The Indian banking sector has emerged as one of the strongest drivers of India’s economic growth. The Indian banking industry (US$ 1.22 trillion) has made outstanding advancement in last few years, even during the times when the rest of the world was struggling with financial meltdown. India's economic development and financial sector liberalization have led to a transformation of the Indian banking sector over the past two decades. Today Indian Banking is at the crossroads of an invisible revolution. The sector has undergone significant developments and investments in the recent past. Most of banks provide various services such as Mobile banking, SMS Banking, Net banking and ATMs to their clients. Indian banks, the dominant financial intermediaries in India, have made high-quality progress over the last five years, as is evident from several factors, including annual credit growth, profitability, and trend in gross non-performing assets (NPAs). While annual rate of credit growth clocked 23% during the last five years, profitability (average Return on Net Worth) was maintained at around 15% during the same period, while gross NPAs fell from 3.3% as on March 31, 2006 to 2.3% as on March 31, 2011. The Indian banking sector is a mixture of public, private and foreign ownerships. The below table highlights top 10 banks which contributed 58% share of the total credit as on March 31, 2011. The State bank of India has recorded highest market share. The Net Interest Margin of HDFC Banks is 4.2% which is highest among others. Name of Bank Credit Portfolio (Rs.Bn) – Mar 2011 7567 2421 2287 2164 2131 2125 1600 1571 1424 1297 Market Share (%) NIM (%) Mar-11 Tier I Capital (%) - Mar 2011 RONW (%) Mar - 11 Gross NPA(%) Mar 11 3.3 1.8 1.4 4.5 2.2 1.5 1.1 1.8 1.1 2.2
State Bank of India Punjab National Bank Bank of Baroda ICICI Bank Bank of India Canara Bank HDFC Bank IDBI Bank Axis Bank Central bank of India Source : Annual Report, ICRA
18 6 5 5 5 5 4 4 3 3
2.9 3.5 2.8 2.3 2.5 2.6 4.2 1.8 3.1 2.7
7.8 8.4 10.0 13.2 8.3 10.9 12.2 8.1 9.4 6.4
13 24 24 10 17 26 17 16 19 18
Source: RBI, Aranca Research
1.15 1.10 1.05 1.00 0.95 0.90 2007 2008 2009 2010 2011 1.02 1.00 0.97 1.05 1.12
The Credit off-take has increased at a CAGR of 19.9 % over FY 0611. The Deposits have grown at a CAGR of 18.2% over FY 06-11 on account of strong growth in saving account. The net NPA has increased from 1% in FY 2008 to 1.12% in FY 10. The High interest rates and lower economic growth has impacted the repayment capacities of borrowers and hence pushing up the NPAs of banks. The net NPA decelerated from 1.12% in FY 10 to 0.97% in FY 11.
Indian banks enjoyed higher levels of money supply, credit and deposits as a percentage of GDP in FY11 as compared to that in FY10 showing improved maturity in the financial sector. Credit growth remained high in the first half of FY11 on account of increased demand from industry and the service sector. Personal loans grew significantly by 17% during 2010-11 as compared with 4.1% during the previous year.
Although some form of banking, mainly of the money-lending type, has been in existence in India since ancient times, it was only over a century ago that proper banking began. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:
• Early phase from 1786 to 1969 of Indian Banks • Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms • New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991 The banking industry has moved gradually from a regulated environment to a deregulated market economy. The market developments kindled by liberalization and globalization have resulted in changes in the intermediation...