recent development in banking sector 2001-2011

1. RECENT DEVELOPMENT IN
BANKING SECTOR
PRESENTED BY: PINKEY RANA

2. FOREWORD
 The total assets of Indian banks, which are regulated
by the Reserve Bank of India (RBI) and the Ministry of
Finance (MOF)1, were pegged at Rs 82,99,220 crore
(US$ 1564.8 billion) during FY 2012.
 a percentage of the GDP having grown substantially
over the last decade.

3. CURRENT STATUS AND
DEVELOPMENT OF INDIAN
BANKING SECTOR
 The revenue of Indian banks grew four-fold from US$
11.8 billion to US$ 46.9 billion, whereas the profit after
tax rose nearly nine-fold from US$ 1.4 billion to US$ 12
billion over 2001-10.
 Value of rupee- 1 dollar=61.91 Rs

4. CONTINUE.......
 This growth was driven primarily by two factors.
First, the influx of Foreign Direct Investment (FDI)
of up to 74 % with certain restrictions4. Second,
the conservative policies of the Reserve Bank of
India (RBI), which have shielded Indian banks from
recession and global economic turmoil.

5. BANKING INDEX(Bankex)
 A banking index is made up of community banks and
banking institution.
 This index was created to represent smaller institution
of the banking industry and stands in contrast to the
KBW Banking index in that respect.

6. SENSEX
 Sensex was introduced by the BSE(Bombay stock
exchange)on January 1 1986. the sensex is designed to
reflect the overall market sentiments(condition). It
comprises of 30 stock.
 Figure 1.1 and 1.2 compares the country’s Banking
Index (Bankex) with the Sensex.

7. 16000
14000
12000
10000 Open
8000
6000
High
Low
4000 Close
2000
Figure 1.1
Performance of banxex over 2002-2012
2o02
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Down Bar Up Bar
Sources: Bombay stock exchange

8. Performance of sensex over 2002-2012
25000
20000
15000
10000
5000
0
2002
Figure: 1.2
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Up Bar Down Bar
Performance of bankex and sansex over 2002-2012
June/3 June/4 June/5 June/6 June/7 June/8 June/9 June/10 June/11 June/12
Bankex Sansex

9. CONTINUE...
 The Figure below shows that the Bankex and the
Sensex have had similar growth trends over the past
decade.
 The high CAGR exhibited by India’s Bankex
demonstrates the industry’s resilience to recession and
economic instability. This resilience primarily stems
from two factors.

10. CONTINUE …
 the highly regulated Indian banking sector restricts
exposure to high risk assets and excessive leveraging.
 Indian economy’s overall growth rate has been much
higher than other economies worldwide 7.

11. CAGR AND NPA
 CAGR (compound annual growth rate):-CAGR the
year-over-year growth rate of an investment over a
specified period of time.
 NPA(non performing assets):- Once the borrower has
failed to make interest or principle payments for 90
days the loan is considered to be a non-performing
asset.

12. GROSS DOMESTIC PRODUCT
 The gross domestic product (GDP) is one the
primary indicators used to gauge the health of a
country's economy.
 It represents the total dollar value of all goods and
services produced over a specific time period - we can
think of it as the size of the economy.

13. IN NPA
 driving Indian companies to borrow from the Indian
banks at a higher cost in times of inflation and in a
period of depreciation in the value of rupee 7. The
non performing assets (NPAs) of banks were pegged at
2.9 % in the fourth quarter of 2011, and are expected to
rise to 3.5 % by 2012. All these factors might hamper
the performance of the Indian banking sector.

14.  positive initiatives taken by the government, the RBI
mandated banks to maintain 70 per cent of the
provision coverage ratio of their bad loans as on
September 2010, thereby mitigating the effect of NPAs
to a certain extent 2010.
 The NPAs of public, private and foreign banks in India
are exhibited in Figure 2.

15. FIGURE:2
NPAs of Public, private and foreign banks as on march 2011( in Rs Crore)
Public sector banks private sector banks foreign banks
priority sector non-priority sector
60000
40000
20000
41245
29803
4823
13147
1141
3924

16. Conclusion about chart
 The solace for Indian banks, however, lies in the fact
that India has shown a comparatively robust growth
in its GDP over past years, which analysts closely
correlate to the performance of the banking industry .

17. Development in GDP
 The report forecasts that India’s GDP growth will take
the size of the country’s banking sector, to the third
largest in the world by 2025.
 Figure 3 shows the data from the Ministry of
Finance that supports this.

18. Figure: 3
Contribution of banking (including insurance) to the GDP (at current prices)
6.0%
78,75,627
65,50,271
42,93,672
49,86,426
55,82,623
2006-07 2007-08 2008-09 2009-10 2010-11
Contriribution of Banking GDP at Current Prices
Percentage Contribution of Banking
5.8%
5.6%
5.4%
5.2%
Source: India Budget.nic.in, Reserve bank of India Statistics
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
GDP at Current Prices Rs Crore

19. Conclusion about chart
 Figure 3 demonstrates that the growth of the
banking sector in terms of percentage contribution
to the GDP has remained mostly uniform over FY
06-10.
 The banking sector is currently growing at
approximately the same rate as the country’s
economy.

20. Domestic Credit
 The term “domestic credit” refers to lending or credit
that a country ’s central bank makes available to
borrowers within the same country . This may include
commercial banks and even involve the government
itself
 Commercial credit or lending that does not
involve export of import of goods.

21. Influence of domestic credit on GDP
 important parameter for assessing (majoring) the
performance of the banking industry is the domestic
credit provided as a percentage of the GDP, exhibited
in Figure 4 below.

22. Figure 4
Domestic credit as a percentage of GDP (2002–11)
57.1% 57.6% 58.4%
55.8%
60.9% 60.8%
67.7%
70.4%
73.0%
75.1%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
75%
70%
65%
60%
55%
50%
Source: World Bank data

23. Competitive landscape and landing
banks in India
 Banking in India is moderately consolidated, with the
top 10 players accounting for approximately 60 % of
the total industry.
 The Indian banking sector is majorly dominated by
public sector banks.
 Figure 5 describes the market shares of the leading
players, along with the respective shares of
government, private and foreign banks

24. 74%
19%
7%
Figure 5
SPLIT BETWEEN TYPES OF BANKS
goverement banks
private banks
foreign banks

25. 18%
6%
5%
5%
5%
5%
3% 4% 4%
3%
42%
Market Shares Of Landing Banks
State Bank of India
Punjab National Bank
Bank of baroda
ICICI Bank
Bank of India
Canara Bank
HDFC Bank
IDBI Bank
Axic Bank
Central Bank of India
Others
Source: ICRA, Thomas White Report on Indian Banking

26. KEY DEVELOPMENTS AND AN ANALYSIS
OF THE UNION BUDGET OF 2012–13
 The overall prognosis of the Union Budget of 2012–13
was mostly positive.
 It focused primarily on infusing capital into the system
to propagate future growth and enable the system to
adopt the Basel III norms over the next five years.
 The following section highlights certain key points of
the budget for the banking industry, and their
associated(related) implications.

27. Union Budget of 2012–13 offers the
banking industry
 For the banking industry as a whole, the Union Budget
held three major announcements-
1. the government suggested a proposed investment of Rs
15,888 crore (US$ 3 billion) for the capitalisation of public
sector banks, regional and rural banks (RRBs), and other
financial institutions, including the National Bank for
Agriculture and Rural Development (NABARD).
 This move is expected to provide these institutions
with equity and bring them a step closer to
complying with the Basel III norms

28. Continue...
2. agricultural credit was increased from Rs 4,75,000
crore (US$ 89.6 billion) to Rs 5,75,000 crore (US$
108.4 billion) over FY12 to FY13.
The budget also proposed modifications in the
Kissan Credit Card (KCC) scheme to make it a
smart card that can be used at ATMs.

29. Continue...
 This is expected to promote awareness in rural areas,
and encourage better use of financial products
among farmers.
 The government has also set up a credit refinance
scheme for RRBs(Regional Rural Bank) to give short
term crop loans to small and marginal farmers.

30. Continue...
3. the Swabhimaan scheme promoting financial inclusion
was extended to North-East and hilly regions with a
population of over 1,000, and other areas with a
population of 2,000.
Currently, approximately 73,000 habitations(places) have
been covered under the Swabhimaan Scheme.
 The government has increased the provisions under the
Rural Housing Fund by Rs 10,000 crore (US$ 1.9 billion) to
Rs 40,000 crore (US$ 7.5 billion).

31. Continue...
 RRBs accounted for 29 per cent of NABARD’s total
credit in 2010–11. Therefore, the government has
proposed a Rs 10,000 crore (US$ 1.9 billion)
investment in NABARD specifically for refinancing
the RRBs13.
These measures are expected to boost the credit
growth in the Indian banks and enable credit flow to
different sectors of the economy.

32. Other regulatory developments that impact the
Indian banking sector
 The RBI, which regulates other India banks,
formulated several policies and initiatives that
directly impacted the country’s banking sector over
the last few years. Some of these initiatives are as
follows:

33. Continue...
 Deregulation of savings rates for banks in India.
 Provision Coverage Ratio (PCR) of 70% mandatory
(important) for banks.
 Basel III guidelines.
 Relaxation of branch authorisation policy for tier
II cities21:- Under the relaxation of Branch
Authorisation Policy, the domestic banks do not need
the RBI approval to set up service offices.
 The policy will spread the organised banking to the
remote areas of the country, and aid financial
inclusion.

34. what is Tire
 The Reserve Bank of India (RBI) classifies centres into 6
tiers based on population.[8] The tables below shows the
classification
 Tier-1 100,000 and above
 Tier-2 50,000 to 99,999
 Tier-3 20,000 to 49,999
 Tier-4 10,000 to 19,999
 Tier-5 5,000 to 9,999
 Tier-6 less than 5000

35. Continue...
 Relaxation of mobile payment guidelines.
 Issue of financial guidelines for new bank licenses.
 Subsidiary route for foreign banks.

36. GROWTH IN INDIAN ECONOMY
 The performance of the Indian economy is one of the
strongest drivers for the banking industry’s growth and vice
versa (also shown in Figure 1), and the average GDP growth
of 8.1 per cent expected over 2011–16 will facilitate the
expansion of the banking sector.
 the banking industry is also expected from the rising per
capita income in India, which along with a growth in the
earning population of the country will lead to a higher
number of people utilising banking services

37. Transaction Channels
 Figure 7 gives a perspective on the transaction costs
of various banking channels and highlights the cost
saving that can be achieved through mobile, online
and ATM banking.

38. Figure 7
Transaction costs by banking channels
Mobile
Online
ATM
Interactive Voice
Response
Call Centre
0.08
0.17
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5

39. Conclusion...
 The economic growth of the country is an apt indicator
for the growth of the banking sector.
 . The Indian economy is projected to grow at a rate of 5-6
per cent34 and the country’s banking industry is expected
to reflect this growth.
 Reserve Bank of India as an able central regulatory
authority, whose policies have shielded Indian banks
from excessive leveraging and making high risk
investments.

40. Continue...
 Market entry at the country level is expected to be tough
for new players due to the moderately consolidated
nature of the industry and extremely high competition.
 The key challenges for the industry are to reduce NPAs,
increase financial inclusion and raise capital for the Basel
III compliance.
 The overall impact of suggested changes in the 2012–13
Union Budget is expected to be positive.

41. Continue...
 The overall impact of suggested changes in the 2012–13
Union Budget is expected to be positive.
 These changes are mostly focussed on financial inclusion
through expansion into rural areas, and bringing stability
by boosting credit growth.