SWOT OF THE BANKING INDUSTRY
Strength of the Indian banking industry lies in its asset quality, growth and profitability over its global peers over the last few years. The banking index has grown at a compounded annual rate of over 51 percent since April 2001 as compared to a 27 percent growth in the market index for the same period. Geographical reach and market penetration have expanded at a very fast pace over the past few years. Customer base is constantly growing. High capital inflows have appreciated a lot over the years. Liquidity position has been quite comfortable in the recent times. The buoyant capital market coupled with an appreciating rupee vis-à-vis US dollar has been attracting large foreign institutional inflows during the last two years. Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. Thanks to reforms and stringent regulatory measures taken by RBI Indian banks are considered to have clean, strong and transparent balance sheets thus good quality of assets relative to other banks in comparable economies in its region.
Weakness of the sector pertains to factors like limited market penetration in few geographies, lack of fundamental institutional skill level and less household savings. Public sector banks hold over 70 percent of total assets of the banking industry. However they are Severely lacking in sales and marketing, service operations, risk management and as a result these banks have not been able to match the aggressive growth by the private players. Although the semi urban areas have been successfully penetrated the banking sector hasen’t been able to fully penetrate through the rural areas. And if overall profitability needs to be improved this segment cannot be ignored. According to a McKinsey report, even though Indian households save 28% of their disposable income, they invest only half their savings in financial assets. The rest goes...
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