
2009-10. The growth in net profits was on a
steady rise during the four years up to 2007-
08. The growth in net profits, however, posted
a fall in 2008-09, which became even steeper in
2009-10 (Chart IV.8).
Table IV.9: Trends in Income and Expenditure of Scheduled Commercial Banks |
(Amount in ` crore) |
Item |
2008-09 |
2009-10 |
Amount |
Percentage variation |
Amount |
Percentage variation |
1 |
2 |
3 |
4 |
5 |
1. |
Income |
4,63,702 |
25.7 |
4,94,271 |
6.6 |
|
a) Interest Income |
3,88,482 |
25.9 |
4,15,752 |
7.0 |
|
b) Other Income |
75,220 |
24.6 |
78,519 |
4.4 |
2. |
Expenditure |
4,10,952 |
26.0 |
4,37,162 |
6.4 |
|
a) Interest Expended |
2,63,223 |
26.5 |
2,72,084 |
3.4 |
|
b) Operating Expenses |
89,581 |
15.9 |
99,769 |
11.4 |
|
of which : Wage Bill |
47,974 |
20.1 |
55,164 |
15.0 |
|
c) Provision and Contingencies |
58,148 |
42.3 |
65,310 |
12.3 |
3. |
Operating Profit |
1,10,897 |
32.7 |
1,22,419 |
10.4 |
4. |
Net Profit for the year |
52,750 |
23.5 |
57,109 |
8.3 |
5. |
Net Interest Income (1a-2a) |
1,25,258 |
24.7 |
1,43,669 |
14.7 |
Source: Profit and loss statements of respective banks. |
4.23 During the last five years since 2005-06,
the net interest margin of SCBs was by and
large on a declining trend except for a marginal
recovery in 2008-09 (Chart IV.9). Both deposit
and lending rates of SCBs, which influence the
net interest margin of banks, had shown a
generally upward movement during the first
half of 2008-09. These rates, however, were on a decline during the second half of the year
following the accommodative monetary policy
stance pursued by the Reserve Bank in the
aftermath of the financial crisis. During a
major part of 2009-10, the declining trend in
the deposit rates of SCBs continued with the
rates offered by public and private sector banks
on deposits across the maturity spectrum
showing a steady fall up to December 2009
(Chart IV.10).6 As part of calibrated exit, the
Reserve Bank increased its Repo rate by 125
basis points (bps), Reverse Repo rate by 175
bps and CRR by 100 bps during February-
September 2010. Taking cues from the
changes, banks increased their deposit rates
in the range of 25-125 bps across various
maturities during the same period. As regards
the lending rate, the Base Rate system
replaced the Benchmark Prime Lending Rate
(BPLR) system with effect from July 1, 2010
(Box IV.2). Prior to the shift to the Base Rate
system, the BPLR of SCBs remained unchanged between July 2009 and July 2010.
A subdued interest rate environment coupled
with a low credit off-take for a major part of
the year partly explained the decline in the
net interest margin of banks in 2009-10.
4.24 Both cost as well return on funds of
SCBs showed a decline in 2009-10. In
particular, the decline in return on advances was
most striking from 10.50 per cent in 2008-09
to 9.29 per cent in 2009-10. The decline in
return on advances in 2009-10 was more
prominent for foreign and new private sector
banks (Table IV.10).
4.25 Similar to a decline in net interest
margin, there was also a decline in the Return
on Assets (RoA) in 2009-10, another indicator
of profitability of the banking sector, which
captures the amount of profits that can be
generated from one unit of assets held by the
banking sector. RoA (defined as net profits as
per cent of average total assets) posted a fall in 2009-10 largely reflecting the significant
slowdown in profits of banks in 2009-10
(Chart IV.9).7 Return on Equity (RoE), which
reflects the banking sector’s efficiency in
generating profits from every unit of equity,
also showed a decline in 2009-10 (Table IV.11).
4.26 At the bank group level, the fall in both
RoA and RoE in 2009-10 was the largest for
foreign banks. On the contrary, in the case of
new private sector banks, both these indicators
of profitability posted an increase in 2009-10
(Table IV.11).
Box IV.2: Base Rate System of Interest Rates –Features and Issues
The system of Benchmark Prime Lending Rate (BPLR)
introduced in 2003 was expected to serve as a benchmark
rate for banks’ pricing of their loan products so as to
ensure that it truly reflected the actual cost. However,
the BPLR system fell short of its original objective of
bringing transparency to lending rates. This was mainly
because under the BPLR system, banks could lend below
the BPLR. For the same reason, it was difficult to assess
the transmission of policy rates of the Reserve Bank to
lending rates of banks.
In order to address these concerns, the Reserve Bank
announced the constitution of the Working Group
(Chairman: Shri Deepak Mohanty) on Benchmark Prime
Lending Rate (BPLR) in the Annual Policy Statement of
2009-10 to review the BPLR system and suggest changes
to make credit pricing more transparent. The Working
Group submitted its Report on October 20, 2009. Based
on the recommendations of the Group and the suggestions
from various stakeholders, the Reserve Bank issued the
Guidelines on the Base Rate system on April 9, 2010.
Accordingly, the system of Base Rate came into effect since
July 1, 2010. Base Rate includes all those elements of
the lending rates that are common across all categories
of borrowers. The actual lending rates charged to
borrowers would be the Base Rate plus borrower-specific
charges. The Base Rate is the minimum rate for all loans
and as such, banks are not permitted to resort to any
lending below the Base Rate except some specified
categories such as (a) Differential Rate of Interest (DRI)
advances; (b) loans to banks’ own employees; and (c)
loans to banks’ depositors against their own deposits.
Further, in the case of interest rate subvention given by
Government to agricultural loans and rupee export credit,
the actual lending rate can go below the Base Rate. In the
case of restructured loans, if some of the Working Capital
Term Loans (WCTL), Funded Interest Term Loans (FITL)
need to be granted below the Base Rate for the purposes
of viability and there are recompense clauses, such
lending will not be construed as violating of the Base Rate
guidelines.The interest rates on small loans up to `2 lakh
were deregulated to increase the credit flow to small borrowers at reasonable rates. The Base Rate system is
applicable to all new loans and to the old loans that come
up for renewal. The existing loans based on the BPLR
system may run till their maturity. The Reserve Bank on
April 28, 2010 also deregulated the interest rate on rupee
export credit with effect from July 1, 2010 and stipulated
that the interest rate on rupee export credit could be
priced at or above the Base Rate. The Base Rate system
is expected to facilitate better pricing of loans, enhance
transparency in lending rates and improve the assessment
of transmission of monetary policy.
For the system as a whole, the Base Rates were in the
range of 5.50 – 9.00 per cent as on October 13, 2010
(Table below). During end-September and early-October
2010, several banks increased their base rates by 25-50
basis points. There has been a large degree of convergence
of base rates as announced by banks. In the latest review,
48 banks with a share of 94 per cent in total bank credit
fixed their base rates in the range of 7.50-8.50 per cent.
In July 2010, over 40 banks with the share of 81 per
cent in total bank credit had fixed their base rates in the
range of 7.25-8.00 per cent.
Table: Range of BPLR and Base Rates of Bank Groups |
Bank group |
BPLR Range
(As on October
13, 2010) |
Base Rate Range
(As on October
13, 2010) |
Public sector banks |
11.75-13.50 |
7.50-8.50 |
Private sector banks |
12.75-17.50 |
7.00-9.00 |
Foreign banks |
10.50-16.00 |
5.50-9.00 |
References:
Reserve Bank of India (2010), Report of the Working
Group on Benchmark Prime Lending Rate (Chairman:
Shri Deepak Mohanty).
Mohanty, Deepak (2010), “Perspectives on Lending Rates
in India”, Speech delivered at the Bankers’ Club, Kolkata,
RBI Bulletin, July.
Table IV.10: Cost of Funds and Returns on Funds - Bank Group-wise |
(Per cent) |
Bank group/year |
Cost of
Deposits |
Cost of
Borrowings |
Cost of
Funds |
Return on
Advances |
Return on
Investments |
Return on
Funds |
Spread |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8= (7-4) |
1 |
Public sector banks |
|
|
|
|
|
|
|
|
2008-09 |
6.26 |
3.04 |
6.04 |
10.08 |
6.95 |
9.11 |
3.07 |
|
2009-10 |
5.68 |
1.37 |
5.34 |
9.10 |
6.72 |
8.36 |
3.02 |
|
1.1 Nationalised banks* |
|
|
|
|
|
|
|
|
2008-09 |
6.31 |
2.76 |
6.09 |
10.17 |
7.05 |
9.22 |
3.14 |
|
2009-10 |
5.64 |
1.42 |
5.35 |
9.18 |
6.88 |
8.48 |
3.13 |
|
1.2 SBI Group |
|
|
|
|
|
|
|
|
2008-09 |
6.17 |
3.47 |
5.94 |
9.89 |
6.77 |
8.90 |
2.95 |
|
2009-10 |
5.75 |
1.28 |
5.32 |
8.92 |
6.41 |
8.13 |
2.81 |
2 |
Private sector banks |
|
|
|
|
|
|
|
|
2008-09 |
6.60 |
3.56 |
6.18 |
11.41 |
6.93 |
9.85 |
3.67 |
|
2009-10 |
5.36 |
1.95 |
4.83 |
9.89 |
6.25 |
8.60 |
3.77 |
|
2.1 Old private sector banks |
|
|
|
|
|
|
|
|
2008-09 |
6.73 |
4.44 |
6.67 |
11.82 |
6.57 |
10.01 |
3.34 |
|
2009-10 |
6.27 |
1.94 |
6.13 |
10.95 |
6.18 |
9.25 |
3.12 |
|
2.2 New private sector banks |
|
|
|
|
|
|
|
|
2008-09 |
6.56 |
3.52 |
6.04 |
11.29 |
7.03 |
9.80 |
3.77 |
|
2009-10 |
5.01 |
1.96 |
4.42 |
9.56 |
6.28 |
8.40 |
3.99 |
3 |
Foreign banks |
|
|
|
|
|
|
|
|
2008-09 |
4.58 |
4.07 |
4.46 |
12.61 |
7.63 |
10.55 |
6.10 |
|
2009-10 |
3.20 |
1.58 |
2.82 |
9.99 |
6.39 |
8.30 |
5.49 |
|
All SCBs |
|
|
|
|
|
|
|
|
2008-09 |
6.24 |
3.37 |
5.96 |
10.50 |
7.01 |
9.36 |
3.40 |
|
2009-10 |
5.49 |
1.57 |
5.09 |
9.29 |
6.59 |
8.41 |
3.31 |
Note : 1) Cost of Deposits = Interest Paid on Deposits/Average of current and previous year’s deposits.
2) Cost of Borrowings = Interest Paid on Borrowings/Average of current and previous year’s borrowings.
3) Cost of Funds = (Interest Paid on Deposits + Interest Paid on Borrowings)/(Average of current and previous year’s deposits plus
borrowings).
4) Return on Advances = Interest Earned on Advances /Average of current and previous year’s advances.
5) Return on Investments = Interest Earned on Investments /Average of current and previous year’s investments.
6) Return on Funds = (Interest Earned on Advances + Interest Earned on Investments)/(Average of current and previous year’s advances
plus investments).
7) *- Includes IDBI Bank Ltd.
Source: Calculated from balance sheets of respective banks. |
Table IV.11: Return on Assets and Return on Equity of SCBs – Bank Group-wise |
(Per cent) |
Bank group/year |
Return on assets |
Return on equity |
2008-09 |
2009-10 |
2008-09 |
2009-10 |
1 |
2 |
3 |
4 |
5 |
1 |
Public sector banks |
1.02 |
0.97 |
17.94 |
17.47 |
|
1.1 Nationalised banks* |
1.03 |
1.00 |
18.05 |
18.30 |
|
1.2 SBI Group |
1.02 |
0.91 |
17.74 |
15.92 |
2 |
Private sector banks |
1.13 |
1.28 |
11.38 |
11.94 |
|
2.1 Old private sector banks |
1.15 |
0.95 |
14.69 |
12.29 |
|
2.2 New private sector banks |
1.12 |
1.38 |
10.69 |
11.87 |
3 |
Foreign banks |
1.99 |
1.26 |
13.75 |
7.35 |
|
All SCBs |
1.13 |
1.05 |
15.44 |
14.31 |
Note: 1) Return on Assets = Net profits/Average total assets
2) Return on Equity = Net profits/Average total equity
3) * Nationalised banks include IDBI Bank Ltd.
Source: Calculated from balance sheets of respective banks. |
4.27 The third major indicator of profitability
of the banking sector namely, the spread –
defined as the difference between return and
cost of funds – also showed a marginal fall by
about 0.10 percentage points in 2009-10 at the
aggregate level. At the bank group level, the fall
in the spread was again most striking for foreign
banks (Table IV.10).
4. Soundness Indicators
4.28 Financial soundness of banks has an
important bearing on the stability of the
financial system as a whole. In the aftermath of
the crisis, initiatives have been taken to
strengthen the prudential regulatory framework
across countries under the enhanced Basel II framework.8 Using three indicators of Capital
to Risk Weighted Assets Ratio (CRAR), Non-
Performing Assets and leverage ratio, this
section analyses the financial soundness of
Indian banks during the year 2009-10.
Capital to Risk Weighted Assets Ratio
4.29 As discussed in the Report on Trend and
Progress of Banking in India (RTP) -2008-09, the
Indian banking system withstood the pressures
of the global financial crisis and a factor that
facilitated the normal functioning of the banking
system even in the face of one of the largest global
financial crisis was its robust capital adequacy.
The CRAR of Indian banks under Basel I
framework, which had been on a steady rise since
2007, posted a marginal increase during the
crisis year, from 13.0 per cent at end-March 2008
to 13.2 per cent at end-March 2009. At end-
March 2010, there was a further rise in the CRAR
to 13.6 per cent (Table IV.12).9
4.30 As all commercial banks in India
excluding RRBs and LABs have become Basel
II compliant as on March 31, 2009, it is essential to also look at the capital adequacy position
under this framework. Under Basel II, CRAR of
Indian banks as at end-March 2009 stood at
14.0 per cent, far above the stipulated minimum
ratio by the Reserve Bank of 9 per cent. This
signified that Indian banks successfully
managed to meet the increased capital
requirement under the changed framework.
Moreover, between end-March 2009 and 2010,
there was an increase by about 0.5 percentage
points in the CRAR of SCBs reflecting further
strengthening of their capital adequacy under
the new framework.
4.31 Core CRAR reflecting the paid up capital
and reserves generally forms the prime measure
of the financial strength of any bank. In the case
of Indian banks, core capital (measured by Tier I
capital) made up about 70 per cent of the total
capital at end-March 2010. Core CRAR ratio of
SCBs at end-March 2010 stood at 9.4 per cent
and 10.1 per cent under Basel I and II frameworks,
respectively, again much above the Reserve Bank’s
stipulation of 6 per cent as under the Basel II
framework, underlining the core capital strength
of the Indian banking system (Table IV.13).
Table IV.12: Capital to Risk Weighted Assets Ratio – Bank group-wise |
(As at end-March) |
(Per cent) |
Bank group |
Basel I |
Basel II |
2009 |
2010 |
2009 |
2010 |
1 |
2 |
3 |
4 |
5 |
Public sector banks |
12.3 |
12.1 |
13.5 |
13.3 |
Nationalised banks* |
12.1 |
12.1 |
13.2 |
13.2 |
SBI group |
12.7 |
12.1 |
14.0 |
13.5 |
Private sector banks |
15.0 |
16.7 |
15.2 |
17.4 |
Old private sector banks |
14.3 |
13.8 |
14.8 |
14.9 |
New private sector banks |
15.1 |
17.3 |
15.3 |
18.0 |
Foreign banks |
15.0 |
18.1 |
14.3 |
17.3 |
Scheduled commercial banks |
13.2 |
13.6 |
14.0 |
14.5 |
Note: *: Includes IDBI Bank Ltd.
Source: Based on off-site returns submitted by banks. |
Table IV.13: Component-wise Capital Adequacy of Scheduled Commercial Banks |
(As at end-March) |
(Amount in ` crore) |
Item |
Basel I |
Basel II |
2009 |
2010 |
2009 |
2010 |
A. Capital funds (i+ii) |
4,88,563 |
5,72,582 |
4,87,826 |
5,67,381 |
i) Tier I capital |
3,31,422 |
3,97,665 |
3,33,810 |
3,95,100 |
ii) Tier II capital |
1,57,141 |
1,74,916 |
1,54,016 |
1,72,281 |
B. Risk-weighted assets |
37,04,372 |
42,16,565 |
34,88,303 |
39,01,396 |
C. CRAR (A as % of B) |
13.2 |
13.6 |
14.0 |
14.5 |
of which: Tier I |
9.0 |
9.4 |
9.6 |
10.1 |
Tier II |
4.2 |
4.1 |
4.4 |
4.4 |
Source: Based on off-site returns submitted by banks. |
4.32 At the bank group-level, each bank
group reported a CRAR ranging, on an average,
above 12 per cent both under Basel I and II frameworks (Table IV.12). Under both
frameworks, the level of CRAR was relatively
high for foreign banks, which was about 4-6
percentage points above the levels reported by
public sector banks. Foreign and private sector
banks reported an increase in CRAR (under
both Basel I and II) between 2009 and 2010.
As against this, there was a decline in the capital
adequacy ratio for the SBI group, while
nationalised banks maintained their position with
regard to capital adequacy during this period.
Non-Performing Assets
4.33 While the capital adequacy of Indian
banks remained robust, there were some
emerging concerns with regard to the second
important soundness indicator of banks of Non-
Performing Assets (NPAs). Asset quality of
Indian banks had generally seen a steady
improvement as evident from a declining level
of gross and net NPA ratio since 1999. The gross
NPA ratio of SCBs placed at 14.6 per cent at
end-March 1999, had declined steadily to 2.25
per cent at end-March 2008. During the crisis
year 2008-09, the gross NPA ratio remained
unchanged for Indian banks. However, during
2009-10, the gross NPA ratio showed an increase
to 2.39 per cent (Table IV.14). After netting out
provisions, there was a rise in the net NPA ratio
of SCBs from 1.05 per cent at end-March 2009
to 1.12 per cent at end-March 2010.
4.34 It is noteworthy that the growth in NPAs
of Indian banks has largely followed a lagged
cyclical pattern with regard to credit growth
(Chart IV.11). The empirical analysis taking
growth rates of gross advances and gross NPAs
since June 2000 indicated that NPA growth follows credit growth with a lag of two years.10 The coefficients of credit growth were positive
and statistically significant from the second lag
onwards reflecting that credit growth fed into
growth in NPAs in a lagged manner. This
underlined the pro-cyclical behaviour of the
banking system, wherein asset quality can get
compromised during periods of high credit
growth and this can result in the creation of nonperforming
assets for banks in the later years.
|
4.35 At the bank group level, the gross NPA
ratio was the highest for foreign banks at end-March 2010 followed by private sector banks.
On the other hand, it was the lowest for public
sector banks. The increase in the gross NPA
ratio between 2009 and 2010 could be seen
across all bank groups except in the case of
private sector banks. The increase in the gross
NPA ratio during this period was perceptible for
foreign banks (Table IV.14).
Table IV.14: Trends in Non-performing Assets - Bank Group-wise |
(Amount in ` crore) |
Item |
Public
sector
banks |
Natio
nalised
banks* |
SBI
Group |
Private
sector
banks |
Old
private
sector
banks |
New
private
sector
banks |
Foreign
banks |
Scheduled
comm
ercial
banks |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
Gross NPAs |
|
|
|
|
|
|
|
|
Closing balance for 2008-09 |
44,957 |
26,543 |
18,413 |
16,926 |
3,072 |
13,854 |
6,444 |
68,328 |
Opening balance for 2009-10 |
44,957 |
26,543 |
18,413 |
16,889 |
3,072 |
13,817 |
6,437 |
68,283 |
Addition during 2009-10 |
44,818 |
29,701 |
15,116 |
11,651 |
2,833 |
8,817 |
9,205 |
65,674 |
Recovered during 2009-10 |
26,946 |
18,966 |
7,980 |
6,498 |
1,686 |
4,811 |
5,513 |
38,957 |
Written off during 2009-10 |
2,902 |
884 |
2,017 |
4,402 |
597 |
3,805 |
2,948 |
10,253 |
Closing balance for 2009-10 |
59,926 |
36,395 |
23,532 |
17,639 |
3,622 |
14,017 |
7,180 |
84,747 |
Gross NPAs as per cent of Gross Advances |
|
|
|
|
|
|
|
|
2008-09 |
1.97 |
1.73 |
2.46 |
2.89 |
2.36 |
3.05 |
3.80 |
2.25 |
2009-10 |
2.19 |
1.95 |
2.70 |
2.74 |
2.32 |
2.87 |
4.29 |
2.39 |
Net NPAs |
|
|
|
|
|
|
|
|
Closing balance for 2008-09 |
21,155 |
10,286 |
10,869 |
7,412 |
1,159 |
6,252 |
2,996 |
31,564 |
Closing balance for 2009-10 |
29,644 |
16,813 |
12,831 |
6,506 |
1,271 |
5,234 |
2,975 |
39,126 |
Net NPAs as per cent of Net Advances |
|
|
|
|
|
|
|
|
2008-09 |
0.94 |
0.68 |
1.47 |
1.29 |
0.90 |
1.40 |
1.81 |
1.05 |
2009-10 |
1.10 |
0.91 |
1.50 |
1.03 |
0.83 |
1.09 |
1.82 |
1.12 |
Note: 1) Closing balance for 2008-09 does not match with opening balance for 2009-10 for private sector and foreign banks as some of these banks have reported opening balance for NPAs after reducing interest suspense from the closing balance of NPAs of the previous year in accordance with the RBI circular dated September 24, 2009.
2) *: Includes IDBI Bank Ltd.
Source: Balance Sheets of respective banks. |
4.36 Apart from the increase in NPA ratio,
there was also deterioration in the distribution
of NPAs of SCBs between 2009 and 2010. This
was evident from an increase in the percentage
of loss making and doubtful assets of SCBs,
which represented the lower end of the NPA
spectrum (Table IV.15; Chart IV.12). The shift
in the distribution of NPAs in favour of doubtful
and loss making assets was more prominent in
the case of foreign and new private sector banks
as compared to public sector banks.
4.37 The sectoral distribution of NPAs showed
a growing proportion of priority sector NPAs
between 2009 and 2010 (Table IV.16). Priority
sector NPAs, which constituted little over half of
the total NPAs of domestic banks up to 2008,
had shown a steep decline in 2009 attributable
primarily to the Agricultural Debt Waiver and Debt Relief Scheme of 2008. Between 2009 and
2010, however, the share of priority sector NPAs
in general, and small scale industries in
particular, went up for domestic banks, partly a
reflection of the impact of the financial crisis and
the economic slowdown that had set in thereafter.
At end-March 2010, the percentage of priority
sector NPAs in total NPAs was 53.8 per cent for
public sector banks as against 27.6 per cent for
private sector banks (Appendix Tables IV.2 (A-C)).
4.38 The sectoral NPA ratio of banks also
indicated a rise for priority and non-priority
sectors between 2009 and 2010; the increase in
NPA ratio for priority sector, however, was higher
than that of the non-priority sector (Chart IV.13).
4.39 It is noteworthy that weaker sections
comprising, among others, small and marginal
farmers, Scheduled Castes and Tribes (SC/STs) have shown a steady decline in the NPA ratio in
the recent years. This trend corroborates the
point 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-March 2010, the NPA ratio for weaker sections stood at 2.73 per cent
for domestic banks, a little higher than the NPA ratio for non-priority sectors (Chart IV.14). The
NPA ratio for weaker sections for public sector
banks was higher at 3.0 per cent than 0.5 per
cent for private sector banks at end-March 2010 (Appendix Tables IV.3 (A-B)).
Table IV.15: Classification of Loan Assets - Bank Group-wise |
(As at end-March) |
(Amount in ` crore) |
Bank group |
Year |
Standard
assets |
Sub-standard
assets |
Doubtful
assets |
Loss
assets |
Amount |
Per cent* |
Amount |
Per cent* |
Amount |
Per cent* |
Amount |
Per cent* |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
1 |
Public sector banks |
2009 |
22,37,556 |
97.99 |
20,603 |
0.90 |
21,019 |
0.92 |
4,296 |
0.19 |
|
|
2010 |
26,73,534 |
97.81 |
28,791 |
1.05 |
25,383 |
0.93 |
5,750 |
0.21 |
|
1.1 Nationalised banks** |
2009 |
15,08,798 |
98.25 |
11,086 |
0.72 |
13,306 |
0.87 |
2,412 |
0.16 |
|
|
2010 |
18,27,061 |
98.05 |
18,520 |
0.99 |
15,034 |
0.81 |
2,841 |
0.15 |
|
1.2 SBI Group |
2009 |
7,28,758 |
97.44 |
9,517 |
1.27 |
7,713 |
1.03 |
1,884 |
0.25 |
|
|
2010 |
8,46,473 |
97.30 |
10,271 |
1.18 |
10,349 |
1.19 |
2,909 |
0.33 |
2 |
Private sector banks |
2009 |
5,68,093 |
97.10 |
10,592 |
1.81 |
5,035 |
0.86 |
1,345 |
0.23 |
|
|
2010 |
6,26,472 |
97.27 |
8,842 |
1.37 |
6,590 |
1.02 |
2,166 |
0.34 |
|
2.1 Old private sector banks |
2009 |
1,27,280 |
97.64 |
1,334 |
1.02 |
1,327 |
1.02 |
411 |
0.32 |
|
|
2010 |
1,52,745 |
97.69 |
1,395 |
0.89 |
1,637 |
1.05 |
580 |
0.37 |
|
2.2 New private sector banks |
2009 |
4,40,813 |
96.94 |
9,258 |
2.04 |
3,708 |
0.82 |
934 |
0.21 |
|
|
2010 |
4,73,727 |
97.13 |
7,447 |
1.53 |
4,953 |
1.02 |
1,586 |
0.33 |
3 |
Foreign banks |
2009 |
1,62,422 |
95.70 |
5,874 |
3.46 |
1,004 |
0.59 |
416 |
0.25 |
|
|
2010 |
1,60,311 |
95.74 |
4,929 |
2.94 |
1,440 |
0.86 |
758 |
0.45 |
|
Scheduled commercial banks |
2009 |
29,68,070 |
97.69 |
37,069 |
1.22 |
27,058 |
0.89 |
6,056 |
0.20 |
|
|
2010 |
34,60,318 |
97.61 |
42,561 |
1.20 |
33,412 |
0.94 |
8,674 |
0.24 |
Note: 1) Constituent items may not add up to the total due to rounding off.
2) * : As per cent to total advances.
3) **: Includes IDBI Bank Ltd.
Source : DSB Returns (BSA) submitted by respective banks. |
|
|
|
Table IV.16: Sector-wise NPAs of Domestic Banks* |
(As at end-March) |
(Amount in ` crore) |
Bank
group |
Priority
sector |
Of which,
Agriculture |
Of which,
Small scale
industries |
Of which,
Others |
Public
sector |
Non-priority
sector |
Total
NPAs |
Amt. |
Per cent |
Amt. |
Per cent |
Amt. |
Per cent |
Amt. |
Per cent |
Amt. |
Per cent |
Amt. |
Per cent |
Amt. |
Per cent |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 |
12 |
13 |
14 |
15 |
Public sector banks |
2009 |
24,318 |
55.2 |
5,708 |
13.0 |
6,984 |
15.9 |
11,626 |
26.4 |
474 |
1.1 |
19,251 |
43.7 |
44,042 |
100.0 |
2010 |
30,848 |
53.8 |
8,330 |
14.5 |
11,537 |
20.1 |
10,981 |
19.2 |
524 |
0.9 |
25,929 |
45.3 |
57,301 |
100.0 |
Nationalised banks** |
2009 |
15,871 |
60.6 |
3,707 |
14.2, |
4,958 |
18.9 |
7,206 |
27.5 |
297 |
1.1 |
10,001 |
38.2 |
26,169 |
100.0 |
2010 |
19,908 |
56.1 |
5,741 |
16.2 |
8,668 |
24.4 |
5,499 |
15.5 |
280 |
0.8 |
15,283 |
43.1 |
35,470 |
100.0 |
SBI group |
2009 |
8,447 |
47.3 |
2,001 |
11.2 |
2,026 |
11.3 |
4,420 |
24.7 |
177 |
1.0 |
9,250 |
51.8 |
17,874 |
100.0 |
2010 |
10,940 |
50.1 |
2,589 |
11.9 |
2,869 |
13.1 |
5,482 |
25.1 |
244 |
1.1 |
10,646 |
48.8 |
21,831 |
100.0 |
Private sector banks |
2009 |
3,641 |
21.6 |
1,441 |
8.5 |
666 |
3.9 |
1,533 |
9.1 |
75 |
0.4 |
13,172 |
78.0 |
16,888 |
100.0 |
2010 |
4,792 |
27.6 |
2,023 |
11.6 |
1,139 |
6.6 |
1,630 |
9.4 |
- |
- |
12,592 |
72.4 |
17,384 |
100.0 |
Old private sector banks |
2009 |
1,234 |
40.2 |
263 |
8.6 |
303 |
9.9 |
667 |
21.7 |
- |
- |
1,839 |
59.8 |
3,072 |
100.0 |
2010 |
1,613 |
44.7 |
269 |
7.4 |
475 |
13.2 |
869 |
24.1 |
- |
- |
1,999 |
55.3 |
3,612 |
100.0 |
New private sector banks |
2009 |
2,407 |
17.4 |
1,178 |
8.5 |
363 |
2.6 |
866 |
6.3 |
75 |
0.5 |
11,334 |
82.0 |
13,815 |
100.0 |
2010 |
3,179 |
23.1 |
1,754 |
12.7 |
664 |
4.8 |
760 |
5.5 |
- |
- |
10,594 |
76.9 |
13,772 |
100.0 |
All domestic SCBs |
2009 |
27,958 |
45.9 |
7,149 |
11.7 |
7,650 |
12.6 |
13,159 |
21.6 |
549 |
0.9 |
32,423 |
53.2 |
60,930 |
100.0 |
2010 |
35,640 |
47.7 |
10,353 |
13.9 |
12,676 |
17.0 |
12,611 |
16.9 |
524 |
0.7 |
38,522 |
51.6 |
74,685 |
100.0 |
Note: 1) * : Excluding foreign banks.
2) - : Nil/negligible
3) Amt. – Amount; Per cent – Per cent of total NPAs.
4) **- includes IDBI Bank Ltd.
Source : Based on off-site returns (domestic) submitted by banks. |
|
4.40 Among the various channels, the amount
of NPAs recovered under the Securitisation and
Reconstruction of Financial Assets and
Enforcement of Security Interest (SARFAESI)
Act, 2002 formed over half of the total amount
of NPAs recovered in 2009-10. The SARFAESI
Act has, thus, been the most important means
of recovery of NPAs. However, there has been a
steady fall in the amount of NPAs recovered
under SARFAESI Act as per cent of the total
amount of NPAs involved under this channel in
recent years, a trend which could also be seen between 2008-09 and 2009-10 (Table IV.17; Chart IV.15).
Table IV.17: NPAs of SCBs Recovered through Various Channels |
(Amount in ` crore) |
|
2008-09 |
2009-10 |
Recovery channel |
No. of cases
referred |
Amount
involved |
Amount
reco
vered* |
Col. (4) as
% of
Col. (3) |
No. of
cases referred |
Amount
invo
lved |
Amount
recov
ered* |
Col.(8) as % of Col.(7) |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
i) Lok Adalats |
5,48,308 |
4,023 |
96 |
2.4 |
7,78,833 |
7,235 |
112 |
1.5 |
ii) Debt Recovery Tribunals |
2,004 |
4,130 |
3,348 |
81.1 |
6,019 |
9,797 |
3,133 |
32.0 |
iii) SARFAESI Act |
61,760# |
12,067 |
3,982 |
33.0 |
78,366# |
14,249 |
4,269 |
30.0 |
Note: 1) *: Refers to amount recovered during the given year, which could be with reference to cases referred during the given year as well as during the earlier years.
2) #: Number of notices issued. |
4.41 At end- June 2010, there were 13
registered Securitisation/Reconstruction
Companies (SCs/RCs) in India. Of the total
amount of assets securitised by these
companies at end-June 2010, the largest
amount was subscribed to by banks. However,
there was a steady decline in the percentage
share of banks in total value of securitised
assets in the recent years, while the shares of
both SCs/RCs and Qualified Institutional Buyers
(QIBs) were on a rise (Table IV.18; Chart IV.16).
This could partly be explained by trend of nonrealisation
of Security Receipts (SRs) by SCs/
RCs within the stipulated period of five years
(extended to eight years w.e.f. April 21, 2010)
from the time of acquisition of the financial
asset. This trend possibly led to waning of
interest of commercial banks in subscribing
to SRs of SCs/RCs. As the non-realised SRs
remained on the books of SCs/RCs, their share
continued to show a rise, while the share of
commercial banks posted a decline.
|
4.42 The rise in NPAs was reflected in
increased amount of provisioning by banks in
2009-10. The amount of NPA provisioning of
SCBs grew by 22.4 per cent during this year.
Given the concern about providing adequate cushion for unexpected losses, in October 2009,
the Reserve Bank advised SCBs about ensuring
their provisioning (comprising specific
provisions against NPAs and floating provisions)
to NPA ratio was not less than 70 per cent. SCBs
were asked to meet the provisioning norm not
later than September 2010. Between 2009 and
2010, the coverage ratio of provisions to NPAs
of SCBs declined from 52.1 per cent to 51.5 per
cent (Chart IV.17). The decline in coverage ratio
could be seen mainly in the case of nationalised
banks (Table IV.19). The ratio declined
substantially by about 8 percentage points for
nationalised banks between 2009 and 2010.
As against this decline, the ratio increased by
about 7 percentage points for private sector
banks and also by about 5 percentage points
for foreign banks - the bank group showing
the highest NPA ratio at end-March 2010.
Table IV.18: Financial Assets Securitised by SCs/RCs |
(Amount in ` crore) |
Item |
2009 |
2010 |
1 |
2 |
3 |
1 |
Book Value of assets acquired |
51,542 |
62,217 |
2 |
Security Receipts issued |
12,801 |
14,050 |
3 |
Security Receipts subscribed by |
|
|
|
(a) Banks |
9,570 |
10,314 |
|
(b) SCs/RCs |
2,544 |
2,940 |
|
(c) FIIs |
- |
- |
|
(d) Others |
687 |
797 |
|
(Qualified Institutional Buyers) |
|
|
4 |
Amount of Security Receipts completely redeemed |
2,792 |
4,556 |
Note: 1) -: Nil/negligible.
2) Data refer to end-June.
Source: Quarterly Statement submitted by SCs/RCs. |
Leverage Ratio
4.43 Following the financial crisis, there have been deliberations at various international fora
including the Basel Committee on Banking
Supervision (BCBS) in its formulation of the enhanced Basel II framework about the need
for a non-risk based measure for monitoring
the leverage of the banking system.11 It has been
argued that such a measure could supplement
the existing risk-based measures and can
introduce additional safeguards by putting a
floor on the build up of leverage within the
system. A simple measure is being used by
countries, such as the US, to capture the most
visible balance sheet leverage by taking the ratio
of Tier I capital to total adjusted assets.12 Using a similar definition for the Indian banking
system, the leverage ratio worked out to 6.6 per
cent at end-March 2010.13 The leverage ratio showed an increase during recent years except
for a marginal fall between 2008 and 2009. The
consistent increase in both non-risk-based
leverage ratio and risk-based CRAR as well as
core CRAR in the recent years indicated the
growing soundness of the Indian banking
system (Chart IV.18).
Table IV.19: Trends in Provisions for Non-performing Assets – Bank Group-wise |
(Amount in ` crore) |
Item |
Public sector banks |
Nationalised banks* |
SBI group |
Private sector banks |
Old private sector banks |
New private sector banks |
Foreign banks |
Scheduled commercial banks |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
Provisions for NPAs |
|
|
|
|
|
|
|
|
As at end-March 2009 |
22,658 |
15,171 |
7,487 |
9,391 |
1,826 |
7,564 |
3,448 |
35,498 |
Add : Provisions made during the year |
18,037 |
11,518 |
6,519 |
10,393 |
1,246 |
9,147 |
3,576 |
32,007 |
Less : Write-off, write- back of excess during the year |
12,293 |
8,881 |
3,411 |
8,782 |
852 |
7,929 |
2,810 |
23,886 |
As at end-March 2010 |
28,402 |
17,808 |
10,594 |
11,002 |
2,220 |
8,782 |
4,214 |
43,619 |
Memo: |
|
|
|
|
|
|
|
|
Gross NPAs |
59,926 |
36,395 |
23,532 |
17,639 |
3,622 |
14,017 |
7,180 |
84,747 |
Ratio of outstanding provisions to gross NPAs (per cent) |
|
|
|
|
|
|
|
|
End-March 2009 |
50.5 |
57.2 |
40.8 |
55.7 |
59.4 |
54.9 |
53.8 |
52.1 |
End-March 2010 |
47.4 |
48.9 |
45.0 |
62.4 |
61.3 |
62.7 |
58.7 |
51.5 |
Note:*: Includes IDBI Bank Ltd.
Source: Balance sheets of respective banks. |
5. Sectoral Distribution of Bank Credit
4.44 Sectoral distribution of bank credit
provides an understanding of the contribution
of bank credit towards economic growth and
financial inclusion as well as its role in ensuring
financial stability. Accordingly, this section
highlights the general trends and relevant issues
in sectoral distribution of bank credit in 2009-10 followed by detailed discussions on the
trends in priority sector credit as well as retail
credit and credit to certain sensitive sectors.
4.45 As discussed in Section 2, bank credit
witnessed a slowdown on a year-on-year basis
during 2009-10 continuing with the trend
observed in the recent past. However, there were
signs of pick up in growth of bank credit in
general, and industrial credit in particular, following the recovery in the real sector. As
shown in Chart IV.19, the growth in Index of
Industrial Production (IIP), a proxy for the real economic activity, which is expected to largely
impact the corporate sector loans of banks, showed signs of recovery from June 2009, but
it consolidated only after October 2009 entering into the double digit zone. It was also the period
when growth in industrial credit, and bank
credit as a whole, began to increase. Taking
monthly data on industrial credit and
production from April 2006 onwards, the
elasticity of industrial credit with respect to
industrial production worked out to 2.08.14
|
4.46 On the year-on-year basis, the main
drivers of non-food bank credit during 2009-10
were the sectors of industry and agriculture.
There was a considerable slowdown in credit
to the services sector and personal loans during
the year (Table IV.20).15
Table IV.20: Sectoral Deployment of Gross Bank Credit: Flows
(Variations over the year) |
(Amount in ` crore) |
Sector |
2008-09 |
2009-10 |
Absolute |
Per cent |
Absolute |
Per cent |
1 |
2 |
3 |
4 |
5 |
1. Agriculture & Allied Activities |
63,313 |
23.0 |
76,758 |
22.7 |
2. Industry |
1,96,046 |
22.8 |
2,55,424 |
24.2 |
3. Personal Loans |
40,861 |
7.8 |
23,546 |
4.2 |
Of which: Housing |
19,242 |
7.4 |
21,620 |
7.7 |
4. Services |
96,803 |
17.6 |
79,394 |
12.3 |
Of which: |
|
|
|
|
(i) Wholesale Trade (other than food procurement) |
11,676 |
20.9 |
19,506 |
28.9 |
(ii) Real Estate Loans |
29,072 |
45.9 |
-363 |
-0.4 |
(iii) Non-Banking Financial Companies |
19,897 |
25.2 |
19,068 |
19.3 |
Total Non-Food Gross
Bank Credit (1 to 4) |
3,97,021 |
18.0 |
4,35,122 |
16.7 |
Note: 1) Data are provisional and relate to select banks.
2) The decline in real estate loans was on account of the definitional changes effected in September 2009, as discussed in footnote no.15.
Source: Sectoral and Industrial Deployment of Bank Credit Return
(Monthly). |
4.47 The general trend in the recent years has
been the strengthening of the contribution from
industrial credit to the increment in total bank
credit. Between 2006-07 and 2009-10, the
percentage contribution of industrial credit to
total bank credit increased steadily from 37.1
per cent to 58.7 per cent (Chart IV.20). There
was also a rising trend in the contribution of
credit to agriculture and allied activities. On the other hand, personal loans, which were a major
driver during the high credit growth phase of
the mid-2000s, witnessed a decline in their
percentage contribution. A decline could also
be seen in the contribution from the services
sector to the increment in total credit.
|
4.48 The sectoral credit to sectoral GDP ratio
was the highest for the industrial sector (at 112
per cent) followed by agriculture (and allied
activities) (at 41.4 per cent) and then services
(at 19.6 per cent) in 2009-10 (Chart IV.21).
During the recent years, the ratio was on a
rising trend for industrial and agricultural
sectors, while it was almost stagnant for the
services sector.16
4.49 Given the importance of infrastructural
development for economic growth,
infrastructural financing has been an important
area of concern for both Government and the
Reserve Bank. Accordingly, a number of
regulatory measures and concessions have been provided to banks including take out financing,
relaxed asset classification norms and enhanced
exposure ceilings for infrastructural lending.
Infrastructural financing has been a growing
component in banks’ credit portfolio in the
recent years partly on account of such policy
initiatives. Infrastructural credit as per cent of
total non-food gross bank credit as well as total
industrial credit has shown a steady increase
from 2007-08 onwards. The largest component
of infrastructural finance has been of power
accounting for almost half the total
infrastructural credit from banks in 2009-10
(Chart IV.22).
Credit to Priority Sectors
4.50 Priority sectors have been an integral
part of bank credit delivery in India. Between
2009 and 2010, there was a growth in priority
sector credit from domestic commercial banks
of 18.4 per cent primarily due to the growth in agricultural credit. The growth in agricultural
credit from domestic banks was to the tune of
22.6 per cent in 2009-10. Foreign banks,
however, posted a much lower growth of 8.8 per
cent in priority sector credit in 2009-10 than
their domestic counterparts.
4.51 At end-March 2010, domestic (public
and private sector) and foreign banks had more
than met their overall priority sector lending
targets of 40 and 32 per cent, respectively
(Tables IV.21 and IV.22). However, at the
disaggregated level, three out of 27 public sector
banks and 2 out of 22 private sector banks could
not meet the overall priority sector target in 2010.
Further, three out of 27 foreign banks also could
not meet the overall priority sector target
(Appendix Tables IV.4 (A-C) and IV.5 (A-C)).
4.52 There were some concerns regarding the
performance of domestic banks in meeting the
sub-target (of 18 per cent) under agriculture.
At the aggregate level, both public and private
sector banks were below the sub-target of 18
per cent for agriculture at end-March 2010. At
the disaggregated level, more than half of public
sector banks (15 out of 27) and exactly half of
the private sector banks (11 out of 22) could not meet the agricultural sub-target. Within
private sector banks, the performance was
relatively poor in the case of old private sector banks, while most new private sector banks
were able to meet the sub-target under
agriculture. Further, majority of the private
sector banks (15 out of 22) could not meet the
sub-target of 10 per cent under weaker sections.
The performance of foreign banks in meeting
the sub-targets under exports and Micro, Small
and Medium Enterprises (MSME) sectors was
significantly better with majority of the foreign
banks being able to meet these targets in 2010.
Table IV.21: Priority Sector Lending by Public and Private Sector Banks |
(As on the last reporting Friday of March) |
(Amount in ` crore) |
Item |
Public Sector Banks |
Private Sector Banks |
2009 |
2010P |
2009 |
2010P |
1 |
2 |
3 |
4 |
5 |
Priority Sector |
7,24,150 |
8,64,564 |
1,87,849 |
2,15,552 |
Advances# |
(42.7) |
(41.6) |
(46.2) |
(45.9) |
of which: |
|
|
|
|
Agriculture |
2,99,415 |
3,70,730 |
76,102 |
89,769 |
|
(17.6) |
(17.1) |
(18.7) |
(15.6) |
of which: |
|
|
|
|
Micro and Small |
1,91,408 |
2,78,398 |
46,656 |
64,534 |
Enterprises |
(11.3) |
(13.2) |
(11.8) |
(13.7) |
Note: 1) P : Provisional.
2) # : In terms of revised guidelines on lending to priority sector
lending, broad categories include small enterprise sector,
retail trade, microcredit, education and housing.
3) ^ : Indirect agriculture is reckoned up to 4.5 per cent of ANBC
for calculation of percentage.
4) Figures in parentheses represent percentages to Net Bank Credit/Adjusted Net Bank Credit (ANBC)/Credit equivalent amount of Off-Balance Sheet Exposures (CEOBSE), whichever is higher. |
Table IV.22: Priority Sector Lending by Foreign Banks |
(As on the last reporting Friday of March) |
(Amount in ` crore) |
|
2009 |
2010P |
|
Amount |
Percentage to ANBC/ CEOBSE |
Amount |
Percentage to ANBC/ CEOBSE |
1 |
2 |
3 |
4 |
5 |
Priority Sector Advances # |
55,415 |
34.2 |
60,290 |
35.0 |
Of which, |
|
|
|
|
Export credit |
31,511 |
19.4 |
35,466 |
20.6 |
Of which, |
|
|
|
|
Micro and Small Enterprises* |
18,063 |
11.2 |
21,080 |
12.2 |
Note: 1) P : Provisional.
2) # : In terms of revised guidelines on lending to priority sector, broad categories include agriculture, small enterprises sector, retail trade, micro credit, education and housing.
3) * : The new guidelines on priority sector advances take
into account the revised definition of small and micro enterprises as per the Micro, Small and Medium Enterprises Development Act, 2006.
4) ANBC/CEOBSE – Adjusted Net Bank Credit/Credit equivalent amount of Off-Balance Sheet Exposures, whichever is higher. |
Retail Credit
4.53 Retail credit growth including personal
loan portfolio of banks had shown a spurt
between 2004-05 and 2005-06 but showed
deceleration in the subsequent years (Chart IV.23).
Retail credit growth posted only a marginal
increase in 2009-10 (Table IV.23).
4.54 The marginal increase in retail credit
growth between 2008-09 and 2009-10 was
entirely attributable to the housing loan
segment, which constituted the single-largest
portion of total retail credit of Indian banks.
The pick up in housing loan growth was partly
on account of low interest rates that prevailed
during most part of 2009-10 despite the fact
that property prices, which had experienced a
correction in 2008-09 immediately following the
crisis, showed a spurt during 2009-10 (see Chart II.43, Page 53 from RBI Annual Report -
2009-10). Other retail segments such as
consumer durables, auto loans and credit card
receivables, however, recorded negative growth
in 2009-10. Given that most retail sectors are
rate-sensitive, credit to these sectors in future
would be impacted by the emerging interest rate
environment.
Table IV.23: Retail Loan Portfolio of SCBs |
(Amount in ` crore) |
Item |
At end-March |
Percentage variation |
|
2009 |
2010 |
2008-09 |
2009-10 |
1 |
2 |
3 |
4 |
5 |
1. Housing Loans |
2,63,235 |
3,15,862 |
4.1 |
20.0 |
2. Consumer Durables |
5,431 |
3,032 |
13.1 |
-44.2 |
3. Credit Card Receivables |
29,941 |
21,565 |
9.1 |
-28.0 |
4. Auto Loans |
83,915 |
78,346 |
-4.6 |
-6.6 |
5. Other Personal Loans |
2,11,294 |
2,03,947 |
6.9 |
-3.5 |
Total Retail Loans (1 to 5) |
5,93,816 |
6,22,752 |
4.0 |
4.9 |
|
(21.3) |
(19.0) |
|
|
Note: Figures in parentheses represent percentage share of retail loans in total loans and advances. The amount of total loans and advances are as provided in the off-site returns (domestic) of SCBs.
Source : Based on Off-site returns (domestic). |
Credit to Sensitive Sectors
4.55 Capital market, real estate and
commodities are deemed sensitive for the
stability of the banking system on account of
the price fluctuations in the related asset/
product markets. Credit to these sensitive
sectors together constituted 19.6 per cent of the
total bank credit at end-March 2010, with the
real estate sector individually accounting for
16.6 per cent of this share (Appendix Table IV.6).
4.56 In the recent years, there has been a
falling trend in both growth as well as share of
credit to sensitive sectors except for a mild
increase in 2009-10 (Chart IV.24). The fall in
the share of credit to sensitive sectors, however,
was mainly due to public sector banks
(Appendix Table IV.6). Foreign banks, which had a much higher exposure to sensitive sectors than
other bank groups, in fact, showed an increase
in the share of credit given to these sectors.
6. Operations of Scheduled Commercial
Banks in Capital Market
4.57 Capital market provides an important
avenue to banks to raise resources for
strengthening their capital base as well as to
provide trading ground for bank stocks. Hence,
in a liberalised and competitive environment,
banks’ operations in the capital market have
critical implications for the growth of their
banking business. This section highlights the
operations of banks in the primary and
secondary capital markets.
Table IV.24: Public Issues by the Banking Sector |
(Amount in ` crore) |
Year |
Public Sector Banks |
Private Sector Banks |
Total |
Grand Total |
Equity |
Debt |
Equity |
Debt |
Equity |
Debt |
|
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8=(6+7) |
2008-09 |
- |
- |
- |
- |
- |
- |
- |
2009-10 |
325 |
- |
313 |
- |
638 |
- |
638 |
– : Nil/Negligible. |
Banks’ Operations in the Primary Market
4.58 After abstaining during 2008-09, banks
started resorting to capital market for raising
resources in 2009-10. This revival in primary
market resource mobilisation was a reflection
of the easing of liquidity constraints witnessed
during the previous year, a buoyant secondary
market and improved investment demand by
corporates (Table IV.24).
4.59 Given the concerns related to a slow pace
of economic recovery in the industrialised
economies and emergence of European sovereign
debt crisis, mobilisation of resources by domestic
banks from global capital markets showed no
major signs of revival in 2009-10 like in the
previous year (Table IV.25). There was resource
mobilisation only to the tune of `843 crore through
GDRs by private sector banks in 2009-10.
4.60 Given that private placements and public
issues largely act as substitutes of one another
in raising resources, in 2008-09, when there was
no resource mobilisation through public issues in the domestic capital market, banks’ resource
mobilisation through private placements had
shown a significant increase by 34.6 per cent
(Chart IV.25). Banks continued to raise funds
through private placements in 2009-10 but the
growth had abated to 15.8 per cent. The growth
in mobilisation of resources through private
placements in 2009-10 was attributable to
private sector banks (Table IV.26).
Table IV.25: Resource Mobilisation through Euro Issues |
(Amount in ` crore) |
Item |
2008-09 |
2009-10 |
1 |
2 |
3 |
Euro Issues |
4,788 |
15,967 |
(i) ADRs |
- |
7,763 |
Of which, FIs |
- |
- |
Of which, Banks |
- |
- |
a) Private |
- |
- |
b) Public |
- |
- |
(ii) GDRs |
4,788 |
8,204 |
Of which, FIs |
- |
- |
Of which, Banks |
- |
843 |
a) Private |
- |
843 |
b) Public |
- |
- |
(iii) FCCBs |
N.A. |
N.A. |
Note: 1) N.A.: Not available.
2) -: Nil/Negligible
3) FCCBs – Foreign Currency Convertible Bonds
4) ADRs/GDRs- American/Global Depository Receipts |
Performance of Banking Stocks in the
Secondary Market
4.61 The domestic stock market, which had
recorded significant losses in 2008-09 as a
fallout of the financial crisis, registered phenomenal increase of 80.5 per cent in 2009-
10 outperforming many Emerging Market
Economies (EMEs) largely a reflection of
domestic economic recovery and resumption
of FII flows. Though the Dubai-debt crisis and
the uncertainty over the health of indebted
euro-zone countries overshadowed the stock
market sentiment in the beginning of the 2010,
there was a general upward movement in stock
prices throughout the year with the BSE
Sensex reaching the pre-crisis level in mid-
September 2010.
Table IV.26: Resources Raised by Banks through Private Placements |
(Amount in ` crore) |
Category |
2008-09 |
2009-10 |
No. of Issues |
Amount Raised |
No. of Issues |
Amount Raised |
1 |
2 |
3 |
4 |
5 |
Private Sector Banks |
13 |
6,967 |
18 |
17,101 |
Public Sector Banks |
52 |
28,304 |
63 |
23,762 |
Total |
65 |
35,271 |
81 |
40,863 |
Source: Merchant Bankers and Financial Institutions. |
4.62 The BSE Bankex (representing the
banking sector scrips) recorded larger gains than
those in the BSE Sensex during 2009-10 reflecting
the buoyancy in bank stocks (Table IV.27).
However, while the returns were higher, the
volatility of BSE Bankex, reflecting the risk in
trading in these stocks, was also higher than
that of BSE Sensex in 2009-10.
4.63 In line with the overall trend, all of the
39 listed banks recorded gains during 2009-10.
The upward movement of prices of bank stocks
was also reflected in increase of Price/Earning
(P/E) ratios across most bank stocks. However, the increase in P/E ratio was much sharper in
the case of scrips of private sector banks as
compared to those of their public sector
counterparts (Appendix Table IV.7).
Table IV.27: Risk-Return Performance, Turnover and Capitalisation of Bank Stocks |
Item |
2007-08 |
2008-09 |
2009-10 |
2010-11# |
1 |
2 |
3 |
4 |
5 |
1. Return* |
|
|
|
|
BSE Bankex |
18.0 |
-41.8 |
137.2 |
31.9 |
BSE Sensex |
19.7 |
-37.9 |
80.5 |
14.8 |
2. Volatility@ |
|
|
|
|
BSE Bankex |
13.8 |
23.8 |
16.5 |
6.0 |
BSE Sensex |
12.0 |
24.2 |
11.9 |
10.6 |
3. Share of turnover of bank stocks in total turnover |
6.6 |
12.3 |
10.0 |
9.8 |
4. Share of capitalisation of bank stocks in total market capitalisation ** |
7.2 |
7.7 |
8.7 |
12.7 |
Note: 1) * : Percentage variations in indices on a point-to-point basis.
2) @ : Defined as coefficient of variation.
3) ** : As at end-period
4) # : April-October 15, 2010.
Source: Bloomberg and National Stock Exchange of India Limited. |
4.64 After registering almost a doubling of their
share in total capital market turnover between
2007-08 and 2008-09, bank stocks witnessed a
decline in their share in total turnover in 2009-
10 and even in 2010-11 (between April and
October 15) (Table IV.27). On the other hand, the
share of bank stocks in total market
capitalisation posted a rise since 2007-08.
7. Shareholding Pattern in Scheduled
Commercial Banks
4.65 Though government shareholding in
public sector banks had remained above 51 per
cent during 2009-10, majority of the public
sector banks (11 out of 21) were very close to
the floor (Table IV.28; Appendix Table IV.8). This
raised the important issue of recapitalisation
in order to ensure continued credit creation by
public sector banks if the statutory floor of 51
per cent for government shareholding had to
be maintained.17
4.66 In public sector banks, the percentage
of foreign shareholding was only up to 20 per
cent. However, the extent of foreign shareholding
in new private sector banks was much greater;
three banks out of seven from this bank group
had foreign shareholding exceeding 50 per cent
(Table IV.29).
Table IV.28: Public Sector Banks Classified by Percentage of Private Shareholding |
Class of shareholding |
Total private share-holding |
Private resident share-holding |
Private non-resident share-holding |
1 |
2 |
3 |
4 |
Up to 10 per cent |
1 |
2 |
10 |
More than 10 and upto 20 per cent |
3 |
4 |
11 |
More than 20 and upto 30 per cent |
2 |
7 |
- |
More than 30 and upto 40 per cent |
4 |
7 |
- |
More than 40 and upto 49 per cent |
11 |
1 |
- |
Note: 1) – Nil.
2) Including 19 nationalised banks, SBI and IDBI Bank Ltd. |
Table IV.29: Public and Private Sector Banks Classified by Percentage of Foreign Shareholding |
Class of shareholding |
Public sector banks |
New private sector banks |
Old private sector banks |
1 |
2 |
3 |
4 |
Nil |
1 |
- |
2 |
Up to 10 per cent |
9 |
- |
3 |
More than 10 and upto 20 per cent |
11 |
- |
1 |
More than 20 and upto 30 per cent |
- |
1 |
4 |
More than 30 and upto 40 per cent |
- |
1 |
3 |
More than 40 and upto 50 per cent |
- |
2 |
1 |
More than 50 per cent upto 60 per cent |
- |
1 |
- |
More than 60 per cent upto 70 per cent |
- |
2 |
1 |
Note: 1) – Nil.
2) Public sector banks include 19 nationalised banks,
SBI and IDBI Bank Ltd. |
8. Technological Developments in
Scheduled Commercial Banks
4.67 Developments in the field of Information
Technology (IT) strongly support the growth and
inclusiveness of the banking sector thereby
facilitating inclusive economic growth. IT not only
enhances the competitive efficiency of the banking
sector by strengthening back-end administrative
processes, it also improves the front-end
operations and helps in bringing down the transaction costs for the customers. It has the
potential of furthering financial inclusion by
making small ticket retail transactions cheaper,
easier and faster for the banking sector as well
as for the small customers. The Reserve Bank
has thus been actively involved in harnessing
technology for the development of the Indian
banking sector over the years.
4.68 The most fundamental way in which
technology has changed the face of the Indian
banking sector has been through computerisation.
While new private sector banks and foreign banks
have an edge in this regard, public sector banks
have been investing for upgrading their operations
by way of computerisation. Of the total number
of public sector bank branches, 97.8 per cent
were fully computerised at end-March 2010
(Table IV.30; Appendix Table IV.9). All branches
of the SBI group were fully computerised.
4.69 The cumulative expenditure on
‘computerisation and development of
communication networks’ by public sector
banks from September 1999 to March 2010
aggregated to `22,052 crore (Appendix Table
IV.10). On an annual basis, the expenditure on
‘computerisation and development of
communication networks’ registered a growth
of 23.2 per cent in 2009-10.
4.70 A technological development closely related
to computerisation in bank branches is the
adoption of the Core Banking Solutions (CBS). CBS enable banks to offer a multitude of customercentric
services on a continuous basis from a
single location, supporting retail as well as
corporate banking activities thus making “onestop”
shop for financial services a reality. An
important development in 2009-10 was a
significant increase in the percentage of branches
of public sector banks implementing CBS. The
percentage of such branches increased from 79.4
per cent at end-March 2009 to 90 per cent at end-
March 2010 (Table IV.30). The percentage of
branches under CBS was much larger for the SBI
group as compared to nationalised banks
(Appendix Table IV.9).
Table IV.30: Computerisation in Public Sector Banks |
(As at end-March) |
(Per cent of total bank branches) |
Category |
2009 |
2010 |
1 |
2 |
3 |
Fully Computerised Branches (i+ii) |
95.0 |
97.8 |
i) Branches under Core Banking Solutions |
79.4 |
90.0 |
ii) Branches already Computerised # |
15.6 |
7.8 |
Partially Computerised Branches |
5.0 |
2.2 |
# : Other than branches under Core Banking Solutions. |
4.71 While computerisation in general, and
CBS in particular, having reached near
completion, it is important to leverage on to
this technological advancement to look at areas
beyond CBS that can help in not just delivering
quality and efficient services to customers but
also generating and managing information
effectively. With regard to the second aspect of
information management, a system of receiving
data from banks by the Reserve Bank in an
automated manner without any manual
intervention is under examination; the benefits
of this system are discussed in Box IV.3.
4.72 The third major technological
development, which has revolutionised the
delivery channel in the banking sector, has been
the Automated Teller Machines (ATMs). ATMs,
particularly off-site ATMs, act as substitutes for
bank branches in offering a means of anytime
cash withdrawal to customers. Growth in ATMs,
which had been generally on a steady rise in the
recent years, was observed to be 37.8 per cent
in 2009-10. More importantly, the growth in offsite
ATMs too was comparably high at 44.6 per
cent during the year. At end-March 2010, the
percentage of off-site ATMs to total ATMs stood
at 45.7 per cent for all SCBs (Table IV.31; Chart
IV.26; Appendix Table IV.11).
Box IV.3: Automated Data Flow in the Banking Sector:
The Future of Effective
Data Transmission and Management
World over, central banks and various regulatory bodies
depend on information received from regulated entities
which helps in discharging their responsibilities and
functions in an efficient manner. It also enables them to
frame appropriate policies. Information consists of data
which should be collected based on the principles of
integrity, reliability, and accuracy. This information is
systematically and meaningfully derived from data. It is,
therefore, pertinent that data and information reaches the
regulators not only in a timely manner but also is free from
errors and distortions. The requirement is, therefore, to
ensure collation of quality data along with its processing
and flow to the appropriate level in a timely manner.
The concept of Automated Data Flow (ADF) seeks to fulfil
this requirement in which data is seamlessly transmitted
from the host systems to the recipient system without
any intermediation, thus making the whole process more
efficient, consistent and reliable. At the same time, as a
major spin-off benefit, the system of automated data flow
also streamlines the information sharing mechanism at
the host level thus serving as a potent MIS tool and
encourages good data management practices. IT should
help banks not just to deliver robust and reliable services to their customers at a lower cost, but also generate and
manage information effectively.
Submission of consistent data in a timely manner by banks
is significant for the Reserve Bank in discharging its
regulatory and supervisory functions. The flow of data from
banks to the Reserve Bank in an automated manner would
not only ensure its timely availability but also provide a
better information-environment for building an effective
decision support system. Large volumes of data relating to
customers and transactions are now available with banks,
which can be gainfully utilised through proper analysis with
an objective to tailoring business strategies, meeting
diversified internal and external MIS requirements and
building robust risk management systems.
With computerisation of commercial banks having
reached a plateau (even with regard to adoption of CBS),
it has become possible to bring about a paradigm shift
in the data flow and information sharing arrangements
by harnessing the benefits of IT resources. The system of
ADF would help in leveraging on these benefits and propel
the information sharing system between banks and
Reserve Bank to the next higher level.
4.73 There has been a steady increase in the
ratio of total value of electronic payments to
Gross Domestic Product (GDP) reflecting
growing preference for the electronic mode of
payments in the recent years (Chart IV.27).
Among the various electronic modes of payment, the centralised version of Electronic Fund
Transfer (EFT) – National EFT (NEFT) – has
become an important means of retail payments,
while the Real Time Gross Settlement (RTGS) has shown significant growth as a means of
settling large value payments. The development
of NEFT and RTGS has been compared and
contrasted in Box IV.4.
Table IV.31: Number of ATMs of SCBs |
(As at end-March 2010) |
Bank group |
On-site ATMs |
Off-site ATMs |
Total number of ATMs |
Off-site ATMs as per cent of total ATMs |
1 |
2 |
3 |
4 |
5 |
1 |
Public sector banks |
23,797 |
16,883 |
40,680 |
41.5 |
|
1.1 Nationalised banks |
12,655 |
7,047 |
19,702 |
35.8 |
|
1.2 SBI group |
11,142 |
9,836 |
20,978 |
46.9 |
2 |
Private sector banks |
8,603 |
9,844 |
18,447 |
53.4 |
|
2.1 Old private sector banks |
2,266 |
1,124 |
3,390 |
33.2 |
|
2.1 New private sector banks |
6,337 |
8,720 |
15,057 |
57.9 |
3 |
Foreign banks |
279 |
747 |
1,026 |
72.8 |
|
All SCBs |
32,679 |
27,474 |
60,153 |
45.7 |
|
|
|
4.74 Going forward, there are a number of
issues with regard to development of banking
technology that need to be addressed. These
relate to further improvement in back office
management in the form of streamlining MIS,
strengthening centralised processing, Customer
Relationship Management (CRM) and IT
Governance. The back office technological
advancement would help in diverting banks’
resources more towards the front office
management thereby increasing the customer
focus of their services and support greater
financial penetration and inclusion.
Box IV.4:
RTGS and NEFT: A Comparative Analysis of Scales of Operation
The Reserve Bank has taken a series of initiatives to
facilitate use of electronic mode for various retail and
large value transactions. RTGS is a large value payment
system which processes both customer and inter-bank
transactions of `1,00,000 and above, while the NEFT is
essentially a retail system. Further, while RTGS is a realtime
gross settlement arrangement, NEFT is a near-real
time system with settlements taking place at hourly
intervals. Both systems are operated by the Reserve Bank.
The facility of RTGS and NEFT is available in over 70,000
branches with 119 members and 99 banks participating
in the respective systems.
The volume and value of transactions processed through
the two systems has shown an impressive growth over
the years (Charts 1 and 2). Considering the fact that RTGS
is a large value payment system as against NEFT, the
value of transactions processed in the former are much
larger. However, the growth trend in the value of
transactions in the two systems reveals that the amount
of transactions processed in NEFT has increased
exponentially since 2007-08, while RTGS has exhibited
a relatively steady growth.
Bank group-wise analysis
Bank group-wise data for 2008-09 and 2009-10 of RTGS and
NEFT systems show that private sector banks were major
participants in the systems and accounted for over one-third
of total transactions. The SBI Group accounted for 22 per
cent of the total transactions in the RTGS system but their
presence in NEFT was only 10 per cent (Table below). Further,
the volume and value of transactions in the RTGS system
was concentrated among a few participants. The top eight
players namely SBI, Punjab National Bank, AXIS Bank,
HDFC Bank, ICICI Bank, Bank of India, IDBI Bank and
CitiBank accounted for more than 50 per cent of total
volume and value of transactions as at end-March 2010.
Table: Bank Group-wise Number of Transactions in RTGS and NEFT |
(Number of transactions in million) |
|
RTGS |
NEFT |
Bank Group |
2008-09 |
2009-10 |
2008-09 |
2009-10 |
SBI Group |
3.3 |
7.4 |
2.7 |
6.7 |
Nationalised banks |
3.5 |
9.0 |
2.2 |
7.7 |
Foreign banks |
2.2 |
5.3 |
12.4 |
21.6 |
Private sector banks |
4.2 |
11.3 |
14.4 |
29.3 |
Others |
0.1 |
0.3 |
0.03 |
0.2 |
Note: Others include State Cooperative Banks, RBI and Urban Cooperative Banks
under NEFT, and under RTGS, apart from these three entities, SEBI-regulated entities
and DICGC are included. |
9. Customer Services
4.75 Making banks more customer-friendly
has been high on the agenda of the Reserve
Bank. Accordingly, a number of steps have been
taken towards enhancing financial literacy and
strengthening channels of information
dissemination relating to banking services to
customers. A full-fledged Customer Service
Department was set up in 2006 by the Reserve
Bank to enhance the pace and quality of
provision of customer services, while providing
customers a forum for redressal of their
grievances.
4.76 The forum of redressal of consumers’
grievances about banking, the Banking
Ombudsman (BO), received 79,266 complaints
at its 15 offices in 2009-10 contributed largely
by the complaints received at the offices of the
three major metropolises of Mumbai, New Delhi
and Chennai. These three offices together
accounted for almost half of the total complaints
(34,830 complaints accounting for 43.9 per cent
of the total) in 2009-10. It may be highlighted
that the number of complaints at almost all
offices in India has been increasing in the recent
years indicating the growing awareness among
consumers about grievance redressal, but the
increase was particularly rapid at the offices in
these three metropolises (Table IV.32).
4.77 The share of complaints received against
foreign banks and new private sector banks,
which had been on a rapid increase in the recent
years, showed signs of slowing down in 2009-10.
In the case of foreign banks, there was a decline
in the number of complaints received by the BOs
in 2009-10. In contrast, there was a perceptible
increase to the tune of over 26 per cent in the
number of complaints received against public
sector banks in 2009-10 (Table IV.33). On
account of a fall in the growth of complaints
against new private sector banks and foreign
banks, the shares of these bank groups posted
a decline between 2008-09 and 2009-10, while
the share of public sector banks, particularly the SBI group showed a rise (Chart IV.28). In 2009-10,
SBI group alone accounted for little less than
one-third of the total number of complaints
received by SCBs. The number of complaints
per branch for public sector banks at 0.71 (1.3 for SBI group) was much lower than the
corresponding figures of 2.3 and 37.8 for
private sector and foreign banks, respectively,
in 2009-10 (Appendix Table IV.12).
Table IV.32: Complaints received at Banking Ombudsman offices |
BO office |
Number of complaints |
2008-09 |
2009-10 |
Ahmedabad |
3,732 |
4,149 |
Bangalore |
3,255 |
3,854 |
Bhopal |
3,375 |
3,873 |
Bhubaneswar |
1,159 |
1,219 |
Chandigarh |
2,634 |
3,234 |
Chennai |
10,381 |
12,727 |
Guwahati |
455 |
528 |
Hyderabad |
3,961 |
5,622 |
Jaipur |
3,688 |
4,560 |
Kanpur |
7,776 |
7,832 |
Kolkata |
3,671 |
5,326 |
Mumbai |
9,631 |
10,058 |
New Delhi |
10,473 |
12,045 |
Patna |
2,110 |
1,707 |
Thiruvananthapuram |
2,816 |
2,532 |
Total |
69,117 |
79,266 |
Source: Various offices of Banking Ombudsman. |
|
Table IV.33: Bank-Group-wise Complaints received at Banking Ombudsman Offices - 2009-10 |
Nature of Complaint |
Public Sector Banks |
Nationa- lised Banks |
SBI Group |
Private Sector Banks |
Old Private Sector Banks |
New Private Sector Banks |
Foreign Banks |
All SCBs |
UCBs/ RRBs/ others |
Total |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11= (9+10) |
Deposit accounts |
1,946 |
988 |
958 |
1,165 |
68 |
1,097 |
454 |
3,565 |
116 |
3,681 |
Remittances |
3,358 |
1,639 |
1,719 |
1,873 |
76 |
1,797 |
268 |
5,499 |
209 |
5,708 |
Credit/Debit/ATM cards |
9,550 |
3,250 |
6,300 |
4,725 |
126 |
4,599 |
4,258 |
18,533 |
277 |
18,810 |
Loans/advances |
4,109 |
2,322 |
1,787 |
1,652 |
319 |
1,333 |
395 |
6,156 |
456 |
6,612 |
Charges without prior notice |
1,939 |
1,027 |
912 |
2,009 |
130 |
1,879 |
729 |
4,677 |
87 |
4,764 |
Pension |
4,577 |
1,294 |
3,283 |
67 |
2 |
65 |
65 |
4,709 |
122 |
4,831 |
Failure on commitments made |
6,407 |
3,582 |
2,825 |
3,369 |
286 |
3,083 |
1,134 |
10,910 |
659 |
11,569 |
Direct selling agents |
657 |
351 |
306 |
669 |
59 |
610 |
228 |
1,554 |
55 |
1,609 |
Notes and coins |
92 |
48 |
44 |
41 |
4 |
37 |
20 |
153 |
5 |
158 |
Others |
7,838 |
3,747 |
4,091 |
6,582 |
289 |
6,293 |
3,808 |
18,228 |
612 |
18,840 |
Out of subject |
1,451 |
844 |
607 |
401 |
35 |
366 |
91 |
1,943 |
741 |
2,684 |
Total complaints |
41,924 |
19,092 |
22,832 |
22,553 |
1,394 |
21,159 |
11,450 |
75,927 |
3,339 |
79,266 |
|
(26.5) |
(27.5) |
(25.7) |
(2.6) |
(18.4) |
(1.7) |
(-2.1) |
(13.6) |
(45.6) |
(14.7) |
Note: Figures in parentheses indicate percentage change over the previous year.
Source: Various offices of Banking Ombudsman. |
4.78 Though the largest number of complaints
received by BOs continued to be with respect
to credit/debit/ATM cards, there was a decline
in the share of such complaints in 2009-10.
Similarly, complaints about the core banking
business of banks, particularly deposits and loans,
also showed a fall during the year (Chart IV.29).
The decline in the share of card-related
complaints in 2009-10 needs to be juxtaposed
with the decline in the share of complaints
against foreign banks and new private sector
banks, as card-related complaints formed an
important reason for complaints against these
two bank groups in the past.
10. Financial Inclusion
4.79 The Reserve Bank has put financial
inclusion process into mission mode given that it can effectively help in addressing the concern
of inclusive growth. Financial exclusion remains
an area of concern given the low levels of financial
penetration and deepening in India compared
with other countries across the globe. Recent data from the World Bank suggest that India ranks
low when compared with the OECD countries
with regard to financial penetration (Table IV.34).
When compared with select Asian peer group
countries, the difference in financial access is
much less striking as far as access to bank
branches is concerned but it is prominent with
regard to access to ATMs. Further, the size and
depth of the banking sector when measured
taking private credit to GDP ratio also works out
to be much lower for India than many of its Asian
peer group countries.18 These trends underline
the need for strengthening the financial inclusion
process in India in the years to come.
|
4.80 Financial inclusion in the Indian context
has been defined as the provision of affordable
financial services, viz., access to payments and
remittance facilities, savings, loans and
insurance services by the formal financial
system to those who tend to be excluded. The
Indian policy approach towards financial
inclusion since early 2000s has been focused on
ensuring inclusion at the individual and
household level. Accordingly, the scheme of nofrills
accounts (no pre-condition, low minimum
balance maintenance) was initiated by the
Reserve Bank in 2005 to provide an easy financial
savings facility to the population at large, which
can act as a means of their entry into the formal
banking system. At end-March 2010, 50.6
million no-frills accounts were opened by the
banking system. While no-frills accounts have
grown phenomenally, an important challenge
before the banking system is to keep these
accounts operational, as many such accounts
are found to be dormant since the poor often find
it difficult to save and deposit money into these
accounts. In order to keep these accounts
operational, banks have been advised to provide
small overdrafts in such accounts; up to March
2010, `27.54 crore were provided as overdrafts
by banks in such accounts.
Table IV.34: Indicators of Financial Access and Depth, India compared with Select Asian peer group and OECD countries |
Countries/
groups |
Financial
Access |
Financial Market Size and Depth |
Number of branches per 1,00,000 persons |
Number of ATMs per 1,00,000
persons |
Private credit to GDP ratio
(per cent)* |
India |
6.33 ^^ |
1.63 ^^ |
33.30 ^^ |
Asian peer group countries (range)# |
1.33-20 |
3.80-17.05 |
23.00-126.60 |
Of which, China |
1.33 ^ |
3.80 ^ |
111.80 |
Indonesia |
3.73 |
4.84 @ |
23.00 |
Malaysia |
8.26 |
16.44 ^ |
126.60 |
Thailand |
7.37 |
17.05 ** |
90.50 |
OECD countries (range)# |
23-45 |
57-158 |
47.80-160.48 |
Of which, |
|
|
|
Australia |
24 |
115 |
109.73 |
Canada |
28 |
158 |
75.65 |
Japan |
45 |
136 |
97.90 |
UK |
23 |
97 |
160.48 |
US |
26 |
134 |
47.84 |
Note: 1) Data relate to 2005 unless otherwise specified.
2) * : This indicator is used for measuring market
concentration by Kiatchai Sophastienphong and
Anoma Kulathunga (2009). However, traditionally, private credit to GDP reflects the size and depth of
the financial markets; see “Measuring Banking Sector
Development”, Note 1, World Bank. Private credit to
GDP here is defined as claims of banking sector on
the private sector as per cent of GDP.
3) ^: 2003 data
4) @: 2000 data
5) **: 2004 data
6) # : The range for Asian peer group and OECD
countries is given as per the highest and lowest
figures reported under each head in the World
Bank study by Kiatchai Sophastienphong and
Anoma Kulathunga (2009). Separate data for
only select countries have been shown in the
table above.
7) ^^ : For India, the number of branches and ATMs
per 1,00,000 persons have increased over the
years; the respective numbers were 7.13 and
5.07 in 2010. Further, the ratio of private credit
to GDP too has increased for India and stood at
56.1 per cent as at end-March 2010.
Source: Kiatchai Sophastienphong and Anoma Kulathunga
(2009), Getting Finance in South Asia 2009-Indicators and Analysis of the Commercial Banking
Sector, World Bank. |
4.81 Micro-finance has been another important
component of the financial inclusion process in
India. Micro-finance is defined as provision of
thrift, credit and financial services and products
of very small amount to the poor in rural, semiurban
and urban areas for enabling them to raise
their income levels and improving living
standards. The Self-Help Group-Bank Linkage
Programme (SBLP), which started as a pilot
programme in 1992 has developed with rapid
strides over the years. In 2009-10, 1.59 million
new SHGs were credit-linked with banks, and
bank loan of `14,453 crore (including repeat
loan) was disbursed to these SHGs. Further, at
end-March 2010, 6.95 million SHGs maintained
savings accounts with banks (Table IV.35). On
an average, the amount of savings per SHG was
`8,915 as compared to the amount of credit
outstanding of `57,795 in 2009-10. While there
was a continued increase in the amount of credit
outstanding per SHG, there was a fluctuating
trend in the amount of saving per SHG in the
recent years (Chart IV.30).
Table IV.35: Progress of Micro-finance Programmes |
(As at end-March) |
Item |
Self-Help Groups |
|
Number (in million) |
Amount (` crore) |
|
2008-09 |
2009-10 |
2008-09 |
2009-10 |
Loans disbursed by |
1.61 |
1.59 |
12,254 |
14,453 |
banks during the year |
(0.26) |
(0.27) |
(2,015) |
(2,198) |
Loans outstanding |
4.22 |
4.85 |
22,680 |
28,038 |
with banks |
(0.98) |
(1.25) |
(5,862) |
(6,251) |
Savings with banks |
6.12 |
6.95 |
5,546 |
6,199 |
|
(1.51) |
(1.69) |
(1,563) |
(1,293) |
Item |
Micro-Finance Institutions* |
Number (in million) |
Amount (` crore) |
|
2008-09 |
2009-10 |
2008-09 |
2009-10 |
Loans disbursed by banks during the year |
581 |
691 |
3,732 |
8,063 |
Loans outstanding with banks |
1,915 |
1,513 |
5,009 |
10,148 |
Savings with banks |
- |
- |
- |
- |
Note: 1) Figures in brackets indicate the details about SHGs covered under Swarnajayanti Gram Swarozgar Yojana (SGSY).
2) * : The actual number of MFIs provided with bank loans
would be lower on account of MFIs availing loans from more than one bank.
Source: NABARD. |
|
4.82 Alongside SBLP, Micro-finance Institutions
(MFIs), such as Non-Governmental Organisations
(NGOs), NBFCs, among others, have emerged as
important sources of micro-finance delivery in
India. In 2009-10, 691 MFIs were provided loans
by banks to the tune of `8,063 crore. The growth
under the MFI-linkage programme in terms of
both number of credit-linked institutions and
amount of loans was much higher than the
corresponding growth under the SHG-Bank
Linkage Programme in 2009-10.
11.Spatial and Regional Distribution of
Banking Services
4.83 The spatial and regional distribution of
banking services provides an insight into the
spread and access of banking services and
hence, is an important pointer of financial
penetration and inclusion. This section sets out
the distribution of bank branches across rural
and urban areas, and across States/regions.
Further, it also maps the distribution of ATMs,
another channel of banking services, across
rural and urban areas. Finally, it discusses the
operations of Indian banks abroad and that of
foreign banks in India.
Distribution of Bank Branches
4.84 The average population per bank branch
acts as a basic indicator of the penetration of
banking services. Going by this indicator, the
penetration of banking services has been on a
consistent increase in India in the recent years
(Chart IV.31). However, the rate of increase in the
penetration of banking services in rural areas was
much lower than that in urban areas.19 This was
evident from a comparison of the rate of decline
in the population per bank branch in rural and
urban areas.
4.85 At the regional level, there was a striking
differential in the degree of penetration of banking
services. On the one hand were northern, southern
and western regions, where the population per
bank branch was in the range of 10,000 to 14,000
at end-March 2010. On the other hand, in the
central, eastern and north-eastern regions, the
population per bank branch was fairly higher in
the range of 18,000 to 19,000. It may, however, be emphasised that population per bank branch
was on a decline across all regions in the recent
years signifying growing penetration of banking
services across all regions (Chart IV.32).20
|
4.86 The branch authorisation policy was
liberalised in December 2009 giving freedom
to domestic scheduled commercial banks to
open branches at Tier 3 to 6 centres (with
population of up to 49,999 as per the Population
Census of 2001) without having the need to take
permission from Reserve Bank in each case,
subject to reporting. A comparison of newly
opened bank branches at Tier 3 to 6 centres
between July 2009 and June 2010 with the
previous year indicated that the impact of this
policy change has been positive. During 2009-
10, 1,513 bank branches were opened at Tier 3
to 6 centres, which were higher than the
addition of 1,481 branches during 2008-09
reflecting a growth of 2.2 per cent in the number
of new branches (Table IV.36).
|
Table IV.36: Number of Newly Opened Bank Branches at Tier 3-6 Centres |
Item |
2008-09 |
2009-10P |
Total number of newly opened |
1,481 |
1,513 |
bank branches at Tier 3-6 centres |
(-) |
(2.2) |
Note: 1) Figures in parentheses indicate percentage change
over the previous year.
2) Data relate to July-June for each year.
3) P – Provisional.
Source: Master Office File of banks. |
Distribution of ATMs
4.87 Like bank branches, there was also an
increase in the penetration of ATMs in recent
years as evident from a fall in the population
per ATM (Chart IV.33). While there was greater
concentration of ATMs in urban areas than in
rural areas, the number and percentage of ATMs
in rural areas was on a steady rise in the recent
years (Chart IV.34; Table IV.37).21 The percentage
of ATMs located in rural areas accounted for
28.4 per cent of the total ATMs in the country
at end-March 2009, which increased to 32.7 per
cent at end-March 2010 (Chart IV.34). A large part of the increase in ATMs in rural areas was
due to public sector banks. The growing
penetration of ATMs in rural areas could also
be seen from a continued fall in the population
per ATM in rural areas (Chart IV.33).
|
|
|
Table IV.37: Number of ATMs Located at Various Centres |
Bank group |
(At end-March 2010) |
Rural centres |
Semi– urban centres |
Urban centres |
Metro- politan centres |
All centres |
Public sector banks |
4,289 |
10,968 |
13,451 |
11,972 |
40,680 |
|
(10.5) |
(27.0) |
(33.1) |
(29.4) |
(100.0) |
Nationalised Banks |
1,669 |
4,325 |
6,726 |
6,982 |
19,702 |
|
(8.5) |
(22.0) |
(34.1) |
(35.4) |
(100.0) |
State Bank Group |
2,620 |
6,643 |
6,725 |
4,990 |
20,978 |
|
(12.5) |
(31.7) |
(32.1) |
(23.8) |
(100.0) |
Private Sector Banks |
901 |
3,499 |
6,124 |
7,923 |
18,447 |
|
(4.9) |
(19.0) |
(33.2) |
(43.0) |
(100.0) |
Old Private Sector Banks |
265 |
1,019 |
1,215 |
891 |
3,390 |
|
(7.8) |
(30.1) |
(35.8) |
(26.3) |
(100.0) |
New Private Sector Banks |
636 |
2,480 |
4,909 |
7,032 |
15,057 |
|
(4.2) |
(16.5) |
(32.6) |
(46.7) |
(100.0) |
Foreign Banks |
6 |
11 |
188 |
821 |
1,026 |
|
(0.6) |
(1.1) |
(18.3) |
(80.0) |
(100.0) |
Total |
5,196 |
14,478 |
19,763 |
20,716 |
60,153 |
|
(8.6) |
(24.1) |
(32.9) |
(34.4) |
(100.0) |
Note: Figures in parentheses indicate percentage shares with respect to total
ATMs under each bank group. |
Distribution of Bank Credit and Deposits
4.88 The spatial distribution of bank credit
showed high level of concentration of credit at
the top 100 centres. At end-March 2010, the
top 100 centres accounted for 78.0 per cent of
the total bank credit in India, which was
marginally lower than that at end-March 2009
(Chart IV.35). The top 100 centres, however,
accounted for only 69.4 per cent of the total
deposits mobilised at end-March 2010.22
4.89 At the regional level too, bank credit was
concentrated in the western, southern and
northern regions of the country (Chart IV.36).
The amount of credit per capita in the western
region was about 11 times the corresponding
amount in the north-eastern region and about
six to eight times the amount in the central and
eastern regions at end-March 2010. The
differential was less wide in the case of deposits
per capita; the amount of deposits per capita
in the western region was about four to five
times the corresponding amount in the northeastern,
central and eastern regions. Moreover, the credit-deposit ratio in the southern, western
and northern regions was significantly higher
than that in the eastern, central and northeastern
regions at end-March 2010 (Appendix
Table IV.13).
Foreign Banks’ Operations in India and
Overseas Operations of Indian Banks
4.90 There has been a steady increase in the
number of foreign banks and their branches
operating in India. At end-September 2010, 34
foreign banks (from 24 countries) were
operating in India as compared to 32 banks at
end-June 2009. The total number of branches
too increased to 315 in 2010 from 293 in 2009.
In addition, 45 foreign banks operated in India
through representative offices in 2010 as against
43 in 2009. The largest branch network of
foreign banks in India was that of Standard
Chartered Bank followed by HSBC Ltd.,
Citibank and the Royal Bank of Scotland N.V.
4.91 Between July 2009 and September
2010, permission was granted to four existing foreign banks to open seven branches and to
three new foreign banks, viz., Sberbank
(Russia), ANZ Bank (Australia) and Credit
Suisse AG (Switzerland) to open one branch
each in India. Permission was also granted to
two foreign banks viz., CIMB Bank (Malaysia)
and LA Caixa (Spain) to open a representative
office each in India.
4.92 During 2009-10, Indian banks continued
to expand their presence overseas. Between July
2009 and September 2010, Indian banks opened
seven branches, one subsidiary and five
representative offices abroad. At end-September
2010, 22 Indian banks (16 public sector and 6
private sector banks) operated through a network of 233 overseas offices (Table IV.38). While Bank
of Baroda had the largest overseas branch
network, the presence of State Bank of India in
the overseas banking system was increasingly
felt, as the Bank expanded its branch network
by four new branches during 2009-10.
4.93 The number of foreign banks’ branches
in India has generally exceeded the number of
Indian banks’ branches aboard, as growth in
the former has been faster than that in the latter
in the recent years (Chart IV.37).
Table IV.38: Overseas Operations of Indian Banks |
(Actually Operational) |
Name of the Bank |
Branch |
Subsidiary |
Representative Office |
Joint Venture Bank |
Total |
2009 |
2010 |
2009 |
2010 |
2009 |
2010 |
2009 |
2010 |
2009 |
2010 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 |
I. Public Sector Banks |
130 |
137 |
18 |
20 |
34 |
39 |
7 |
7 |
189 |
203 |
1 Allahabad Bank |
1 |
1 |
- |
- |
1 |
1 |
- |
- |
2 |
2 |
2 Andhra Bank |
- |
- |
- |
- |
2 |
2 |
- |
- |
2 |
2 |
3 Bank of Baroda |
46 |
46 |
8 |
9 |
3 |
3 |
1 |
1 |
58 |
59 |
4 Bank of India |
24 |
24 |
3 |
3 |
5 |
5 |
1 |
1 |
33 |
33 |
5 Canara Bank |
3 |
4 |
- |
- |
- |
1 |
- |
- |
3 |
5 |
6 Corporation Bank |
- |
- |
- |
- |
2 |
2 |
- |
- |
2 |
2 |
7 Indian Bank |
3 |
3 |
- |
- |
- |
- |
- |
- |
3 |
3 |
8 Indian Overseas Bank |
6 |
6 |
1 |
1 |
3 |
4 |
- |
- |
10 |
11 |
9 IDBI Bank Ltd. |
- |
1 |
- |
- |
- |
- |
- |
- |
- |
1 |
10 Punjab National Bank |
3 |
4 |
1 |
2 |
4 |
4 |
1 |
1 |
9 |
11 |
11 State Bank of India |
38 |
42 |
5 |
5 |
8 |
8 |
4 |
4 |
55 |
59 |
12 Syndicate Bank |
1 |
1 |
- |
- |
- |
- |
- |
- |
1 |
1 |
13 UCO Bank |
4 |
4 |
- |
- |
2 |
2 |
- |
- |
6 |
6 |
14 Union Bank |
1 |
1 |
- |
- |
3 |
5 |
- |
- |
4 |
6 |
15 United Bank of India |
- |
- |
- |
- |
- |
1 |
- |
- |
- |
1 |
16 Oriental Bank of Commerce |
- |
- |
- |
- |
1 |
1 |
- |
- |
1 |
1 |
II. New Private Sector Banks |
11 |
11 |
3 |
3 |
16 |
16 |
- |
- |
30 |
30 |
17 Axis Bank |
3 |
3 |
- |
- |
2 |
2 |
- |
- |
5 |
5 |
18 HDFC Bank Ltd. |
1 |
1 |
- |
- |
2 |
2 |
- |
- |
3 |
3 |
19 ICICI Bank Ltd. |
7 |
7 |
3 |
3 |
8 |
8 |
- |
- |
18 |
18 |
20 IndusInd Bank Ltd. |
- |
- |
- |
- |
2 |
2 |
- |
- |
2 |
2 |
21 Federal Bank Ltd. |
- |
- |
- |
- |
1 |
1 |
- |
- |
1 |
1 |
22 Kotak Mahindra Bank Ltd. |
- |
- |
- |
- |
1 |
1 |
- |
- |
1 |
1 |
Total |
141 |
148 |
21 |
23 |
50 |
55 |
7 |
7 |
219 |
233 |
Note:
1) -: Nil.
2) Data relate to end-September. |
12. Regional Rural Banks
4.94 Regional Rural Banks (RRBs) were
created with the objective of combining the good features of cooperatives and commercial banks
to provide regionally oriented institutions that
could direct credit to the under-privileged
sections of the rural population. Thus, RRBs
can be regarded as an ideal institution for
achieving financial inclusion in rural areas.
With the onset of financial sector reforms, a
number of changes were brought about in the
policy framework relating to RRBs to impart
operational freedom to these institutions and
improve their weakening financial health. These
changes were primarily reflected in the
restructuring and amalgamation,
recapitalisation of RRBs along with the
application of prudential regulatory framework
to these institutions.
|
4.95 In 2009-10, the consolidated balance
sheet of RRBs showed accelerated growth of
22.2 per cent as compared to 16.5 per cent
during the previous year. On the liabilities side,
deposits propelled the growth in balance sheets
of RRBs, while on the assets side, the growth
was mainly on account of investments. It may
be noted that the credit-deposit ratio of RRBs
in 2009-10 stood at 57.6 per cent, a level far
lower than that of SCBs (Table IV.39).
4.96 Out of 82 RRBs, 79 RRBs were in profits
during 2009-10 indicating an increase in the share
of profit-making RRBs to 96.3 per cent during this
year as compared to 93.0 per cent in the previous
year. On the whole, all RRBs taken together
reported a net profit of `1,884 crore showing a
growth of 41.1 per cent in 2009-10. As a result,
there was a marginal rise in the Return on Assets
(RoA) of RRBs from 1.0 per cent in 2008-09 to
1.1 per cent in 2009-10 (Table IV.40). The RoA
of RRBs in 2009-10 thus worked out to be
relatively higher than that of SCBs.
4.97 In line with their role in furthering
financial inclusion, priority sectors, which have generally constituted a major portion of the total
advances of RRBs, occupied a share of about
82 per cent in their total advances at end-March
2010 (Table IV.41). Importantly, however, the
share of agricultural credit in total credit from
RRBs was on a declining trend in the recent years.
Table IV.39: Consolidated Balance Sheet of Regional Rural Banks |
(Amount in ` crore) |
Item |
At end-March |
Percentage
variation |
2009 |
2010P |
|
Share Capital |
197 |
197 |
- |
Reserves |
6,754 |
8,065 |
19.4 |
Share Capital Deposits |
3,959 |
3,985 |
0.7 |
Deposits |
1,20,189 |
1,45,035 |
20.7 |
Current |
6,432 |
8,065 |
25.4 |
Savings |
63,675 |
75,906 |
19.2 |
Term |
50,082 |
61,064 |
21.9 |
Borrowings from |
12,735 |
18,770 |
47.4 |
NABARD |
8,690 |
12,521 |
44.1 |
Sponsor Bank |
3,931 |
6,165 |
56.8 |
Others |
114 |
84 |
-26.3 |
Other Liabilities |
6,820 |
8,041 |
17.9 |
Total Liabilities/Assets |
1,50,654 |
1,84,093 |
22.2 |
Cash in Hand |
1,587 |
1,784 |
12.4 |
Balances with RBI |
5,882 |
8,145 |
38.5 |
Other Bank Balances |
31,865 |
39,102 |
22.7 |
Investments |
37,984 |
47,289 |
24.5 |
Loans and Advances (net) |
65,609 |
79,157 |
20.6 |
Fixed Assets |
278 |
379 |
36.3 |
Other Assets # |
7,449 |
8,237 |
10.6 |
1 Credit -Deposit Ratio |
56.4 |
57.6 |
- |
2 Investment -Deposit Ratio |
54.8 |
50.2 |
- |
3 (Credit + Investment) -Deposit Ratio |
111.3 |
107.8 |
- |
Note: 1) P : Provisional
2) # : Includes accumulated losses.
Source: NABARD. |
Table IV.40: Financial Performance of Regional Rural Banks |
(Amount in ` crore) |
Sr.
No. |
Item |
2008-09
(86) |
2009-10P
(82) |
Percentage
variation |
1 |
2 |
3 |
4 |
5 |
A |
Income (i + ii) |
11,388 |
13,835 |
21.5 |
|
i Interest income |
10,579 |
12,945 |
22.4 |
|
ii Other income |
810 |
890 |
9.9 |
B |
Expenditure (i+ii+iii) |
10,053 |
11,951 |
18.9 |
|
i Interest expended |
6,100 |
7,375 |
20.9 |
|
ii Operating expenses |
3,165 |
3,547 |
12.1 |
|
of which, |
|
|
|
|
Wage bill |
2,291 |
2,676 |
16.8 |
|
iii Provisions and contingencies |
788 |
1,029 |
30.6 |
C |
Profit |
|
|
|
|
i Operating profit |
2,123 |
2,913 |
37.2 |
|
ii Net profit |
1,335 |
1,884 |
41.1 |
D |
Total assets |
1,50,654 |
1,84,093 |
22.2 |
E |
Financial ratios# |
|
|
|
|
i Operating profit |
1.5 |
1.7 |
- |
|
ii Net profit |
1.0 |
1.1 |
- |
|
iii Income (a + b) |
8.3 |
8.3 |
- |
|
(a) Interest income |
7.7 |
7.7 |
- |
|
(b) Other income |
0.6 |
0.5 |
- |
|
iv Expenditure (a+b+c) |
7.3 |
7.1 |
- |
|
(a) Interest expended |
4.4 |
4.4 |
- |
|
(b) Operating expenses |
2.3 |
2.1 |
- |
|
of which, Wage Bill |
1.7 |
1.6 |
- |
|
(c) Provisions and contingencies |
0.6 |
0.6 |
- |
Note: 1) P- Provisional
2) Financial ratios are with respect to average total assets.
3) Figures in parentheses refer to the total number of RRBs.
Source: NABARD. |
13. Local Area Banks
4.98 Local Area Banks (LABs) are a small but
a vital component of the banking system in
India. The LABs Scheme was introduced in
1996 with the objective of bridging gaps in credit
availability and enhancing the institutional
credit framework to provide efficient and competitive financial intermediation with a
specialised local focus in rural and semi-urban
areas. Although six LABs were licensed, as of
now, only four LABs are functioning. This
section discusses the performance of LABs
during 2009-10 and highlights the major issues
relating to the operation of these institutions.
Table IV.41: Purpose-wise Distribution of
Credit from Regional Rural Banks |
(Amount in ` crore) |
Purpose |
As at end-March |
2009 |
2010P |
I. Agriculture (i to ii) |
37,367 |
45,829 |
i Short-term credit (crop loans) |
26,652 |
33,208 |
ii Term credit (for agriculture and
allied activities) |
10,715 |
12,621 |
II. Non-agriculture (i to iv) |
30,435 |
37,733 |
|
(44.8) |
(45.1) |
i Rural artisans |
772 |
857 |
ii Other industries |
1,656 |
1,694 |
iii Retail trade |
4,690 |
5,285 |
iv Other purposes |
23,317 |
29,897 |
Total (I+II) |
67,802 |
83,562 |
Memo item : |
|
|
(a) Priority sector |
56,555 |
68,660 |
(b) Non-Priority sector |
11,247 |
14,902 |
(c) Percentage share of priority sector
in total credit |
83.4 |
82.2 |
Note: 1) P : Provisional.
2) Figures in parentheses indicate percentage share in total credit.
Source : NABARD. |
4.99 The efficiency and profitability of LABs
at the aggregate level measured by both RoA
and NIM has been fairly higher than SCBs
(Chart IV.38). There was a decline in both RoA
and NIM in 2009-10 similar to that of SCBs
partly reflective of the low interest rate
environment that prevailed during most part of
this year (Table IV.42).
4.100 Notwithstanding their higher efficiency,
there were a number of issues of concern about
the operation of LABs. First, a scrutiny of the
bank-level data of LABs indicated that there was
considerable concentration of the business in
one LAB, namely Capital Local Area Bank
making up over 68.8 per cent of the total assets and about 69.1 per cent of the total banking
business of the LABs at end-March 2010 (Table
IV.43). Secondly, as noted by the Review Group
of 2002 which looked into the working of LABs,
these institutions had a limited capital base and
hence, were not in a position to absorb the
unexpected losses. Hence, the Group had
recommended stepping up their net worth of
`25 crore. However, except Capital Local Area
Bank, other LABs had not been able to meet
this target. At end-March 2010, Capital Local Area Bank had a net worth of `45.9 crore, while
Coastal Local Area Bank had net worth of `18.7 crore followed by Subhadra Local Area Bank
(at `17.4 crore) and Krishna Bhima Samruddhi
Local Area Bank (at `12.9 crore).
|
Table IV.42: Financial Performance of Local Area Banks |
(Amount in ` crore) |
Item |
2008-09 |
2009-10 |
Percentage
variation |
1 |
2 |
3 |
4 |
A. |
Income (i+ii) |
91 |
104 |
14.3 |
|
i) Interest income |
75 |
86 |
14.3 |
|
ii) Other income |
16 |
18 |
14.2 |
B. |
Expenditure (i+ii+iii) |
76 |
91 |
19.1 |
|
i) Interest expended |
42 |
51 |
22.8 |
|
ii) Provisions and contingencies |
8 |
8 |
1.1 |
|
iii) Operating expenses |
27 |
32 |
18.6 |
|
of which : Wage bill |
12 |
14 |
14.9 |
C. |
Profit |
|
|
|
|
i) Operating profit |
22 |
20 |
-7.1 |
|
ii) Net profit |
14 |
13 |
-11.5 |
D. |
Spread (net interest income) |
33 |
34 |
3.7 |
E. |
Total assets |
787 |
946 |
20.2 |
F. |
Financial ratios |
|
|
|
i) |
Operating profit |
3.0 |
2.4 |
- |
ii) |
Net profit |
2.0 |
1.4 |
- |
iii) |
Income |
12.6 |
12.0 |
- |
iv) |
Interest income |
10.4 |
9.9 |
- |
v) |
Other income |
2.2 |
2.1 |
- |
vi) |
Expenditure |
10.6 |
10.5 |
- |
vii) |
Interest expended |
5.8 |
5.9 |
- |
viii) |
Operating expenses |
3.8 |
3.7 |
- |
ix) |
Wage bill |
1.7 |
1.6 |
- |
x) |
Provisions and contingencies |
1.1 |
0.9 |
- |
xi) |
Spread (net interest income) |
4.6 |
4.0 |
- |
Note: All ratios under ‘F’ are with respect to average total assets.
Source: Based on Off-site returns (domestic). |
Table IV.43: Profile of Local Area Banks |
(As at end-March) |
(Amount in ` crore) |
Bank |
Assets |
Deposits |
Gross Advances |
2009 |
2010 |
2009 |
2010 |
2009 |
2010 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
Capital Local Area Bank Ltd. |
549 |
651 |
461 |
532 |
296 |
347 |
|
(69.8) |
(68.8) |
(74.8) |
(72.2) |
(67.4) |
(65.0) |
Coastal Local Area Bank Ltd. |
100 |
127 |
73 |
101 |
57 |
84 |
|
(12.7) |
(13.4) |
(11.9) |
(13.7) |
(13.0) |
(15.7) |
Krishna Bhima Samruddhi Local Area Bank Ltd. |
99 |
120 |
56 |
75 |
64 |
78 |
|
(12.6) |
(12.7) |
(9.1) |
(10.2) |
(14.6) |
(14.6) |
Subhadra Local Area Bank Ltd. |
39 |
48 |
27 |
29 |
23 |
25 |
|
(5.0) |
(5.1) |
(4.4) |
(3.9) |
(5.2) |
(4.7) |
All LABs |
787 |
946 |
616 |
737 |
439 |
534 |
|
(100.0) |
(100.0) |
(100.0) |
(100.0) |
(100.0) |
(100.0) |
Note: Figures in parentheses indicate percentage share in total.
Source: Based on Off-site returns (domestic). |
14. Conclusions
4.101 In 2009-10, the growth in the
consolidated balance sheet of SCBs showed
signs of slowdown contributed by a decline in
the growth of deposits and bank credit similar
to the trend noted during 2008-09. The growth
in bank credit decelerated on a year-on-year
basis reflecting the economic slowdown in the
aftermath of the crisis. However, on an intrayear
basis, bank credit showed signs of recovery
after November 2009, as there was a pick up in
growth momentum in the real economy.
4.102 An important development with regard
to bank deposits was the rise in the percentage
of CASA in 2009-10. As regards investment,
there was a recovery in non-SLR investments
in 2009-10, which had remained sluggish after
the financial crisis. The growth in non-SLR
investments was contributed mainly by
investments in Mutual Funds (MFs) in 2009-10.
4.103 The growth in profitability of banks
exhibited a slowdown contributed by a fall in
the growth of income (and expenditure) of SCBs
in 2009-10. Every indicator of profitability
including RoA, RoE, Net Interest Margin and
spread (difference between return and cost of
funds) showed a decline at the aggregate level
in 2009-10.
4.104 Apart from the decline in profitability,
the other emerging concern in 2009-10 was with
regard to the asset quality of SCBs. The gross
NPA ratio showed an increase by about 0.14
percentage points at the aggregate level
contributed by both priority and non-priority
sector NPAs. Moreover, the increase in NPAs was
owing to an increase in doubtful and loss
making assets reflecting worsening of asset
quality of banks.
4.105 While gross NPA ratio increased, the
coverage ratio of provisions showed a fall at the
aggregate level reflecting a weakening cushion to
meet NPA losses. However, CRAR of SCBs, which
had remained much above the stipulated
minimum of 9 per cent in 2008-09 even after
migration to Basel II framework, showed a further
increase in 2009-10. The leverage ratio of SCBs
also showed an increase indicating strengthening
of core (Tier I) capital in comparison with the
asset base of the banking system.
4.106 As regards financial inclusion, India
compares poorly with OECD as well as many of
its Asian peer group countries. However, a
welcome development in the recent years has
been a steady increase in the penetration of
bank branches and ATMs (reflected by a decline
in population per bank branch/ATM). More
importantly, the increased penetration of both
branches and ATMs could be seen across rural
India. Micro-finance, which has emerged as an
important engine for financial inclusion in India,
showed further growth in 2009-10, particularly
under the MFI-linkage programme as compared
to the SHG-Bank Linkage programme.
Domestic banks were able to meet their overall
priority sector target but their performance in
meeting the agricultural and weaker sections
sub-targets was relatively weak in 2009-10.
4.107 As regards technological advancement in
banks, an important development was the near
completion of computerisation and an increase
in the extent of adoption of CBS in public sector
banks in 2009-10.
4.108 To sum up, in the near future, banking
sector needs to support the growth momentum
in the economy while giving due attention to the
asset quality and prudent provisioning to balance
emerging returns and risks. Further, banks need
to step up efforts towards financial inclusion
using the instrument of scale-neutral technology
as this would help in bringing the vast population
into the ambit of formal finance and also boost
future economic growth coupled with equity.
1 The key indicators of operational efficiency used in the World Bank study were Return on Assets and Return on
Equity, while the financial soundness parameters included capital adequacy and gross NPA ratio. Globally, India
compared favourably with respect of each of these indicators with other Asian and OECD countries except gross NPA
ratio. The gross NPA ratio for India was comparable with the Asian countries but was fairly higher than the OECD
countries. See Kiatchai Sophastienphong and Anoma Kulathunga (2009), Getting Finance in South Asia 2009-
Indicators and Analysis of the Commercial Banking Sector, World Bank.
2 These include 27 public sector banks (State Bank of India and its six associates, 19 nationalised banks and IDBI
Bank Ltd.), 7 new private sector banks, 15 old private sector banks and 32 foreign banks.
3 For an illustration of this point, see Chart IV.19 in Section 5.
4 Since 2008-09, the separation of the category of banks’ investment in ‘instruments of FIs’ from ‘bonds and debentures’
was partly responsible for the decline in the share of ‘bonds and debentures’. However, even when these two categories
were added in order to arrive at a category of ‘bonds and debentures’ comparable with the past data, a decline in the
share of this category was still evident in 2009-10.
5 See Statistical Tables relating to Banks in India (STB) – 2009-10 for data on credit- and investment-deposit ratios
at the bank-level.
6 Also see Monetary and Macro-economic Developments issued with the First Quarter Review of Monetary Policy for
2010-11, Table V.7 for details on bank group-wise range of interest rates.
7 The figures of Net interest margin and Return on Assets presented in Chart IV.9 are worked out taking average total
assets of SCBs (averages of current and previous years). Hence, these figures may not tally with the figures presented
in the Report on Trend and Progress of Banking in India for the relevant years. Time series data on these variables
at the aggregate as well as bank group/bank levels can be obtained from various past issues of the Statistical Tables
relating to Banks in India (STB).
8 See Chapter I for details on the enhanced Basel II framework.
9 The analysis in this section on CRAR is based on data from the off-site returns of Scheduled Commercial Banks.
10 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 = á + 0.62 Credit growth-2 + 1.41Credit growth-3
(1.9)* (5.8)**
* Significant at 5 per cent probability.
** Significant at 1 per cent probability.
11 Also refer to policy brief put out by the World Bank on leverage ratio in Hulster (2009), “The Leverage Ratio – A New
Binding Limit on Banks” at .
12 Tier I capital refers to equity and reserves less intangible assets, while total adjusted assets refers to total assets less
intangible assets, see Hulster (2009).
13 The leverage ratio here is worked out as Tier I capital reported under the Basel I framework as per cent of total
balance sheet assets of the banking system.
14 The regression used for this exercise is as follows:
Ln(industrial credit) = 2.01 + 2.08 Ln(industrial production)
(1.40) (8.17)*
* Significant at 1 per cent probability.
R2 = 0.650.
15 One of the factors behind the slowdown in services sector credit was the significant deceleration in credit to the real
estate sector on account of definitional changes effected in September 2009 by the Reserve Bank, whereby certain
activities were excluded from credit to real estate. These activities, among others, included: (i) exposures to
entrepreneurs for acquiring real estate for the purpose of their carrying on business activities, which would be
serviced out of the cash flows generated by those business activities; (ii) loans extended to a company for a specific
purpose, not linked to a real estate activity; (iii) loans extended against the security of future rent receivables; (iv)
credit facilities provided to construction companies which work as contractors; (v) financing of acquisition/renovation
of self-owned office/ company premises; (vi) exposure towards acquisition of units/to industrial units in SEZs; and
(vii) advances to Housing Finance Companies (HFCs).
16 However, given the growing importance of non-bank sources in providing financial resources to the commercial
sector, bank credit can provide only a partial picture of the total credit availability to any sector. See Table IV.9 from
Quarterly Macro-economic and Monetary Developments, First Quarter Review – 2010-11 for the percentage shares
of bank and non-bank sources in providing financial resources to the commercial sector.
17 See Chapter I for a discussion on recapitalisation of public sector banks in 2009-10.
18 See Kiatchai Sophastienphong and Anoma Kulathunga (2009), Getting Finance in South Asia 2009- Indicators and
Analysis of the Commercial Banking Sector, World Bank.
19 ‘Rural’ areas here refer to rural and semi-urban centres together, while ‘urban’ areas refers to urban and metropolitan
centres together.
20 See Statistical Tables relating to Banks in India – 2009-10 for the State-level data.
21 Rural’ areas here refer to rural and semi-urban centres together, while ‘urban’ areas refers to urban and metropolitan
centres together.
22 See Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks for detailed State level data.
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