Report On Indian Banking Sector

Report On Indian Banking Sector May 2009 by

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REPORT ON INDIAN BANKING SECTOR

Contents Executive Summary

1

1 History of Banking Sector in India

5

1.1 History of SBI and Associates

5

1.2 History of Other (Nationalised, Private and Foreign) Banks

6

1.2.1 Pre Independence (1840 to 1947)

6

1.2.2 Post Independence to Nationalisation (1947 to 1969)

7

1.2.3 Nationalisation to Liberalisation (1969 to 1991)

7

1.2.4 Liberalisation to current date (1991 to 2008)

8

1.3 Various Banking Groups

11

1.4 Regional Distribution of Branches

14

2 Role of Reserve Bank of India 2.1 RBI monetary and Credit Policy

16

2.2 Development in FY09 and role of RBI

17

2.3 Liquidity Adjustment Facility (LAF)

18

2.4 Cash Reserve Ratio (CRR)

20

3 Deposits

21

3.1 Sources of Funds for Banks

21

3.2 Distribution of Deposits of Banks

23

3.2.1 Distribution of Deposits by population

23

3.2.2 Distribution of Deposits by Ownership

24

3.3 Deposits mobilisation from household Sector

24

3.4 Type of Deposits

26

3.4.1 CASA Deposits

27

3.4.2 Term Deposits

28

3.5 Bank Group-wise Deposits Performance

i

16

30

3.5.1 SBI and Associates

30

3.5.2 Nationalised Banks

31

3.5.3 Private Sector Banks

33

3.5.4 Foreign Banks

34

REPORT ON INDIAN BANKING SECTOR

4 Advances 4.1 Total Advances and growth for SCBs

36

4.2 Credit offtake in FY09

37

4.3

39

Sectoral Bank Credit

4.4 Retail loans

42

4.5 Lending to Sensitive Sector

43

4.6 Priority Sector lending

44

4.6.1 Priority Sector Lending for PSU and Private Banks

44

4.6.2 Priority Sector Lending for Foreign Banks

45

4.7 Bank Group-wise Performance

46

4.7.1 SBI and Associates

46

4.7.2 Nationalised Banks

48

4.7.3 Private Sector Banks

49

4.7..4 Foreign Banks

51

4.8 Bank group-wise deposit and advance maturity matching 5 Investments

52 54

5.1 SLR Investments

54

5.2 Non SLR Investments

57

5.3 Bank group-wise Credit and Investment to deposit ratios

59

6 Total Income

62

6.1 Interest on Advances and Investments

62

6.2 Other Income

63

6.2.1 Core Fee Income

63

6.2.2 Non-fee Income

64

7 Total Expenses 7.1 Operating Expenses

ii

36

67 67

7.1.1 Staff Cost

69

7.1.2 Non-staff Cost

73

8 Spread

75

8.1 Spread for SCBs

75

8.2 Bank Group-Wise Performance

76

REPORT ON INDIAN BANKING SECTOR

9 Profitability

80

9.1 Profitability for SCBs

80

9.2 Bank Group-Wise Performance

81

9.2.1 SBI and Associates

81

9.2.2 Nationalised Banks

82

9.2.3 Private Sector Banks

83

9.2.4 Foreign Banks

84

10 Non-Performing Assets (NPAs)

85

10.1 Trend in NPAs for SCBs

86

10.2 NPAs, Provisions and write back for banking groups

89

10.3 Sector-wise NPA Break-up

93

10.4 Recovery of NPAs

94

10.5 Bank Group-wise Performance

97

10.5.1 PSU Banks

98

10.5.2 Old Private Sector Banks

99

10.5.3 New Private Sector Banks

100

10.5.4 Foreign Banks

101

11 Capital Adequacy Ratio (CAR)

102

12 Consolidation: Is it imminent for the Indian banking sector??

105

13

109

FY09 Result Analysis

14 Outlook on Indian Banking Industry

112

14.1 Advances

112

14.2 Deposits

122

iii

14.3 Investments

128

14.4 Core Fee Income

131

14.5 Net Interest Margins (NIMs)

132

14.6 Non-Performing Assets (NPAs) and Provisioning

139

14.6.1 Restructuring of Assets

REPORT ON INDIAN BANKING SECTOR

14.7 Profitability

145 148

15 Ranking of Individual Banks

149

16 Players

182

16.1 Axis Bank

182

16.2 Bank of Baroda

184

16.3 Bank of india

186

16.4 Canara Bank

188

16.5 Central Bank of india

190

16.6 HDFC Bank

192

16.7 ICICI Bank

194

16.8 IDBI Bank

196

16.10 State bank of India

198

16.11 Syndicate Bank

200

16.12 Union Bank of India

202

iv

REPORT ON INDIAN BANKING SECTOR

Figure Index 1.1

No. of Scheduled Commercial Banks in India

10

1.2

Classification of banks into various groups

11

1.3

No. of offices of commercial banks(both scheduled and non-scheduled including RRBs) over the years

13

1.4

Regional distribution of branches for schedule commercial banks as on March 31, 2008

14

1.5

Distribution of branches among regions for various bank groups

15

2.1

Changes in policy rate in FY09 to check inflation

17

2.2

Trend in repo and reverse repo rates over the years

18

2.3

Spread between Repo and Reverse repo rates

19

2.4

Large LAF injection during Jul to Oct’08 and subsequent absorption from Dec’08 to Mar’09s

19

2.5

Changes in CRR for Macro economic objective

20

3.1

Break-up of total resources of SCBs as on 31st March 2008

21

3.2

Deposits as a Percentage of total resources for various bank groups

21

3.3

Total deposits and y-o-y growth in deposits of SCBs

22

3.4

Total deposits and y-o-y growth in deposits of SCBs (incl. RRBs) for FY09

22

3.5

Deposits as a percentage of GDP over the years

23

3.6

Percentage Distribution of total deposits by population

23

3.7

Break-up of deposits by ownership

24

3.8

Break-up of financial saving of household sector

25

3.9

Movement in interest rates on saving instruments

25

3.10

Trend in small saving mobilisation

25

3.11

Types of deposits

26

3.12

Proportion of low cost deposits in total deposits of SCBs

27

3.13

Share in incremental CASA deposits by various bank groups

28

3.14

Break-up of term deposits by ownership

28

3.15

Trend in spread between various maturities of deposits for PSBs

29

v

REPORT ON INDIAN BANKING SECTOR

3.16

Break-up of term deposits into short-term and long-term deposits

29

3.17

Total deposits and y-o-y growth in deposits of SBI and Associates

30

3.18

Break-up of deposits and CASA ratio of SBI and Associates

31

3.19

Total deposits and y-o-y growth in deposits of Nationalised banks

31

3.20

Break-up of deposits and CASA ratio of Nationalised Banks

32

3.21

Total deposits and y-o-y growth in deposits of Private Sector Banks

33

3.22

Break-up of deposits and CASA of Private Sector Banks

33

3.23

Total deposits and y-o-y growth in deposits of Foreign Banks

34

3.24

Break-up of deposits and CASA of Foreign Banks

35

4.1

Total advances and y-o-y growth in advances of SCBs

36

4.2

Type-wise advances Break-up for SCBs

36

4.3

Security-wise break-up of total advances for SCBs

37

4.4

Total Credit and y-o-y growth in credit for SCBs (incl. RRBs) for FY09

37

4.5

Break-up of bank credit into various sectors

39

4.6

Lending to sensitive sectors for FY08

43

4.7

Bank group-wise lending to the sensitive sector (as a % of total advances)

43

4.8

Priority Sector lending for PSBs and Private Sector Banks (as a % of total advances)

44

4.9

Priority Sector lending for Foreign Banks (as a % of total Advances)

45

4.10

Total advances and y-o-y growth in advances of SBI and Associates

46

4.11

Type-wise break-up of total advances for SBI and associates

47

4.12

Security-wise break-up of total advances for SBI and associates

47

4.13

Total advances and y-o-y growth in advances of Nationalised Banks

48

4.14

Type-wise break-up of total advances for Nationalised Banks

48

4.15

Security-wise break-up of total advances for Nationalised Banks

49

4.16

Total advances and y-o-y growth in advances of Private Sector Banks

49

4.17

Type-wise break-up of advances for Private Sector Banks

50

4.18

Security-wise break-up of total advances for Private Sector Banks

50

vi

REPORT ON INDIAN BANKING SECTOR

4.19

Total advances and y-o-y growth in advances of Foreign Banks

51

4.20

Type-wise break-up of total advances for Foreign Banks

51

4.21

Security-wise break-up of total advances for Foreign Banks

52

5.1

Break-up of Investments

54

5.2

SLR Investment and Requirement by SCBs

55

5.3

SLR Investments by SCBs over the years

55

5.4

Mismatch between the CAGR in deposits and advances of SCBs

56

5.5

Credit-deposit and investment-deposit ratio of SCBs

57

5.6

Composition of Non-SLR Investments over the years for SCBs

58

5.7

Credit, Investment to deposit ratio for SBI and Associates

59

5.8

Credit, Investment to deposit ratio for Nationalised Banks

59

5.9

Credit, Investment to deposit ratio for Private Sector Banks

60

5.10

Credit, Investment to deposit ratio for Foreign Banks

60

6.1

Break-up of total income

62

6.2

Break-up of Interest income of SCBs

62

6.3

Trend in profit on sale/revaluation of Investments and 10 year bond yield

65

7.1

Break-up of total expenses

67

7.2

Operating cost as percentage of total assets for SCBs

67

7.3

Operating cost a percentage of total assets for PSBs

68

7.4

Operating cost a percentage of total assets for Private and Foreign Banks

69

7.5

Declining trend in staff cost as a percentage of operating cost for SCBs

69

7.6

Average business per unit of staff cost for various bank groups

70

7.7

Staff cost as a percentage of operating cost for various bank groups

71

7.8

Average business per unit of staff cost for PSBs

72

7.9

Average business per unit of staff cost for Private and Foreign Banks

72

8.1

Net Interest Margin for SCBs (in %)

76

8.2

Net Interest Margin for PSBs (in %)

77

8.3

Net Interest Margin for Private and Foreign Banks (in %)

79

vii

REPORT ON INDIAN BANKING SECTOR

10.1

Classification of Asset into Standard and Non-performing

85

10.2

Trend in Gross NPAs to Gross Advances of SCBs

86

10.3

Trend in Net NPAs to Net Advances of SCBs

87

10.4

Addition and reduction in gross NPAs for SCBs over the years

89

10.5

Addition and reduction in gross NPAs for PSBs

89

10.6

Addition and reduction in gross NPAs for Private and foreign banks

90

10.7

Share of priority sector NPAs in total NPAs

97

10.8

Share of advances of PSBs to total banking gross advances and PSBs’ gross NPAs to total banking gross NPAs

98

10.9

Share of advances of PSBs to total banking net advances and PSBs’ net NPAs to total banking net NPAs

98

10.10

Share of Old Private Sector Banks to the total banking gross advances and Old Private Sector Banks’ gross NPAs to total banking gross NPAs

99

10.11

Share of Old Private Sector Banks to the total banking net advances and Old Private Sector Banks’ net NPAs to total banking net NPAs

99

10.12

Share of New Private Sector Banks to the total banking gross advances and New Private Sector Banks’ gross NPAs to total banking gross NPAs

100

10.13

Share of New Private Sector Banks to the total banking net advances and New Private Sector Banks’ net NPAs to total banking net NPAs

100

10.14

Share of Foreign Banks to the total banking gross advances and Foreign Banks’ gross NPAs to total banking gross NPAs

101

10.15

Share of Foreign Banks to the total banking net advances and Foreign Banks’ net NPAs to total banking net NPAs

101

11.1

Trend in total CRAR, Tier 1 and Tier 2 for SCBs

102

14.1

Industrial production y-o-y growth (in %)

112

14.2

GDP growth and Bank credit growth moves in tandem

115

14.3

Bank credit as a percentage to GDP

117

14.4

Share of various sectors in GDP

117

14.5

Sharp and prompt cut in CRR than earlier slowdowns

119

14.6

Projected sector-wise break-up of bank credit from FY09 to FY11

120

14.7

Average growth and y-o-y growth in credit for SCBs from FY1980 to FY2008

122

viii

REPORT ON INDIAN BANKING SECTOR

14.8

Average growth and y-o-y growth in deposit for SCBs from FY1980 to FY2008

123

14.9

Difference between credit and deposit growth over the years

123

14.10

Share of demand deposits in incremental total deposits for SCBs

124

14.11

Share of saving deposits in incremental total deposits for SCBs

126

14.12

Trend in 10 years G-sec yield

129

14.13

Trend in SLR Investment of SCBs

130

14.14

Benchmark Prime Lending Rate (BPLR - maximum) over the years

132

14.15

Deposit rate of for more than 1 year maturity over the years

132

14.16

Spread between BPLR - maximum and deposits rate for more than 1 year maturity

134

14.17

Net Interest Margin (NIM) for SCBs over the years

134

14.18

Movements in interest rate on small saving instruments and bank deposit

136

14.19

Trend in BPLR and saving deposit rates

137

14.20

Trend in the spread between BPLR and saving deposit rates

137

14.21

Trend Repo and CRR for FY09

138

14.22

Share of small scale credit in industrial credit over the years

142

15.1

Ranking Parameter

149

ix

REPORT ON INDIAN BANKING SECTOR

Table Index 1.1

List of banks under various banking groups

12

3.1

Interest spreads between short-term and long-term deposits as on December 2008 (in %)

30

3.2

CASA of Nationalised Banks (in %)

32

3.3

CASA of Private Sector Banks (in %)

34

3.4

CASA of Foreign Banks (in %)

35

4.1

Bank group-wise credit offtake for FY08 and FY09

38

4.2

Break-up of bank credit into various sectors

39

4.3

Provisional break-up of non-food credit for FY09

40

4.4

Share of various sector in incremental non-food credit for FY09

40

4.5

Provisional break-up of industrial credit for FY09

41

4.6

Share of various sector in incremental industrial credit for FY09

41

4.7

Bank group-wise provisional sectoral bank credit growth for FY09

42

4.8

Break-up of retail credit for SCBs

42

4.9

Break-up of Priority Sector Lending for PSBs and Private Sector Banks (Rs cr)

45

4.10

Break-up of Priority Sector Lending for Foreign banks (Rs cr)

46

4.11

Maturity-wise break-up of deposits for various bank groups

52

4.12

Maturity-wise break-up of advances for various bank groups

53

4.13

Maturity-mismatch between deposits and advances

53

6.1

Proportion of other income in total income for various bank groups

63

6.2

Trend in other income (excluding Profit on Sale/revaluation of investments and fixed assets) (Rs cr)

64

6.3

Bank group-wise share in interest and fee income for FY08

64

6.4

Profit on sale and revaluation of investment for various bank groups

66

7.1

Trend in operating cost excluding staff cost

73

7.2

Trend in advertising and publicity cost

73

8.1

Spread of the SCBs over the years (in %)

75

x

REPORT ON INDIAN BANKING SECTOR

8.2

Spread of the PSBs over the years (in %)

76

8.3

Spread of Old Private Sector Banks over the years (in %)

77

8.4

Spread of New Private Sector Banks over the years (in %)

78

8.5

Spread of Foreign Banks over the years (in %)

78

9.1

Statement of Profit for SCBs

80

9.2

Statement of Profit for SBI and Associates

81

9.3

Statement of Profit for Nationalised Banks

82

9.4

Statement of Profit for Private Sector Banks

83

9.5

Statement of Profit for Foreign Banks

84

10.1

Provisioning Requirement for non-performing asset depending upon the classification category

86

10.2

Gross and Net NPAs of SCBs (Rs cr and in %)

87

10.3

Gross and Net NPAs of various bank groups (Rs cr and in %)

91

10.4

Distribution of banks by the ratio of Net NPAs to Net Advances

93

10.5

Sector-wise classification of NPAs for SCBs and PSBs

93

10.6

Sector-wise classification of NPAs for Private Sector Banks

94

10.7

Financial Assets Securitised by Securitisation and reconstruction companies

95

10.8

NPAs recovered through various Channels

96

10.9

Recovery of direct agriculture advances

96

11.1

Resources raised by banks over the years (Rs cr)

103

11.2

Bank group-wise trend in CRAR ratio over the years (in %)

103

11.3

Distribution of banks by CRAR

104

12.1

List of banks amalgamated since nationalization of banks in India 1969

105

12.2

List of countries and no. of banks operating within a country

106

12.3

Fund infusion by government into PSBs

107

12.4

Government holdings in PSBs

107

13.1

Profit and Loss account for PSBs

109

13.2

Profit and Loss account for Private Sector Banks

110

xi

REPORT ON INDIAN BANKING SECTOR

13.3

CASA ratio various banks in FY 08 & FY 09

111

13.4

Restructured Assets in Rs. cr and in % of total Advances

111

14.1

Sector-wise and Used based growth in industrial production

113

14.2

GDP growth rate across the country

114

14.3

GDP growth and bank credit growth for block of years

116

14.4

Projected credit growth for various banking group (%)

120

14.5

Projected credit growth for various banking group (Rs cr)

120

14.6

thus changing share in total credit in favour of PSU banks

121

14.7

Average growth and standard deviation in deposit and credit growth from FY1980 to FY2008 (in %)

122

14.8

Trend in incremental total and demand deposits for FY09 (Rs cr)

125

14.9

Trend in incremental total and demand deposits over the years (Rs cr)

125

14.10

Deposit growth for various bank groups (in %)

126

14.11

Projected deposit growth for various banking group (%)

127

14.12

Projected deposit growth for various banking group (Rs cr)

127

14.13

thus changing the share in total deposits in favour of PSBs

127

14.14

Profit on sale/revaluation of investments for SCBs

128

14.15

Trend in Core fee income growth and projection

131

14.16

Cut in BPLR and deposit rates by various banks

133

14.17

Speeding up of sub-PLR lending by PSU banks at a lower interest rate to following sectors

135

14.18

Projection for NPAs for various bank groups

139

14.19

Sector-wise exposure of industrial credit

140

14.20

Dependence of Indian corporates on borrowed funds

141

14.21

Break-up of bank retail credit for SCBs and expected slippages

143

15.1

Calculation of no. banks included in Ranking Analysis

150

xii

Annexures Overall Ranking based on various parameters

151

Ranking based on Size

153

Ranking based on no. of branches

155

Ranking based on total business

156

Ranking based on Net profit

157

REPORT ON INDIAN BANKING SECTOR

Ranking based on Profitability

158

Ranking based on Net Interest Margin

160

Ranking based on Return on Assets (ROA)

161

Ranking based on Return on Equity (ROE)

162

Ranking based on CASA Ratio

163

Ranking based on Core Spread

164

Ranking based on Quality

165

Ranking based on Capital Adequacy Ratio

167

Ranking based on Tier 1 Capital Adequacy Ratio

168

Ranking based on Gross NPAs to Gross Advances

169

Ranking based on Net NPAs to Net Advances

170

Ranking based on proportion of Unsecured advances in total advances

171

Ranking based on Growth

172

Ranking based on CAGR in Advances

174

Ranking based on CAGR in deposits

175

Ranking based on CAGR in Net Profit

176

Ranking based Qualitative Factors

177

Ranking based on business per branch

179

Ranking based on business per employee

180

Ranking based on Profit per employee

181

xiii

Executive Summary Indian Banking Sector is dominated by Public Sector Banks (PSBs) which accounted for 72.6% of total advances of all Scheduled Commercial Banks excluding RRBs (SCBs) on 31st March 2008. PSBs have rapidly expanded their foot prints after nationalisation of banks in India. Although there is a restrictive entry/expansion for private sector banks and foreign banks in India, these banks have increased their presence and business over last 5 years.

REPORT ON INDIAN BANKING SECTOR

SCBs in India have shown an impressive growth in deposits mobilisation over the years (Total deposit grown at CAGR of 19.6% from FY03-FY08 and 17.6% from FY88 to FY08). Among the group of banks, private sector and foreign banks deposits have grown at a higher CAGR of 26.7% and 22.5%, respectively from FY03 to FY08. Deposit as a percentage to GDP has increased steadily from 8.7% in FY51 to 67.8% in FY08 mainly due to rapid expansion by PSBs, entry of private and foreign banks and growing education among people with respect to saving and banking operations. Unlike their western counterparts which rely heavily on bulk deposits, banks in India rely on household sector savings as their primary source of deposits. Deposits from household sector constituted 57.4% of the total banking deposits in FY07 (Individual and HUF share in total deposits was 44.5%). This distinct feature of the Indian banks makes them less prone to financial crisis, as was seen in the western world in mid FY09. Till FY06, the CASA ratios of banks have been increasing or have remained constant, till FY06. However, in FY07 and FY08, the CASA ratio for most of the bank groups has declined mainly due to increased focused on term deposits to fund the high credit growth. Growth in term deposits of SCBs was at 28.9% and 24.5% in FY07 and FY08 as compared to 17.7% and 20.6% growth in CASA deposits in the same period. Banking sector has seen the tremendous growth in credit off take in last five years (CAGR in advances for SCBs was at 27.4% from FY03 to FY08). Sector recorded credit growth of 33.3% in FY05 which was highest in last 2 and half decades and credit growth in excess of 30% for three consecutive years from FY04 to FY07, which is best in the banking sector so far. Industrial credit accounted for 38.8% of total bank credit followed by services at 24.4%, retail loans at 22.5% and agriculture & food credit at 14.2% in FY08. Within the industrial credit, infrastructure accounts for highest share at 23.2%. (9% total bank credit). Unsecured bank credit as percentage to total credit was at 23.3% in FY08 which has increased from 10.9% in FY2000. Share of unsecured credit is highest for foreign banks at 52.8% of total credit. Total lending to sensitive sector (real estate accounts for 87.4% of sensitive sector lending) has grown at a CAGR of 46.1% during FY05 to FY08. As against this, the CAGR in total advances was at 29.1%. Among the group of banks, PSBs have least exposure to sensitive sector lending at 17.1% of total advances, followed by old private sector banks at 18.9%, foreign banks at 26.5% and new private sector banks at 34.1%.

1

Due to rapid growth in advances, proportion of interest on advances in total interest earned of the banks has increased to 71.4% in FY08 as compared to 48.2% in FY01. Proportion of interest on investment has declined. Increase in economic activity and robust primary and secondary markets have helped the banks to garner larger increase in their fee based incomes. CAGR in core fee income for SCBs over FY03 to FY08 was at 24.0% (private sector banks 34.6% and foreign banks 31%).

REPORT ON INDIAN BANKING SECTOR

Operating cost as a percentage to total assets for SCBs has been declining over the years. Operating cost was at 2.84% of total assets in FY01 which decreased to 1.98% of the total assets in FY08. Staff cost constitute the major portion of the total operating cost of the bank. It constituted 51.6% of total operating cost in FY08 as compared to 68.0% in FY01 for SCBs. Average business per unit of staff cost was highest for foreign banks at Rs183.3, followed by private banks at 151.8, nationalised banks at 140.4 and SBI and associates at 120.6. Spread (Return on funds minus cost of the funds) for SCBs decreased from 3.3% in FY06 to 3.0% in FY08, in spite of rapid growth in the credit off take mainly due to higher interest offered by banks on short-term deposits to attract high volume of deposits. The spread is lowest for PSBs 2.7%, followed by old private sector banks, new private sector banks and foreign banks at 2.9%, 3.2% and 4.8% respectively. Net profit for SCBs increased at a CAGR of 20.2% from FY03 to FY08. Among the group of banks, CAGR in profit of SBI and associates was lowest at 14.8% followed by nationalised banks at 17.7%. CAGR in profit of foreign banks was highest at 29.5% and private banks at 26.7%. The reason attributed to this could be the already established presence for PSBs and low base effect of private and foreign banks. A significant improvement in recovering the NPAs combined with a sharp increase in gross advances for SCBs led to a sharp decline in the ratio of gross NPAs to gross advances to 2.3% in FY08 from 12.7% in FY2000. Net NPAs to Net advances declined to 1.0% in FY08 as compared to 6.8% in FY2000. Excellent performance of high deposit and credit growth, all time low level NPAs witnessed in the period between FY04 to FY08 which is the best in banking industry so far is difficult to repeat. The Indian economy is witnessing moderation in growth which will lead to slowing of credit offtake, moderate growth in deposits and increase in slippages. Bank credit to grow at a CAGR of 17-19% from FY09 to FY11 CARE Research expects the credit offtake to slow down in next two years. Fresh credit demand will be hit by slower economic growth due to both recession in developed economies and sluggish domestic demand. We estimate growth in credit offtake to be around 15-17% for FY10 and 1921% for FY11 for SCBs. Going forward, CARE Research feels that the growth in bank credit offtake would be fuelled by growth in lending to the infrastructure sector (share of infrastructure in total bank credit will increase from 9.0% in FY08 to 12% in FY11). Although slower economic growth will delay capex cycle and overall demand for credit by corporates, incremental offtake from them will remain high for banks due to lack of funds from non banking channels. We project flat to declining growth for personal loans and credit card outstandings and moderate growth in home loans (share of retail credit will decline from 22.5% in FY08 to 18% in FY11).

2

PSBs credit growth will be higher than industry average in FY10 mainly due to government push for cheap credit and their stronghold in lending to corporates where credit offtake will not see as big a dent as expected in retail credit. In our view, some of the private sector and foreign banks will focus more on restructuring their balance sheets and the loan portfolios which are presently highly skewed towards retail credit. We may see the balance sheet size of some such players remaining stagnant or marginally declining in FY10. Credit growth for PSBs will be around 1819% while private and foreign banks’ credit will grow at 12-14% and 6-8% respectively in FY10. Deposits to grow at a CAGR of 18-20% from FY09 to FY11

REPORT ON INDIAN BANKING SECTOR

Banks have since FY2000 seen the wide mismatch with credit growth surpassing deposit growth. However, we feel that deposit growth will be greater than or equal to credit growth in the next two years. Keeping in mind our projection of credit growth, we expect the deposit growth rate to hover around 18% to 20% in FY10 & FY11. Incremental current account deposits will be lower in next two years as sluggish business coupled with shortage of funds compels corporates to curtail the idle funds kept in banking system. With slower economic growth the demand deposits will contribute only 7-8% as seen in 1992-93, 199798, 2001-03. Saving deposits/ term deposit mobilization may be less affected due to relatively declining risk appetite of investors and alternative investment options like equity investments are turning less lucrative in the present scenario. Fleet of deposits will continue in favour of PSBs as seen in H2FY09. Global financial crisis have put the expansion plan of foreign banks in India on a hold. Deposit growth for PSBs will be around 20-21% while private and foreign banks’ deposits will grow at 12-14% and 7-9% respectively in FY10. Lower Treasury gains We do not expect the treasury gains of FY02-FY05 (constituted around ~7-10% of total income) period to be repeated in the years to come. Most of the treasury gains were booked in Q3FY09 due to sharp fall in G-sec yield (declined from 9.5% in Jul’08 to 5.1% in Jan’08 i.e. in 6 months time). We expect the bond yields to remain firm due to higher borrowing by government in next two years. Also lesser excess investment in SLR portfolio will cap the treasury gains. NIMs under pressure Slower economic growth and its adverse effects on incremental credit demand have led banks to reduce loan yields ahead of deposit rates. Lagged effect of deposit rate cut is expected to trim the NIM in FY10. Spread between the Benchmark prime lending rate and deposits rate of more than one year maturity touched its historic low of 3.0% in Nov’08 and is currently hovering at around 3.5% which will also translate into lower NIMs for banks. We believe that the deposit rates offer little scope for further reduction. However, cut in policy rates (CRR and repo by 400bps and SLR by 100bps) have decreased the cost of the fund for the banks, which is positive for protecting the margins for the banks. Lagging effect will not be present in FY11 and the sector will see better NIMs as compared to FY10.

3

Gross NPAs to gross advances to touch 4.3% by FY11 We believe that gross NPA to gross advances to increase from 2.3% in FY08 to 4.25-4.50% by the end of FY11 and Net NPA to Net advances to increase from current 1% to 2.7-3.0% by the end of FY11. Lower proportion of lending to stressed sectors, comparatively lower corporate leverage, and better risk management will result into lower NPAs in current asset cycle as compared to past. (FY2000 gross NPA to gross advance were in excess of 15%) Flat to marginal growth in net profit in FY10

REPORT ON INDIAN BANKING SECTOR

Reduced NIMs and slower growth in advances as compared to last year will reduce the growth in Net interest income (NII). Lower treasury gains and lower core income due to slower economic activity will curtail growth in other income significantly. Higher provisioning for NPAs and increased wages due to revision for PSBs will have negative impact on profitability. CARE Research believes flat to marginally positive growth in net profit for banking industry in FY10 and moderate growth of 8-10% for FY11.

4

Chapter 1 History of banking sector in India Origination of banking in India dates to the last decades of the 18th century with the General Bank of India, which started in 1786, and the Bank of Hindustan (both of which are now defunct.) The oldest bank in existence in India is the State Bank of India (SBI), the largest commercial bank in the country that traces its origins back to June 1806. The history of the banking sector can be better understood by dividing it into. 1. History of SBI and Associates 2. History of other banks in India (includes Nationalised Banks, Private Banks and Foreign Banks)

REPORT ON INDIAN BANKING SECTOR

1.1 History of SBI and Associates ¾

The oldest bank in existence in India is the SBI, which originated as the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal in 1809.

¾

Bank of Bengal was one of the three presidency banks, the other two being the Bank of Bombay (established in 1840) and the Bank of Madras (established in 1843), all three of which were established under charters from the British East India Company.

¾

For many years, the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1925 to form the Imperial Bank of India which started as private shareholders banks, mostly Europeans shareholders.

¾

State Bank of India Act was established in 1955. Pursuant to the provisions of the State Bank of India Act (1955), the Reserve Bank of India (RBI), which is India's central bank, acquired a controlling interest (60%) in the Imperial Bank of India. On April 30, 1955 the Imperial Bank of India was renamed as the State Bank of India. In 2008, the Government took over the stake held by RBI.

¾

In 1959, the Government passed the State Bank of India (Subsidiary Banks) Act, enabling the SBI to take over eight former State-associated banks as its subsidiaries. 1. State Bank of Indore 2. State Bank of Bikaner & Jaipur 3. State Bank of Hyderabad 4. State Bank of Mysore 5. State Bank of Patiala 6. State Bank of Travancore 7. State Bank of Saurashtra Later on in September 2008, State Bank of Saurashtra was merged with the parent bank SBI.

5

1.2 History of other banks in India (includes Nationalised Banks, Private Banks and Foreign Banks) We further divide history of other banks in India into following groups. No 1 2 3

REPORT ON INDIAN BANKING SECTOR

4

Year 1840 to 1947 1947 to 1969 1969 to 1991 1991 2008

Period Pre Independence

Characterised by Small size, less regulated and bank failures

Post Independence to Nationalisation Nationalisation to Liberalisation

Slower growth, private sector dominance and start of regulation Nationalised of banks by government, high regulation, secular growth in business and expansion & rising inefficiencies De-regulation, entry of private and foreign banks and technological advancement

to Liberalisation to current date

1.2.1 Pre Independence (1840 to 1947) ¾ Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India. ¾ The second entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India. ¾ The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to form banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India. ¾ The period during the First World War (1914-1918) through the end of the Second World War (1939-1945), and two years thereafter until the independence of India were challenging for the Indian banking industry. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following table: Year 1913 1914 1915 1916 1917 1918

6

No. of banks failed 12 42 11 13 9 7

1.2.2 Post Independence to Nationalisation (1947 to 1969) The Government of India (GOI) initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps taken to regulate banking include: ¾ In 1948, the RBI, India's central banking authority, was nationalised, and it became an institution owned by the Government of India. ¾ In 1949, the Banking Regulation Act was enacted which empowered the RBI "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

REPORT ON INDIAN BANKING SECTOR

1.2.3 Nationalisation to liberalisation (1969 to 1991) By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had been ensued about the possibility to nationalise the banking industry. On July 19, 1969, major process of nationalisation was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi by whom 14 major commercial banks in the country were nationalised. The second phase of nationalisation of the Indian Banking Sector was carried out in 1980 with seven more banks being nationalised. With the second dose of nationalisation, the GOI controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalised banks and resulted in the reduction of the number of nationalised banks from 20 to 19. A number of questions were raised regarding the procedure adopted by the then government in suddenly going for the nationalisation of banks. There was no official report, which had gathered expert opinions and evidence on the need either for social control or for nationalisation of banks. The chiefs of private banks had not been consulted as to the need and implications of the proposed measure. Arguments of government for nationalisation were as follows ¾ Before the nationalisation, the privately-owned banks were operating on the criteria of profit maximisation and lesser emphasis was placed on the development of rural areas. Credit and deposits base was confined to large corporates and wealthy depositors. ¾ The nationalised banking set-up would vigorously pursue expansion programmes to cover rural areas, smaller towns and lower income groups. ¾ To pay special attention to inter-sectoral balances and balanced regional development. ¾ To take away the stranglehold of the few industrial houses on credit and reduce their control over the community's resources. 7

¾ Ensure stability in the functioning of the credit institutions and inspire more confidence among the depositors. ¾ Encourage healthy competition between large and small industrial houses.

REPORT ON INDIAN BANKING SECTOR

In summary, the following are the steps taken by the Government of India to regulate the banking institutions in the country: ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾

1949: Enactment of Banking Regulation Act. 1955: Nationalisation of SBI. 1959: Nationalisation of SBI subsidiaries. 1961: Insurance cover extended to deposits. 1969: Nationalisation of 14 major banks. 1971: Creation of credit guarantee corporation. 1975: Creation of regional rural banks. 1980: Nationalisation of seven banks with deposits over Rs.200 crores.

1.2.4 Liberalisation to current date (1991 to 2008) The policies of nationalisation and social reforms that were supposed to promote a more equal distribution of funds, also led to inefficiencies in the Indian banking system. To alleviate the negative effects, some reforms were enacted in the second half of the 1980s. The main policy changes were the introduction of Treasury Bills, the creation of money markets, and a partial deregulation of interest rates. Despite the reform attempts, the Indian banking sector had like the overall economy severe structural problems by the end of the 1980s. By international standards, the Indian banks were extremely unprofitable despite a rapid growth in deposits. In 1991, GOI liberalised the economy. The objective of banking sector reforms was in line with the overall goals of the 1991 economic reforms of opening the economy. Narsimhan Rao government embarked on a policy of liberalisation by licensing a small number of private banks. These new banks came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, UTI Bank (now re-named as Axis Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalised the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. ¾ Interest rate liberalisation 1. The interest rate structure was too complex with both lending and deposit rates set by the RBI. The regulation of lending rate for loans in excess of rupees two lakhs, which accounted for over 90% of total advances, was abolished in October 1994. 2. Banks were allowed to decide and announce Prime Lending Rate (PLR), after taking into account the cost of the funds and transaction costs.

8

3. From October 1995, regulations relating to fixing of rate of interest for term

deposits with a maturity of more than two years were liberalised. The minimum maturity was subsequently lowered from two years to 15 days in 1998. 4. Since 2004, the RBI is only regulating and prescribing deposit rates for the savings deposits and deposits from Non resident Indians For all other deposits above 15 days, banks are free to set their own interest rates. ¾ Privatisation

REPORT ON INDIAN BANKING SECTOR

1. In the year 1994, Private sector banks were permitted to commence operations in India. Banks were allowed to raise the capital to meet the capital adequacy norms through capital market route, provided the government holding does not fall below 51%. 2. FDI/FII limits on investments in shares of private sector banks were raised to 51% in 2001. 3. In 2004, FDI/FII limits on investments in shares of private sector banks was further relaxed and increased to 74%, with no one FII holding more than 5% stake without the consent of RBI and FII limit in PSBs was capped at 20%. 4. Foreign banks with restriction on branch opening and operation were allowed to enter on selective basis in 2004. More liberal entry for foreign banks was proposed after April 2009. ¾ Entry of foreign banks RBI announced its policy decision on March 2004 for gradual entry of foreign banks in India in synchronised manner in two phases. In order to allow the Indian Banks sufficient time to prepare for global competition, initially the entry of foreign banks in first phase was more restrictive. Phase 1 (March 2005 to March 2009) 1. Foreign banks were allowed to establish presence in India and were given an option to operate through branch presence or set up a 100% Wholly Owned Subsidiary (WOS). 2. Foreign banks were allowed to open 12 branches a year (the limit was in line with World Trade Organisation (WTO) commitment). Branch licensing procedure was kept same as applicable for private banks. More liberal branch opening policy was adopted in under-banked areas. 3. The limit of 12 branches a year was raised to 20 branches for foreign banks in March 2006. 4. Acquisition of shares in Indian banks by foreign banks was permitted for banks which are identified by RBI for restructuring.

9

Phase 2 (April 2009 onwards)

No. of banks in India have declined over the past 10 years As depicted in the following graph, the number of SCBs has been declining over the years from around 300 banks in FY2000 to 165 banks as on date. Several small regional rural banks have been merged with their parent banks or have closed down.

Fig 1.1 – No. of Scheduled Commercial Banks in India 325

No. of reporting SCBs

275 225 175 125

Source: RBI and CARE Research

10

Oct-08

Apr-08

Oct-07

Apr-07

Oct-06

Apr-06

Oct-05

Apr-05

Oct-04

Apr-04

Oct-03

Apr-03

Oct-02

Apr-02

Oct-01

Apr-01

Oct-00

75 Apr-00

REPORT ON INDIAN BANKING SECTOR

1. Branch expansion: - After reviewing the experience of the first phase, RBI has proposed to remove the restriction on branch expansion and limited excess to Indian market and treating them on par with domestic banks to the extent appropriate. 2. Listing of foreign banks: - After completion of the proposed year of operation in India, WOS of foreign banks will be allowed to list and dilute the stake in the manner that at least of 26% of the paid-up capital remains with the resident Indian. 3. Mergers and acquisitions: - After a review is made with regard to the extent of penetration of foreign investment in Indian banks and functioning of foreign banks, foreign banks may be permitted, subject to regulatory approvals and such conditions as may be prescribed, to enter into merger and acquisition transactions with any private sector bank in India, subject to the overall investment limit of 74 per cent.

1.3 Various Banking Groups Fig 1.2 – Classification of banks into various groups Banks in India

REPORT ON INDIAN BANKING SECTOR

Scheduled Commercial Banks

Public Sector Banks

Private Sector Banks

State Bank of India and Associates

Unscheduled Commercial Banks

Foreign Banks

Regional Rural Banks

Nationalised Banks

Source: CARE Research

The commercial banking structure in India consists of: ¾ Scheduled Commercial Banks in India ¾ Unscheduled Banks in India Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act. The scheduled commercial banks in India comprise of SBI and its associates, nationalised banks, foreign banks, private sector banks, co-operative banks and regional rural banks. Non-scheduled bank in India means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank. SCBs in India can be divided into five groups. SBI and its associates Nationalised banks Private sector banks Foreign banks. Regional Rural Banks (RRBs)

We have done the analysis of first four banking groups and excluded RRBs in our report.

11

Table 1.1 – List of banks under various banking groups SBI and Associates 1. SBI 2. State Bank of Bikaner and Jaipur 3. State Bank of Hyderabad 4. State Bank of Indore

5. State Bank of Mysore 6. State Bank of Patiala 7. State Bank of Travancore

REPORT ON INDIAN BANKING SECTOR

Nationalised Banks 1. Allahabad Bank 2. Andhra Bank 3. Bank of Baroda 4. Bank of India 5. Bank of Maharashtra 6. Canara Bank 7. Central Bank of India 8. Corporation Bank 9. Dena Bank 10. IDBI Bank Ltd.

11. Indian Bank 12. Indian Overseas Bank 13. Oriental Bank of Commerce 14. Punjab National Bank 15. Punjab & Sind Bank 16. Syndicate Bank 17. Union Bank of India 18. United Bank of India 19. UCO Bank 20. Vijaya Bank

Private Sector Banks 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Axis Bank Bank Of Rajasthan Catholic Syrian Bank City Union Bank Development Credit Bank Dhanalakshmi Bank Federal Bank HDFC Bank ICICI Bank IndusInd Bank ING Vysya Bank

12

12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

Jammu & Kashmir Bank Karnataka Bank Karur Vysya Bank Kotak Mahindra Bank Lakshmi Vilas Bank Nainital Bank Ratnakar Bank SBI Commercial & International Bank South Indian Bank Tamilnad Mercantile Bank Yes Bank

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

ABN AMRO Bank Abu Dhabi Commercial Bank Antwerp Diamond Bank Arab Bangladesh Bank Bank Of America Bank Of Bahrain & Kuwait Bank Of Ceylon Bank Of Nova Scotia Bank Of Tokyo-Mitsubishi-UFI Barclays Bank BNP Paribas Calyon Bank Chinatrust Commercial Bank Citibank

15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27.

DBS Bank Deutsche Bank HSBC JP Morgan Chase Bank Krung Thai Bank Mashreq Bank Mizuho Corporate Bank Oman International Bank Shinhan Bank Societe Generale Sonali Bank Standard Chartered Bank State Bank of Mauritius

Source: RBI and CARE Research

5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

80000 75000 70000 65000 60000 55000

No. of Offices

FY08

FY07

FY06

FY05

FY04

FY03

FY02

FY01

FY00

FY99

FY98

FY97

FY96

50000

Percent

Fig 1.3 – No. of offices of commercial banks(both scheduled and non-scheduled including RRBs) over the years

FY95

REPORT ON INDIAN BANKING SECTOR

Foreign Banks

Growth % (y-o-y)

Source: RBI and CARE Research

The number of offices (branches plus administrative offices) for all SCBs increased from 64,184 in FY1995 to 77,773 in FY2008. The number of offices for SCBs increased at a higher pace between FY06 and FY08. The branch network increased by 10% between FY06 to FY08 in three years as compared to 10.6% from FY1995 to FY2005 (i.e. 10 years).

13

1.4 Regional Distribution of Branches

REPORT ON INDIAN BANKING SECTOR

Fig 1.4 – Regional distribution of branches for SCBs as on March 31, 2008

Source: RBI and CARE Research

On an overall basis, the branches of the SCBs in India are fairly distributed. The state-owned banks have to adhere to social objective set by the government. Since nationalisation, PSBs have increased their presence in rural and semi-urban areas. Private and foreign banks started operating post 1994. Since the main driver for these banks was profit maximisation and due to restriction on opening of branches, their branch network is being concentrated in metro and urban regions.

14

REPORT ON INDIAN BANKING SECTOR

Fig 1.5 – Distribution of branches among regions for various bank groups

Source: RBI and CARE Research

As depicted in above graphs, there is a noticeable difference between rural and semi-urban presence of PSBs, private & foreign banks. SBI and associates and nationalised banks have around 34% of the branches situated in rural area as compared to 12.5% and 0% for private and foreign banks.

15

Chapter 2 Role of Reserve Bank of India Established in 1935, under the Reserve bank of India Act, 1934, RBI is the central bank of the country. RBI was nationalised in the year 1949. Functions of the RBI can be divided into two. Monetary functions also known as the central banking functions of the RBI are related to control and regulation of money and credit, i.e., issue of currency, control of bank credit, control of foreign exchange operations, banker to the Government and to the money market. Monetary functions of the RBI are significant as they control and regulate the volume of money and credit in the country. Non-monetary functions includes supervision of banks operating India, promotion of sound banking

REPORT ON INDIAN BANKING SECTOR

2.1 RBI monetary and credit policy GOI uses various tools for development of economy. Two important tools of macroeconomic policy are Monetary Policy and Fiscal Policy. Fiscal policy is decided by the GOI through annual budget by the Finance Ministry. Monetary policy is a subject matter of RBI.

Monetary Policy The RBI is responsible for formulating and implementing Monetary Policy which is essentially a stabilisation policy. It is not intended to influence the long-term growth potential of the economy, but aims at ironing out the fluctuations in the economy also referred to as business cycles. This is done to minimise fluctuations and ensure a sustainable mix of growth and inflation in the economy. The RBI regulates the supply of money and the cost and availability of credit in the economy. It can increase or decrease the supply of currency as well as interest rate, carry out open market operations, control credit and vary the reserve requirements. The Monetary Policy aims to maintain price stability, full employment and economic growth. Historically, the Monetary Policy is announced twice a year - a slack season policy (AprilSeptember) and a busy season policy (October-March) in accordance with the agricultural cycles. These cycles also coincide with the halves of the financial year. The RBI as per the world-wide practice has shifted to market-based instruments for monetary management from non-market-based instruments like interest rate control. The RBI can influence the cost of funds and availability of credit in the economy by altering the repo/reverse repo rates, changing the reserve requirements and engaging in open market operations.

16

2.2 Developments in FY09 and Role of RBI The RBI’s role in monetary development and price stability can be well understood by the developments which happened in FY09. We divide the developments in financial markets in FY09 into two.

From April 2008 to September 2008

From September 2008 to March 2009 Near collapse of the world’s financial system and global recession made its impact felt on the domestic economy in last two quarters of FY09. The domestic economy slowed down considerably in later half of the FY09. Movement in inflation was southward due to world-wide slowdown and correction in commodities prices. In order to check the domestic slowdown RBI, aided by declining inflation, slashed the CRR, SLR and repo rates sharply by 400 bps, 100 bps and 400 bps, respectively over a period of 6 months from Aug’08 to Jan’09.

Fig 2.1 – Changes in policy rate in FY09 to check inflation 14 13 12 11 10 9 8 7 6 5 4 3 2 1 -

High inflation: CRR, repo increased by 150 and 125 bps to suck the liquidity

Source: RBI and CARE Research

17

Apr-09

Mar-09

Feb-09

Jan-09

Dec-08

Nov-08

Oct-08

Sep-08

Aug-08

Jul-08

Jun-08

May-08

Apr-08

Mar-08

Feb-08

Jan-08

Dec-07

Nov-07

Oct-07

Sep-07

Aug-07

Jul-07

Jun-07

May-07

Lower inflation and ease in liquidity: CRR, repo and SLR reduced by 400, 350 and 100 bps to check growth

Apr-07

Inflation Rate (%)

REPORT ON INDIAN BANKING SECTOR

Up to the mid of FY09, India continued its dream run of high economic growth. Due to sustained inflow of foreign capital in India and high commodities and oil prices, inflation rate touched record highs of 12.91% in August 2008. The RBI reacted to this by increasing the Cash Reserve Ratio (CRR) by 150 bps from 7.5% to 9.0% and increase in repo rate by 125 bps from 7.75% to 9.0% up to the end of September 2008. This enabled the bank to suck out excess liquidity in the system, thereby containing inflation.

2.3 Liquidity Adjustment Facility (LAF) LAF is used by RBI for managing the day-to-day liquidity in the banking system. LAF operations are carried out twice in a day. LAF is carried out with the help of two key rates viz Repo rate and Reverse repo rate. The term repo stands for repurchase agreement. Repo rate is the rate that RBI charges the banks when they borrow from it or the rate at which RBI lends to the banks. Repo operations increase liquidity in the system. Reverse repo rate is the rate that RBI offers the banks for parking their funds with it or the rate at which RBI borrows from the banks. Reverse repo operations suck out liquidity from the system.

Fig 2.2 – Trend in repo and reverse repo rates over the years 9.5

7.5 Percent

6.5 5.5 4.5 3.5

Repo rate

Mar-09

Sep-08

Mar-08

Sep-07

Mar-07

Sep-06

Mar-06

Sep-05

Mar-05

Sep-04

Mar-04

Sep-03

Mar-03

Sep-02

Mar-02

Sep-01

2.5 Mar-01

REPORT ON INDIAN BANKING SECTOR

8.5

Reverse Repo

Source: RBI and CARE Research

RBI uses the LAF to inject or absorb the liquidity into the banking system. Increasing repo rate from 7.75% in May 2008 to 9.0% in September 2008 was done to increase the cost of credit and to tighten the liquidity in the system due to increasing inflation. However, falling inflation and fear of economic slowdown prompted RBI to reduce the repo and reverse repo rates to bring down the cost of the credit. Yearly trend since FY01 shows that, repo and reverse repo rates are either increasing or decreasing in the given financial year, with the exception of FY09. High inflation due to over-heating of the economy in the first half resulted in RBI increasing the rates. Global financial crisis in mid FY09 and fear of slowdown supported the rate reduction.

18

Fig 2.3 – Spread between Repo and Reverse repo rates 3.5 3.0 Spread (%)

2.5 2.0 1.5 1.0 0.5 Mar-09

Sep-08

Mar-08

Sep-07

Mar-07

Sep-06

Mar-06

Sep-05

Mar-05

Sep-04

Mar-04

Sep-03

Mar-03

Sep-02

Mar-02

Sep-01

Mar-01

Source: RBI and CARE Research

The spread between the repo and reverse repo also signals RBI’s intention of cheaper/costlier credit. Deceasing spread from July 2003 till September 2006 suggests the cheaper credit policy from RBI to push economic growth. The spread was at it lowest level of 1.0% from April 2005 to September 2006. The increasing spread from May 2008 to September 2008 suggests the tightening of credit due to higher inflation and overheating of the economy. However from September 2008 onwards, the RBI has adopted cheaper credit policy and thereby has reduced the spread between the repo and reverse repo from 3.0% in September 2008 to 1.5% in February 2009.

Fig 2.4 – Large LAF injection during Jul to Oct’08 and subsequent absorption from Dec’08 to Mar’09s Average daily absorption of Rs. 56594 cr in Apr'09

1200000 700000

-800000 -1300000

Source: RBI and CARE Research

19

Average daily infusion of Rs. 42791cr in Sept'08

Apr-09

Feb-09

Mar-09

Jan-09

Dec-08

Nov-08

Oct-08

Sep-08

Aug-08

Jul-08

Jun-08

May-08

Apr-08

Mar-08

Feb-08

Jan-08

Dec-07

Nov-07

Oct-07

Sep-07

Aug-07

Jul-07

Jun-07

-300000

May-07

200000 Apr-07

Rs cr

REPORT ON INDIAN BANKING SECTOR

-

The bankruptcy/sell out/ restructuring of some of the world’s largest financial institutions brought pressures on the domestic money and foreign exchange markets, in conjunction with temporary local factors such as advance tax outflows. In order to alleviate these pressures, the RBI initiated a series of measures. The average daily net outstanding liquidity injection under LAF was Rs.42,591 crore during September 2008 as compared with Rs.22,560 crore in the previous month. Liquidity conditions eased from November 2008. The LAF shifted from net injection mode to net absorption mode. The average daily net outstanding liquidity absorption under LAF was Rs.22,294 crore during December 2008. Lesser avenues of lending due to economic downturn had made banks to park excess funds with RBI under reverse repo. Daily abruption under reverse repo crossed Rs. 1,00,000 crore in April 2009. RBI has been discouraging reverse repo in order to compel the banks to lend more. RBI has cancelled the secondary liquidity adjustment facility (evening reverse repo auctions) effective from May 2009 and reduced the reverse repo rate to 3.75%.

All commercial banks are required to keep a certain amount of its deposits in cash with RBI. This percentage is called the CRR which can also be effectively used to manage liquidity, inflation and cost of credit in the banking system by RBI. Higher CRR will increase the cost of the fund with the bank and in turn will make the credit costlier for borrower and vice-versa.

Fig 2.5 – Changes in CRR for Macro economic objective 9

CRR at record high of 9.0%, last seen in Mar'00 to check soaring inflation.

8.5 8 7.5 7 percent

6.5

sharp cut in CRR (400 bps in 5 months) to address liquidty crunch

6 5.5 5 4.5

Source: RBI and CARE Research

20

Mar-09

Sep-08

Mar-08

Sep-07

Mar-07

Sep-06

Mar-06

Sep-05

Mar-05

Sep-04

Mar-04

Sep-03

Mar-03

Sep-02

Mar-02

Sep-01

4 Mar-01

REPORT ON INDIAN BANKING SECTOR

2.4 Cash Reserve Ratio (CRR)

Chapter 3 Deposits 3.1 Sources of Funds for Banks Deposits are traditionally the main source of funding for banks. As shown below, deposits as a percentage to total resources of the SCBs were at 76.7% as at 31st March 2008.

Source: RBI and CARE Research

However, reliance on deposits as a primary source of funds has decreased over the years for SCBs. Within the categories of banks, PSBs have higher proportion of deposits in their total resources as compared to private and foreign banks. The reliance on deposits as resources by Foreign banks was the least at 52.5% as on 31st March 2008, whereas, deposits as a percentage to total resources of Nationalised banks and SBI and associate banks were high at 79.9% and 76.5%, respectively on the same date.

Fig 3.2 – Deposits as a Percentage of total resources for various bank groups 90 85 80 Percent

REPORT ON INDIAN BANKING SECTOR

Fig 3.1 – Break-up of total resources of SCBs as on 31st March 2008

75 70 65 60 55 50 FY01

FY02

FY04

FY05

SBI and Associates

Nationalised Banks

SCBs

Foreign Banks

Source: RBI and CARE Research

21

FY03

FY06

FY07

FY08

Private Sector Banks

Fig 3.3 – Total deposits and y-o-y growth in deposits of SCBs 26

24.6

24 22

3,000,000 Rs. cr

2,000,000

23.1

17.8

2,500,000 17.2

16.2

1,500,000

14.0

20 18

16.6

12.7

16 14

1,000,000

12 10

500,000 FY01

FY02 FY03 Total Deposits Source: RBI and CARE Research

FY04

FY05

FY06 FY07 FY08 % y-o-y growth

SCBs in India have shown an impressive growth in deposits mobilisation over the years. Total deposits with SCBs have grown from Rs.9,00,307 crores in FY2000 to Rs.33,20,054 crores in FY08. Total deposits with SCBs have grown at a CAGR of 19.6% in the last five years (from FY03 to FY08) and at a CAGR of 17.4% in the last 20 years ended FY08. Among the group of banks, private sector and foreign banks deposits have grown at a CAGR of 26.7% and 22.5%, respectively, in the last five years, chiefly due to lower base effect of these banks. Deposit growth in FY09 Deposits for SCBs (including RRBs) grew at 19.8% in FY09 as against growth of 22.4% in FY08.

3,900,000 3,800,000 3,700,000 3,600,000 3,500,000 3,400,000 3,300,000 3,200,000 3,100,000 3,000,000 2,900,000 2,800,000

Total deposit for SCBs (including RRBs) Source: RBI and CARE Research

22

Mar-09

Feb-09

Jan-09

Dec-08

Nov-08

Oct-08

Sep-08

Aug-08

Jul-08

Jun-08

May-08

Apr-08

30 28 26 24 22 20 18 16 14 12

y-o-y growth(%)

Percent

Fig 3.4 – Total deposits and y-o-y growth in deposits for SCBs (incl. RRBs) in FY09

Rs Cr

REPORT ON INDIAN BANKING SECTOR

Percent

3,500,000

Fig 3.5 – Deposits as a percentage of GDP over the years 70

67.8 63.0

65 58.9

Percent

60 52.1

55 50

48.4

45 40

54.4

45.8

41.7

40.8

39.2

54.4

35 FY08

FY07

FY06

FY05

FY04

FY03

FY02

FY01

FY00

FY99

FY98

30

Steady increase in deposits as a percentage of GDP shows the reducing dependence on parallel economy and increased penetration of banks into the financial system. It has increased from just 8.7% of GDP in FY51 to 67.8% of GDP in FY08. Rapid expansion of branches by PSBs over the years, entry of private and foreign banks, growing education among the people for savings and banking operations are the key reasons for the same.

3.2 Distribution of deposits of SCBs 3.2.1 Distribution of deposits by population Fig 3.6 – Percentage Distribution of total deposits by population 80 70

77.3

65.7

60 Percent

REPORT ON INDIAN BANKING SECTOR

Source: RBI and CARE Research

50 40 30

19.6

13.3

20 10 0

14.7 FY01

9.4 FY02

Rural Source: RBI and CARE Research

FY03

FY04 Semi-urban

FY05

FY06

FY07

FY08

Urban+metro

As shown above, the growth in the deposits for banks have primarily came from urban and metro regions. Deposits from urban and metro region increased at a CAGR of 21.9% from FY01 to FY08. Share of deposits from urban and metro region have increased from 65.7% to 77.3% from 23

FY01 to FY08. Rapid urbanisation, increase in income level of the people in urban and metro region due to boom in sectors such as IT and financial services and increased penetration by private and foreign banks are the key reasons for the same. Despite increased presence in rural India by PSBs over the years, share in deposits of rural and semi-urban regions has actually decreased from 19.6% and 14.7% to 13.3% and 9.4%, respectively during the same period. Deposits from semi-urban and rural India grew at CAGR of 12.7% and 11.7%, respectively. Growth in deposits from rural region is the lowest among the three.

3.2.2 Distribution of deposits by Ownership

REPORT ON INDIAN BANKING SECTOR

Fig 3.7 – Break-up of deposits by ownership

Source: RBI and CARE Research

Banks collect deposits from household and corporate sector. Banks in India rely on household sector savings as their primary source of deposits. Deposits from households constituted 57.4% of the total banking deposits in FY07 (Individual and HUF share in total deposits was 44.5%). This is in sharp contrast to banks in the western world which rely heavily on bulk deposits from corporates and High Net worth Individuals (HNIs). This distinct feature of the Indian banks makes them less prone to financial crisis, as was seen in the western world in mid FY09. The next highest contributor to the bank deposits was the government at 14.5% which includes deposits by public sector undertakings at 4.6% of the total deposits.

3.3

Deposits mobilisation from household sector

Deposits of household sector with banks have increased at a CAGR of 30.1% from FY04 to FY08 as compared to the CAGR of 17.9% in gross financial saving of household sector in the same period. Banks have increased their share in household sector savings from 37.4% in FY04 to 55.3% in FY08.

24

Share of Small scale savings in household sector has declined from 19.5% in FY05 to 5.1% in FY07 and to -3.7% in FY08. Investment in government securities (7.5% in FY04 to -2% in FY08) and share of provident/pension funds (13.6% in FY04 to 8.2% in FY08) has also decreased over the years. This can be mainly attributed to lower interest rate provided on the above stated traditional saving instruments as compared to bank deposits and the growing importance of bank tax-saving deposits, mutual funds (1.2% in FY04 to 7.7% in FY08) and insurance (13.7% in FY04 to 17.5% in FY08) as tax-saving instruments.

Fig 3.8 – Break-up of financial saving of household sector 60 50 Percent

30 20 10 0 FY04

-10

FY05

FY06

Deposits with Banks Investment in Small Savings Provident and Pension Funds Source: RBI and CARE Research

FY07

FY08

Investment in Government securities Insurance Funds Mutual Funds (Other than UTI)

In FY07 and FY08, the receipts under small saving schemes showed a negative growth of 10.6% and 20.1%, respectively. As shown above, the interest rate provided by banks have increased since FY04 whereas interest rate on small saving has been kept constant since FY04 at 8%.

Fig 3.9 – Movement in interest rates on saving instruments

Fig 3.10 – Trend in small saving mobilisation

.

200000

35 25

Interest rate on small saving instruments Maximum Interest on Fixed deposits Source: RBI and CARE Research

25

15

50000

Receipts

FY 08

FY 07

FY 06

FY 05

-100000

-5 FY 04

-25000

5 FY 03

Jun'08

FY08

FY07

FY06

FY05

FY04

FY03

FY02

FY01

R s. cr

125000

P ercent

10 9 8 7 6 5 4

Percent

REPORT ON INDIAN BANKING SECTOR

40

y-o-y growth

-15 -25

3.4

Types of Deposits

Fig 3.11 – Types of deposits Deposits with Banks

Term Deposits

REPORT ON INDIAN BANKING SECTOR

Demand (CASA) Deposits

Current Deposits

Saving Deposits

Short Term (< 1 year)

Long Term (> 1 year)

Source: RBI and CARE Research

Current deposits: These are deposits maintained for the purpose of meeting day-to-day requirement of the businesses. Banks generally do not pay any interest on current account deposits. Saving deposits: These deposits are maintained by households. Interest rate on saving deposits are administered by RBI and are currently kept at 3.5% since 2001 (brought down from 4.5%) Current and saving account deposits together are known as demand deposits or low-cost deposits and they do not have any maturity period. Term deposits: Also known as fixed deposits these are payable at the end of fixed maturity period decided at the time of opening the deposit account. Banks provide fixed deposits for the period ranging from seven days to five years. Interest rate on domestic term deposits have been de-regulated since October 1997, thus banks are free to decide on the interest rate to be offered on term deposits. Banks in India are also allowed to offer differential rates of interest on wholesale domestic term deposits of Rs.15 lakhs and above i.e. the interest rate offered on the wholesale domestic term deposits can differ from those offered on the retail domestic term deposits.

26

3.4.1 CASA deposits Current Account and Saving Account (CASA) deposits (also known as demand deposits) are low cost and have no maturity period. High proportion of CASA deposits in total deposits reduces the average cost of deposits and in turn the cost of funds for the bank. Over the years, the CASA ratios of banks have been increasing or have remained constant, till FY06. However, in FY07 and FY08, the CASA ratio for most of the bank groups has declined. To tap the high credit demand growth, the banks have been offering attractive interest on term deposits, thereby reducing the reliance on CASA deposits. The CASA deposits have grown by 17.7% and 20.6% in FY07 and FY08, respectively.

Fig 3.12 – Proportion of low cost deposits in total deposits of SCBs 45 40

Percent

REPORT ON INDIAN BANKING SECTOR

35

34.0

34.0

34.4 22.3

36.6

37.0

23.7

24.2

30 25 20

20.7

21.3

15

13.2

12.7

12.1

12.9

38.6

25.1

36.5

35.7

23.4

22.4

13.5

13.1

FY06

FY07

12.8

13.3

10 5 FY01

FY02

FY03

% Current A/c Deposits

FY04

FY05

% Saving Deposits

FY08

CASA Ratio

Source: RBI and CARE Research

The CASA ratio for SCBs has increased from 34% in FY01 to reach 38.6% in FY06, but declined to 35.7% in FY08. Trend in incremental CASA deposits As shown below, the share of incremental CASA deposits has seen major change over the years. Nationalised banks grabbed 50.4% share in incremental CASA deposits of SCBs in FY01. In FY06, they garnered 47.0% share in incremental CASA deposits and within two years in FY08, their share sharply dropped to just 29.6% in FY08. The private sector banks have been able to increase their share in incremental CASA deposits from 15.3% in FY01 to 28.1% in FY08.

27

Fig 3.13 – Share in incremental CASA deposits by various bank groups 50

Percent

40 30 20 10 0 FY02

FY03

REPORT ON INDIAN BANKING SECTOR

SBI and Associates

FY04

FY05

Nationalised Banks

FY06

FY07

Private Sector Banks

FY08

Foreign Banks

Source: RBI and CARE Research

3.4.2 Term deposits Fig 3.14 – Break-up of term deposits by ownership

Source: RBI and CARE Research

Household sector is the primary contributor to the term deposits of the banks. It constituted 47.9% of the total term deposits for FY07 as against 49.1% for FY06. Term deposits from nonresidents constituted 6.7% for FY07 (8.3% for FY06). In order to match higher credit demands, banks have increased their focus on term deposits in FY07 and FY08 as it was difficult to fund high credit demand solely with the growth in current and saving deposits. Banks have offered attractive interest on the deposits with tenure of 1.5 years or less. Depositors were more inclined to park the funds in short-term deposits as spread between

28

the long-term and short-term deposits had narrowed. This has changed the term deposit mix in favor of low-tenure deposits.

0.75

0.75

0.50

0.50

Jun'08

Mar'08

Mar'07

(0.25)

(0.15)

Oct'08

0.35 -

Mar'06

1.0 0.8 0.5 0.3 (0.3) (0.5) (0.8) (1.0)

(0.50) (0.85)

spread between 1 year and 1 to 3 years deposit spread between 1 year and 3 or more years deposit Source: RBI and CARE Research

Fig 3.16 – Break-up of term deposits into short-term and long-term deposits

Percent

REPORT ON INDIAN BANKING SECTOR

Percent

Fig 3.15 – Trend in spread between various maturities of deposit for PSBs

80 70 60 50 40 30 20 10 0

71.1

28.9

FY00

68.9

31.1

FY01

65.2

64.8

34.8

35.2

FY02

FY03 Short term

61.9

60.6

60.5

62.6

38.1

39.4

39.5

37.4

FY04

FY05

FY06

FY07

Long term

Source: RBI and CARE Research

Share of deposits with less than one-year maturity in total term deposits increased continuously from 28.9% in FY00 to 39.5% in FY06 and thereafter decreasing to 37.4 in FY07. As against this, long-term deposits after showing continuous decline from FY2000 to FY06, however increased from 60.5% to 62.5% in FY07. The increase could mainly be attributed to higher interest rate provided by banks on deposits ranging from 1 year to 1.5 years of maturity. Banks, particularly private sector banks had come out with innovative term deposit products such as 400 days deposits, deposits for 1 year and 15 days etc. Due to this, the share of deposits with 1 to 2 years of maturity increased sharply from 26.5% in FY06 to 32.7% in FY07.

29

The spread between short-term and long-term deposits have narrowed over the years, particularly since FY07 onwards. In December 2008, the spread between the short-term and long-term deposits was either negative or zero for most of the banks. This has altered the maturity profile of term deposits significantly.

Table 3.1 – Interest spreads between short-term and long-term deposits as on December 2008 (in %) 3 yrs to 5 yrs 9.0 9.5 9.0

Spread -0.5 -1.0 -0.5

5 yrs and above 9.0 9.5 9.0

Spread -0.5 -1.0 -0.5

Economic slowdown post December 2008 has altered the scenario of negative spread. Banks are no longer hungry to garner high deposits to fuel the credit offtake. As on March’09, the spread between short–term and long-term deposit rate was positive, ranging between 100 bps to 150bps.

3.5 Bank group-wise deposit performance Total deposits of SCBs grew at 23.1%. Term deposits registered a growth of 24.5% which was higher than the growth in demand deposits (20.5%) in FY08.

3.5.1 SBI and Associates Fig 3.17 – Total deposits and y-o-y growth in deposits of SBI and Associates 25

800,000 21.8

22.2 20

16.8

600,000 500,000

16.8

11.4

400,000

12.5

300,000

10.7

10 7.3

200,000 100,000

5 FY01

FY02 FY03 Total Deposits

Source: RBI and CARE Research

30

15

FY04

FY05

FY06 FY07 FY08 % y-o-y growth

Percent

700,000 Rs. cr

REPORT ON INDIAN BANKING SECTOR

Name 1 to 1.5 yrs SBI 9.5 ICICI Bank 10.5 HDFC Bank 9.5 Source: RBI and CARE Research

Fig 3.18 – Break-up of deposits and CASA ratio of SBI and Associates 100%

55 50

80% 36.6

39.3

37.0

36.5

42.9

42.0

40 35

40%

30

20%

25

0%

20 FY01

FY02

% Current A/c Deposits

FY03

FY04

FY05

% Saving Deposits

FY06

FY07

% Term Deposits

FY08 CASA Ratio

Source: RBI and CARE Research

The total deposits of SBI and associates grew at a CAGR of 14.6% from FY03 to FY08, lowest among the group of banks, while the industry CAGR was at 19.6%. Deposits touched at Rs.7,73,875 crores in FY08 from Rs.6,33,476 crores in FY07, registering a growth of 22.2%. Low-cost deposits constituted 42.0% of the total deposits, down by 90bps in FY08. The proportion of low-cost deposits has increased from 36.6% in FY2000 to 43.4% in FY06. However the same is showing a declining trend since last two years mainly due to increase in term deposits mobilisation to fund the high growth.

3.5.2 Nationalised Banks Fig 3.19 – Total deposits and y-o-y growth in deposits of Nationalised banks 30 26.0

25

1,400,000 1,200,000 1,000,000 800,000

17.2 13.8

12.9

11.4

16.0

18.1

15

15.3

10

600,000

5

400,000 FY01

FY02 FY03 Total Deposits

Source: RBI and CARE Research

31

20

FY04

FY05

FY06 FY07 FY08 % y-o-y growth

Percent

1,600,000

Rs. cr

REPORT ON INDIAN BANKING SECTOR

45 Percent

60%

43.4 39.1

Fig 3.20 – Break-up of deposits and CASA ratio of Nationalised Banks 100%

55 50

80% 35.4

35.5

36.2

37.0

36.8

38.2

35.4

33.7

40%

40 35 30

20%

25

0%

20 FY01

REPORT ON INDIAN BANKING SECTOR

Percent

60%

45

FY02

% Current A/c Deposits

FY03

FY04

FY05

% Saving Deposits

FY06

FY07

% Term Deposits

FY08 CASA Ratio

Source: RBI and CARE Research

Total deposits of Nationalised banks grew at a CAGR of 18.5% from FY03 to FY08. Deposits touched at Rs.16,06,995 crores in FY08 from Rs.13,60,724 crores in FY07, registering a growth of 18.1%. The growth rate in FY08 was lower than that of FY07 (26.0%), which was the highest in the decade and y-o-y deposit growth in other years was in the range of 11% to 19%. Low-cost deposits constituted 33.7% in FY08 down sharply from 38.2% in FY06. Growth in the term deposits was 31.6% and 21.2% in FY07 and FY08, respectively, as against this; the growth rate in demand deposits was 16.8% and 12.4%, respectively.

Table 3.2 – CASA of Nationalised Banks (in %) Top 5 banks Punjab National Bank Bank Of Maharashtra Dena Bank United Bank Of India Punjab & Sind Bank Source: RBI and CARE Research

FY08 43.0 42.2 39.2 38.6 36.3

FY07 46.2 43.2 44.5 42.0 45.7

Bottom 5 banks IDBI Ltd. UCO Bank Vijaya Bank Oriental Bank Of Commerce Bank Of India

FY08 16.6 25.7 27.3 27.9 30.6

FY07 25.4 29.2 30.8 30.3 32.2

Among the nationalised banks, CASA ratio of IDBI Bank declined sharply from 25.4% in FY07 to 16.6% in FY08, followed by Central Bank of India (CASA declined by 590bps). Out of the 20 nationalised banks, 19 banks showed a declined in CASA ratio in FY08 baring Union Bank of India, who’s CASA ratio remained constant at 34.9%. Nationalised banks have also resorted to term deposit for funding high credit demand as well as faces intense competition from private and foreign banks for cornering higher share in demand deposits.

32

3.5.3 Private Sector Banks Fig 3.21 – Total deposits and y-o-y growth in deposits of Private Sector Banks

Rs. cr

24.0

450,000 20.2

30 22.3

17.2

25 20

250,000

15

150,000

10

50,000

5 FY01

FY02 FY03 Total Deposits

FY04

FY05

FY06 FY07 FY08 % y-o-y growth

Source: RBI and CARE Research

Fig 3.22 – Break-up of deposits and CASA of Private Sector Banks 100%

55 50

80%

45

60%

40

40% 20%

Percent

REPORT ON INDIAN BANKING SECTOR

22.1

35

28.8

Percent

29.8

550,000

350,000

40

36.2

650,000

29.9 24.0

23.9

30.5

32.8 30.4

29.8

35 30

23.9

25

0%

20 FY01

FY02

% Current A/c Deposits

FY03

FY04

FY05

% Saving Deposits

FY06

FY07

% Term Deposits

FY08 CASA Ratio

Source: RBI and CARE Research

Total deposits of Private sector banks grew at a CAGR of 26.7% from FY03 to FY08, highest among all the banking groups. Deposits touched at Rs.6,75,073 crores as on 31st March 2008 from Rs.5,51,987 crores as on 31st March 2007. Deposits grew by 36.2%, 28.8% and 22.3% in the years FY06, FY07 and FY08, respectively. CASA ratio for Private sector banks has remained low as compared to other banking groups over the years. This is because these banks does not have wide branch network, which is essential for garnering CASA deposits and moreover, innovative products such as flexi deposits (which allow customer to maintain the fixed deposits which can be withdrawn as and when need arises) introduced by the private banks also diverted more funds to such fixed deposit accounts.

33

Low cost deposits constituted 32.8% in FY08 (highest in last 13 years), which has increased from 29.8% in FY07. CASA ratio expanded by 300 bps as against which the CASA ratio for PSBs have declined. Private sector banks have increased the number of branches over the last 2 to 3 years and have been able to garner a larger share in current accounts from corporate and corporate salary accounts from business houses. Growth in demand deposits in FY08 was at 34.5% which is twice that of growth in term deposits which stood at 17.1%.

Table 3.3 – CASA of Private Sector Banks (in %) FY08 54.5 45.7 39.2 38.3 31.5

FY07 57.7 39.9 37.0 37.8 28.9

Bottom 5 banks Yes Bank Indusind Bank City Union Bank Lakshmi Vilas Bank Karnataka Bank

FY08 8.5 15.7 20.9 21.7 22.1

FY07 5.8 14.9 24.3 22.0 23.4

3.5.4 Foreign Banks Fig 3.23 – Total deposits and y-o-y growth in deposits of Foreign Banks 31.7

175,000 150,000 125,000 100,000

32.6

35 26.7

25

20.0

20

15.6

75,000 50,000

9.0

15

7.8

7.4

10

25,000 0

5 FY01

FY02 FY03 Total Deposits Source: RBI and CARE Research

34

30

FY04

FY05

FY06 FY07 FY08 % y-o-y growth

Percent

200,000

Rs. cr

REPORT ON INDIAN BANKING SECTOR

Top 5 banks HDFC Bank Axis Bank Jammu & Kashmir Bank Ratnakar Bank ING Vysya Bank Source: RBI and CARE Research

Fig 3.24 – Break-up of deposits and CASA of Foreign Banks 100%

48.0

80%

55

50.5 43.2

42.9

44.7

45 Percent

60% 40%

40

33.8

32.5

35

29.6

30

20%

25 20

0% FY01

REPORT ON INDIAN BANKING SECTOR

50

FY02

FY03

% Current A/c Deposits

FY04

FY05

% Saving Deposits

FY06

FY07

% Term Deposits

FY08 CASA Ratio

Source: RBI and CARE Research

Total deposits of foreign banks grew at a CAGR of 22.5% from FY03 to FY08, as against 19.6% growth of the industry. Deposits touched at Rs.1,91,114 crores in FY08 from Rs.59,190 crores in FY01. Deposits grew by 31.7%, 32.6% and 26.7% in the years FY06, FY07 and FY08, respectively. CASA ratio for foreign banks is highest among all the banking groups (44.7% in FY08). Requirement of keeping minimum balance in saving account is high for foreign banks.

Table 3.4 – CASA of Foreign Banks (in %) Top 5 banks Arab Bangladesh Bank Mashreq Bank Antwerp Diamond Bank Sonali Bank Deutsche Bank Source: RBI and CARE Research

35

FY08 90.4 89.7 87.0 81.4 69.5

FY07 80.2 48.4 81.8 83.0 74.4

Bottom 5 banks DBS Bank Barclays Bank Bank Of Nova Scotia Societe Generale State Bank Of Mauritius

FY08 3.1 5.2 5.8 8.5 12.5

FY07 2.1 0.8 7.2 3.9 15.3

Chapter 4 Advances 4.1

Total Advances and growth in advances for SCBs

Advances for SCBs grew at a CAGR of 27.4% during FY03 to FY08

Fig 4.1 – Total advances and y-o-y growth in advances of SCBs 2,550,000

25.0

22.8 20.0

1,750,000 Rs Cr

30.6

25

18.5 14.5

1,350,000

16.8

20 15

950,000

10

550,000

5

150,000

0 FY00

FY01

FY02

FY03

FY04

FY05

Total Advances

FY06

FY07

FY08

Y-o-Y Growth (%)

Source: RBI and CARE Research

Fig 4.2 –Type-wise break-up of total advances for SCBs 70 60

54.5

54.4

50 Percent

REPORT ON INDIAN BANKING SECTOR

30

Percent

2,150,000

35

31.8

33.3

40

35.8

36.1

49.8

47.6

41.8

43.1

44.5

55.9

57.7

58.0

38.0

37.2

36.0

35.9

8.0

6.8

54.0

49.0

30 20 9.7

10

9.6

8.3

8.0

7.9

FY02

FY03

FY04

6.3

0 FY00

FY01

Bills Purchased & Discounted

FY05

FY06

Cash Credits, Overdrafts & Loans

FY07

6.1 FY08

Term Loans

Source: RBI and CARE Research

The total advances of SCBs grew by 25.0% in FY08 as compared to 30.6% in FY07. The total lending of SCBs as a whole grew at a CAGR of 27.4% from FY03 to FY08. The share of term loans in total advances has constantly increased over the years from 35.8% in FY2000 to 58.0% in FY08. The higher percentage of term loan signifies better interest rate spread for the bank. As a result, the share of short-term lending has decreased to 35.9% in FY08 from

36

54.5% in FY2000. The reason for the high share of term loan is increased disbursement to infrastructure projects over the years which require long term finance and the merger of domestic financial institutions which typically provide long term infrastructure finance like IDBI with IDBI Bank and ICICI with ICICI Bank.

Fig 4.3 – Security-wise break-up of total advances for SCBs

80 70 60 50 40 30 20

10.9 8.9

14.1

13.6

13.3

14.6

17.7

7.4

20.0

20.4

8.3

8.4

6.5

23.1

5.9

5.8

5.2

4.4

80.2

77.7

78.0

79.4

78.9

76.4

74.2

74.4

72.5

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

10 0

Secured By Tangible Assets

Covered By Bank/ Government Guarantees

Unsecured

Source: RBI and CARE Research

Share of unsecured advances have increased over the years from 10.9% in FY2000 to 23.1% in FY08.

4.2 Credit offtake in FY09 During FY09, the growth in credit offtake was at 17.3%, lower than 22.3% for FY08.

2,900,000 2,800,000 2,700,000 2,600,000 2,500,000 2,400,000 2,300,000 2,200,000 2,100,000

Total Credit for SCBs (Including RRBs) Source: RBI and CARE Research

37

Mar-09

Feb-09

Jan-09

Dec-08

Nov-08

Oct-08

Sep-08

Aug-08

Jul-08

Jun-08

May-08

Apr-08

30 28 26 24 22 20 18 16 14 12

y-o-y growth(%)

Percent

Fig 4.4 – Total Credit and y-o-y growth in credit for SCBs (incl. RRBs) for FY09

Rs Cr

REPORT ON INDIAN BANKING SECTOR

Percent

100 90

A closer analysis reveals that credit offtake in FY09 can be divided into two periods viz, • High credit offtake period (April to September/October 2008) • Slower credit offtake period (After October 2008)

High credit offtake period (April to September/October 2008) Credit offtake in H1FY09 increased by 25.2% over H1FY08. The main reasons were : ¾ Relatively high GDP growth rate of 9.3% up to August 2008 resulting in high demand for credit by corporates.

REPORT ON INDIAN BANKING SECTOR

¾ Sharp increase in credit offtake by oil marketing companies of Rs.36,208 crore during April-October 2008 as compared with a decline of Rs.1,146 crore in the corresponding period of the previous year compelled by high crude prices. ¾ Substitution of other sources of finance with bank finance by corporates reflected by sharp increase in bank resources to the commercial sector (30.4% y-o-y growth upto Q3FY09) in spite of a an overall flat flow of financial resources to the commercial sector

Slower credit offtake (After October 2008) The demand for credit moderated from October 2008 onwards, reflecting the slowdown of the economy in general and the industrial sector in particular. The credit offtake increased by 8.5% in H2FY09 as compared to 15.9% H2FY08. Decline in commodity prices and drawdown of inventories brought down working capital requirements by the corporates The demand for credit by oil marketing companies also moderated due to softening of crude oil prices. In addition, substantially lower credit expansion by private and foreign banks also muted the overall flow of bank credit during the period.

Table 4.1 – Bank group-wise credit offtake for FY08 and FY09 y-o-y growth (%) in Credit Particulars

FY08

FY09

Public sector banks (PSBs)

22.5

20.4

Private sector banks

19.9

10.9

Foreign banks

28.5

4.0

Scheduled commercial banks (including RRBs)

22.3

17.3

Source: RBI and CARE Research

Credit offtake for PSBs was above the industry average at 20.4%. Credit offtake for private and foreign banks was at 10.9% and 4.0% for FY09 as compared to 19.9% and 28.5% in FY08 respectively indicating the effects of slowdown.

38

4.3 Sectoral Bank Credit

REPORT ON INDIAN BANKING SECTOR

Fig 4.5 – Break-up of bank credit into various sectors

Source: RBI and CARE Research

Deployment of gross bank credit among various sectors remained more or less the same in FY08 as it was in FY07. The industry (small, medium and large) accounts for the largest share in the bank credit at 38.8% for FY08, followed by services which accounts at 24.4% of bank credit. Fair spread of credit among the various sectors reduces concentration risk for banks.

Table 4.2 – Break-up of bank credit into various sectors for FY07 and FY08 % of gross bank credit FY06

FY07

FY08

Food Credit

15.3

2.5

2.0

Non-food Credit

97.2

97.5

98.0

Agriculture and allied

12.0

12.5

12.2

Industry

38.1

37.7

38.8

Services

22.1

22.6

24.3

1.8

2.4

2.8

12.8

12.5

11.4

: of which real estate Retail Housing loans Source: RBI and CARE Research

Share in gross bank credit for Agriculture and Industry have remained more or less same in last 3 years i.e. from FY06 to FY08. Share of services have increased from 22.1% to 24.3% during the same period while share of housing loans have reduced. Share of real estate loans have increased from 1.8% in FY06 to 2.8% in FY08

39

Among the Industry, Infrastructure accounts for highest share at 23.2% for FY08. Credit to infrastructure has increased from Rs.790 bn in FY05 to Rs.2,023 bn in FY08, registering the CAGR of 36.4%. Basic metals & metal products and textile accounted for 12.8% and 11.0%, respectively, of the total industry credit in FY08.

Table 4.3 – Provisional break-up of non-food credit for FY09

Particulars Non-food Gross Bank Credit Agriculture and Allied Activities Industry Retail Loans Services

As on Feb’07 % of Rs crore total 1,715,328 100.0 210,998 12.3 658,741 38.4 453,164 26.4 392,424 22.9

As on Feb’08 % of Rs crore total 2,086,381 100.0 245,011 11.7 826,560 39.6 511,833 24.5 502,977 24.1

AS on Feb’09* Rs crore 2,492,685 297,753 1,039,821 555,392 599,719

% of total

100.0 11.9 41.7 22.3 24.1

REPORT ON INDIAN BANKING SECTOR

Source: RBI and CARE Research (*Feb’09 numbers are provisional)

Provisional data released by RBI shows change in the mix of non-food credit. Share of industry in non-food credit has increased marginally from 39.6% in February 2008 to 41.7% in February 2009. As against this, share of Retail loans in non-food credit have decreased from 24.5% in February 2008 to 22.3% in February 2009.

Table 4.4 – Share of various sectors in incremental non-food credit for FY09 As on Feb’08 Particulars Rs crore % of total Non-food Gross Bank Credit 371,053 100.0 Agriculture and Allied Activities 34,013 9.2 Industry 167,819 45.2 Retail Loans 58,669 15.8 Services 110,553 29.8 Source: RBI and CARE Research (*Feb’09 numbers are provisional)

As on Feb'09* Rs crore % of total 406,304 52,742 213,261 43,559 96,742

100.0 13.0 52.5 10.7 26.1

Data on sectoral deployment of gross bank credit available up to Feb’09 showed that 52.5 % of incremental non-food credit (y-o-y) was absorbed by industry as compared with 45.2 % in the corresponding period of the previous year. Agriculture and allied activities also absorbed 13% of incremental credit as against 9.2% of incremental credit in previous year. Share in incremental credit for retail loans dropped to 10.7% as against 15.8% in last year.

40

REPORT ON INDIAN BANKING SECTOR

Table 4.5 – Provisional break-up of industrial credit for FY09 February 2007 February 2008 February 2009* Particulars Rs crore % of total Rs crore % of total Rs crore % of total Industry 658,741 100.0 826,560 100.0 1,039,821 100.0 Industry (excluding infra) 524,367 30.6 636,470 30.5 782,961 31.4 Food Processing 36,945 5.6 48,665 5.9 53,855 5.2 Textiles 75,333 11.4 92,195 11.2 103,732 10.0 Paper & Paper Products 10,889 1.7 13,359 1.6 16,491 1.6 Petroleum & Coal Products 33,417 5.1 40,829 4.9 72,762 7.0 Chemicals and Chemical Products 53,933 8.2 61,370 7.4 73,269 7.0 Rubber, Plastic & their Products 8,546 1.3 9,901 1.2 13,269 1.3 Iron and Steel 61,605 9.4 73,266 8.9 100,383 9.7 Other Metal & Metal Products 20,175 3.1 23,809 2.9 30,111 2.9 Engineering 40,361 6.1 50,984 6.2 66,868 6.4 Vehicles & Transport Equipment 21,011 3.2 28,348 3.4 35,505 3.4 Gems & Jewellery 22,715 3.4 24,788 3.0 27,242 2.6 Construction 18,210 2.8 24,066 2.9 38,207 3.7 Infrastructure 134,374 20.4 190,090 23.0 256,860 24.7 Source: RBI and CARE Research (*Feb’09 numbers are provisional)

Table 4.6 – Share of various sectors in incremental industrial credit for FY09 Feb'08 Rs % of crore total Particulars Industry 167,819 100.0 Food Processing 11,720 7.0 Textiles 16,862 10.0 Paper & Paper Products 2,470 1.5 Petroleum, Coal Products & Nuclear Fuels 7,412 4.4 Chemicals and Chemical Products 7,437 4.4 Rubber, Plastic & their Products 1,355 0.8 Iron and Steel 11,661 6.9 Other Metal & Metal Products 3,634 2.2 Engineering 10,623 6.3 Vehicles and Transport Equipments 7,337 4.4 Gems & Jewellery 2,073 1.2 Construction 5,856 3.5 Infrastructure 55,716 33.2 Source: RBI and CARE Research (*Feb’09 numbers are provisional)

Feb'09 Rs % of crore total 213,261 100.0 5,190 2.4 11,537 5.4 3,132 1.5 31,933 15.0 11,899 5.6 3,368 1.6 27,117 12.7 6,302 3.0 15,884 7.4 7,157 3.4 2,454 1.2 14,141 6.6 66,770 31.3

The expansion of incremental non-food credit to industry was led by infrastructure, petroleum, coal products & nuclear fuels, iron & steel, engineering, construction and chemical & chemical products industries. As against this, the share of textile and vehicles & transport equipment declined in incremental credit.

41

Table 4.7 – Bank group-wise provisional sectoral bank credit growth for FY09 Particulars

PSBs Feb'08 Feb'09 22.3 23.9 19.3 19.2 23.2 31.0 15.6 11.6 13.2 10.0 28.6 24.4 47.9 79.1 53.0 44.8 49.0 36.7

REPORT ON INDIAN BANKING SECTOR

Non-food Gross Bank Credit 1. Agriculture and Allied Activities 2. Industry 3. Personal Loans of which: Housing 4. Services of which: Real Estate Loans of which: NBFC Small Enterprises Source: RBI and CARE Research

Private Banks Feb'08 Feb'09 19.0 9.1 (1.3) 39.0 35.2 7.4 8.5 7.4 13.5 4.9 28.5 4.5 6.9 13.9 14.0 38.1 209.5 23.2

Foreign Banks Feb'08 Feb'09 28.8 1.6 NA NA 35.0 6.5 14.5 (8.1) (2.1) (4.4) 41.2 6.9 (36.0) 40.5 64.0 20.8 190.4 59.5

Significant variations have been observed in the flow of credit to different sectors by the three broad bank groups during FY09. Credit growth for PSBs at 23.9% was not only the highest among all banking groups and but also higher than that achieved in FY08. The private and foreign bank’s credit growth slowed down to 9.1% and 1.6% as against 19.0% and 28.8% in previous year. However, credit growth to personal loans and services decelerated by all three banking groups. Amongst services, credit to real estate accelerated significantly, while that to small enterprises decelerated. Credit growth by PSBs to industry accelerated in FY09.

4.4 Retail Loans Retail loans constituted 23.1% of total bank credit as on 31st march 2008. With in retail loans, housing loans accounted for the largest share at 44.3%, followed by personal loans at 34.7%. Auto loans, credit card receivables and consumer durables constituted 5.4%, 4.8% and 0.8% of retail loans respectively as on 31st March 2008.

Table 4.8 – Break-up of retail credit for SCBs (including RRBs)

134,276 3,810

50.4 1.4

179,116 4,469

47.7 1.2

224,481 7,296

46.0 1.5

252,932 4,802

44.3 0.8

CAGR (FY05 to FY08) 23.5 8.0

8,405 35,043 85,077 266,611

3.2 13.1 31.9 100.0

12,434 61,369 118,351 375,739

3.3 16.3 31.5 100.0

18,317 82,562 155,204 487,860

3.8 16.9 31.8 100.0

27,437 87,998 197,879 571,048

4.8 15.4 34.7 23.1

48.3 35.9 32.5 28.9

FY05 Rs cr Housing Loans Consumer Durables Credit Card Receivables Auto Loans Other Personal Loans Total

y-o-y growth Source: RBI and CARE Research

FY06 % of total

Rs cr

40.9%

FY07 % of total

Rs cr

29.8%

FY08 % of total

Rs cr

% of total

17.1%

In spite of bank credit growth of 25%, retail loans grew by 17.1% in FY08. Consumer durable loans declined by 34.2% in FY08 as against the growth of 63.3% in FY07. Growth in housing and auto loans moderated to 12.7% and 6.6% in FY08 compared to 25.3% and 34.5% growth in FY07. Credit card receivables and other personal loans grew by 49.8% and 37.5% in FY08.

42

4.5 Lending to the sensitive sector RBI classifies lending to capital market, real estate and commodities markets as sensitive-sector lending. Total lending to sensitive sector has grown at a CAGR of 46.1% from Rs.1,683 bn to Rs.5,110 bn during FY05 to FY08 as against this, the CAGR growth in total advances was at 29.1%.

Source: RBI and CARE Research

Real estate loans accounted for largest share at 87.4% of total sensitive sector lending followed by capital market at 12.3%.

Fig 4.7 – Bank group-wise lending to the sensitive sector (as a % of total advances) 40 35

31.3

35.1

32.4

34.1

30 Percent

REPORT ON INDIAN BANKING SECTOR

Fig 4.6 – Lending to sensitive sectors for FY08

25 20 15 10 5

27.9 24.6 16.0

13.9

15.5

26.5

19.1

18.9 16.7

17.1

FY07

FY08

10.3 FY05

FY06

Public sector bank Old Private sector bank

Source: RBI and CARE Research

43

29.5

New Private sector bank Foreign bank

Among the group of banks, PSBs have least exposure to sensitive sector lending at 17.1% of total advances. The exposure of new private sector banks to sensitive sector advances is twice that of the PSBs and was at 34.1% of total advances in FY08. Old private sector and foreign bank exposure was at 18.9% and 26.5%, respectively, in FY08.

4.6 Priority sector lending RBI classifies lending to certain sectors of the economy as a priority sector lending. RBI has over the years changed the definition of what constitute priority sector depending upon the needs and structural changes in the economy. Priority sector includes agriculture, small enterprises sector, micro credit, housing and education. Target for priority sector as a whole and sub-targets for banking groups are set and revised by RBI from time to time and are calculated as a percentage to adjusted net bank credit.

REPORT ON INDIAN BANKING SECTOR

4.6.1 Public and Private Sector Banks Target for priority sector lending for PSBs and private sector banks is kept at 40% of Net bank credit. Private sector banks have met their overall priority sector lending target. In fact for FY08, priority sector lending was at 47.5% of net bank credit as against the stipulated target of 40%. Priority sector lending by PSBs marginally fell short of the target of 40% by 30bps in the FY07 but jumped to 44.6% in FY08.

Fig 4.8 – Priority Sector lending for PSBs and Private Sector Banks (as a % of total advances) 48

47.5

46 44 42

43.6

42.8

44.6

42.7

42.8 40.3

40 39.7

38 FY05

FY06 Public sector banks

Source: RBI and CARE Research

44

FY07 Private sector banks

FY08 Target

Table 4.9 –Break-up of Priority Sector Lending for PSBs and Private Sector Banks (Rs cr) PSBs

Rupees in crores Agriculture

2005

2006

2007

2008

2005

2006

2007

2008

109,917

154,900

202,614

248,685

21,636

36,185

52,034

57,702

15.3

15.2

15.4

17.4

13.5

13.5

12.7

15.4

% of Net bank credit

Target

18%

Micro and Small Enterprises

18%

67,800

82,492

102,550

148,651

8,592

10,447

13,136

46,069

9.5

8.1

7.8

10.9

5.4

4.2

3.9

13.4

% of Net bank credit

Target

10%

10%

Other Priority Sector

125,114

164,473

206,661

211,627

38,797

58,243

76,919

59,452

% of Net bank credit

17.4

16.2

15.7

15.5

24.2

23.4

22.9

17.3

307,046

409,748

521,180

608,963

69,886

106,586

143,768

163,223

42.8

40.3

39.7

44.6

43.6

42.8

42.7

47.5

Priority sector advances

REPORT ON INDIAN BANKING SECTOR

Private sector banks

% to net bank credit

Source: RBI and CARE Research

4.6.2 Foreign Banks Foreign banks lending to the priority sector have been above the target stipulated by RBI since FY05. For FY08, lending to priority sector as a percentage to net bank credit stood at 39.5% as against the target of 32%.

Fig 4.9 – Priority Sector lending for Foreign Banks (as a % of total Advances ) 40

39.5

39 38 37 36

35.3 34.6

35 34 33 32

33.4

31 FY05

FY06 Foreign banks

Source: RBI and CARE Research

45

FY07 Target

FY08

Table 4.10 – Break-up of Priority Sector Lending for Foreign banks (Rs cr) Foreign banks 2005

2006

2007

2008

12,339

17,326

20,711

29,007

18.3

19.6

18.3

22.8

Export credit % of Net bank credit

Target

12%

Micro and Small Enterprises

6,907

8,430

11,637

15,489

10.2

9.5

10.3

12.2

% of Net bank credit

Target

10%

Priority sector advances

23,843

30,439

37,835

50,301

35.3

34.6

33.4

39.5

Source: RBI and CARE Research

Foreign banks are being stipulated a target of 12% for export credit and do not have any target for lending to agriculture. In lieu of advances to weaker section, foreign banks are obliged to lend to small scale industry to the tune of 10% of their net bank credit.

4.7 Bank group-wise Advances performance 4.7.1 SBI and Associates Fig 4.10 – Total advances and y-o-y growth in advances of SBI and Associates 30.5 29.1

500,000 425,000

35 29.8

30 23.1

19.0

350,000

16.6

275,000

15.0

16.5

25 20 15

9.4

200,000

10

125,000

5

50,000

0 FY00

FY01

FY02

Total Advances

Source: RBI and CARE Research

46

FY03

FY04

FY05

FY06

FY07

FY08

Y-o-Y Growth (%)

Percent

575,000

Rs Cr

REPORT ON INDIAN BANKING SECTOR

% to net bank credit

Fig 4.11 – Type-wise break-up of total advances for SBI and Associates 70 58.3

60

56.4

55.1

51.5 45.3

Percent

50 40

32.5

30 20 10

32.9

9.1

10.8

FY00

FY01

39.2

35.3

45.2

9.6

9.3

9.5

FY02

FY03

FY04

53.9

54.9

55.2

38.3

37.7

37.5

37.4

9.6

8.4

52.0

7.7

7.5

0 FY06

FY07

Cash Credits, Overdrafts & Loans

FY08 Term Loans

Source: RBI and CARE Research

The total advances of SBI and associates grew by 23.1% in FY08 as compared to 29.8% in FY07. The total lending of the group as a whole grew at a CAGR of 25.7% from FY03 to FY08. Share of SBI and associates in total lending of SCBs has been on a declining trend from 24.5% in FY06 to 24.35% in FY07 and 23.97% in FY08. The share of term loans in total advances has constantly increased over the years from 32.5% in FY2000 to 55.2% in FY08. The higher percentage of term loan signifies better interest rate spread for the bank. As a result, the share of short-term lending has decreased to 44.8% in FY08 from 67.5% in FY2000.

Fig 4.12 – Security-wise break-up of total advances for SBI and Associates 100 90

Percent

REPORT ON INDIAN BANKING SECTOR

Bills Purchased & Discounted

FY05

5.8 8.3

80 70 60 50 40 30 20

11.4 7.6

12.3 6.3

12.4 7.2

15.4 7.4

20.9

21.0

21.4

23.3

4.4

6.9

5.6

4.3

86.0

81.0

81.4

80.4

77.3

74.7

72.2

73.0

72.4

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

10 0

Secured By Tangible Assets

Covered By Bank/ Government Guarantees

Unsecured

Source: RBI and CARE Research

Unsecured advances as a percentage of total advances were at 5.8%, around half of the industry unsecured advances which stood at 10.9% in FY2000. The proportion of unsecured advances for

47

SBI and associates crossed the industry level of 23.1% in FY08 and stood at 23.3%.

4.7.2 Nationalised Banks Fig 4.13 – Total advances and y-o-y growth in advances of Nationalised Banks 38.1

1,050,000

29.0

Rs Cr

900,000 750,000 600,000

18.5

18.1

30.4

25.7

19.6 13.9 14.5

450,000

10 5 0

300,000 150,000 FY00

FY01

FY02

FY03

FY04

Total Advances Source: RBI and CARE Research

FY05

FY06

FY07

FY08

Y-o-Y Growth (%)

Fig 4.14 – Type-wise break-up of total advances for Nationalised Banks 60

55.4

56.0

56.1

53.9

50 Percent

REPORT ON INDIAN BANKING SECTOR

30 25 20 15

Percent

45 40 35

1,200,000

37.2

40

37.2

39.3

37.3

48.5

52.7

54.9

55.6

42.2

41.3

39.3

39.1

6.6

6.0

51.2

45.0

30 20 10

7.4

6.8

6.7

6.7

6.5

FY00

FY01

FY02

FY03

FY04

5.8

0 Bills Purchased & Discounted

FY05

FY06

Cash Credits, Overdrafts & Loans

FY07

5.3 FY08

Term Loans

Source: RBI and CARE Research

Nationalised banks total advances grew by 25.7% in FY08 to reach Rs12,03,782 crores as compared to 30.4% growth in FY07 with a CAGR growth of 27.3% from FY03 to FY08. Nationalised banks share in total deposits of SCBs stood at 48.6% in FY08 as against 48.3% in FY07. Following the industry trend, the share of long-term loans (term loans) in total advances increased from 37.2% in FY2000 to 58% in FY08. Share of short-term deposits have decreased from 62.8% to 44.4% in the same period. 48

Fig 4.15 – Security-wise break-up of total advances for Nationalised Banks

Percent

100 90

9.7 8.7

80 70 60 50 40 30 20

11.5 8.5

12.9

12.9

17.8

17.3

20.0

9.9

13.3 6.5

15.1

7.2

7.3

6.5

6.2

5.3

81.6

80.0

77.2

79.9

80.1

77.7

75.7

76.5

74.7

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

Secured By Tangible Assets

Covered By Bank/ Government Guarantees

Unsecured

Source: RBI and CARE Research

Unsecured advances as a proportion of total advances for nationalised banks have always remained less as compared to that of the industry. Share of unsecured loans in total loans were at 9.7% in FY2000 and increased to 20.0% in FY08.

4.7.3 Private Sector Banks Fig 4.16 – Total advances and y-o-y growth in advances of Private Sector Banks 80

71.1

530,000

70

450,000

290,000

50

41.4 30.5

210,000

29.9

22.1

32.5 25.0

18.3 23.7

40 30 20

130,000

10

50,000

0 FY00

FY01

FY02

Total Advances Source: RBI and CARE Research

49

FY03

FY04

FY05

FY06

FY07

FY08

Y-o-Y Growth (%)

Percent

60

370,000 Rs Cr

REPORT ON INDIAN BANKING SECTOR

10 0

Fig 4.17 – Type-wise break-up of advances for Private Sector Banks 80

Percent

70 60 50

52.3

40

29.5

30

18.2

20 10

65.0

64.0

60.5 51.3 32.5

65.5

68.4

70.3

69.5

24.8

25.2

27.9

26.6

25.7

25.7

8.9

8.0

8.3

8.8

5.9

FY02

FY03

FY04

30.5

16.2 4.9

5.3

0 FY00

FY01

FY06

FY07

Cash Credits, Overdrafts & Loans

FY08 Term Loans

Source: RBI and CARE Research

Total advances of Private sector banks grew at a CAGR of 30.7% from FY03 to FY08. The share of all SCBs in total advances stood at 20.9% in FY08. Private Sector banks have changed the mix in favor of term loans significantly over the period. Among the group of banks, Private sector banks have highest share of term loans in its total advances (69.5% as on FY08), which has increased from 29.5% in FY2000. Share of short-term loans have declined significantly from 70.5% in FY2000 to 30.5% in FY08.

Fig 4.18 – Security-wise break-up of total advances for Private Sector Banks 100 90

Percent

REPORT ON INDIAN BANKING SECTOR

Bills Purchased & Discounted

FY05

80 70 60 50 40 30 20

11.4

14.1

11.9

8.3

76.7

77.6

FY00

FY01

8.3 5.8

8.1 6.4

9.8 5.2

13.9 4.4

16.8

18.6

20.8

3.3

2.9

2.8

85.9

85.5

85.1

81.7

80.0

78.5

76.4

FY02

FY03

FY04

FY05

FY06

FY07

FY08

10 0

Secured By Tangible Assets Source: RBI and CARE Research

Covered By Bank/ Government Guarantees

Unsecured

Unsecured advances of Private sector banks are pegged at 20.8% for FY08, which is below the industry unsecured advances at 23.1%.

50

4.7.4 Foreign Banks Fig 4.19 – Total advances and y-o-y growth in advances of Foreign Banks 170,000

29.5

Rs Cr

130,000 110,000

20

16.0

13.1

90,000

30 25

20.7

20.7

15 7.3

70,000

10

50,000

5

30,000

0 FY00

FY01

FY02

FY03

FY04

FY05

Total Advances

FY06

FY07

FY08

Y-o-Y Growth (%)

Source: RBI and CARE Research

Fig 4.20 – Type-wise break-up of total advances for Foreign Banks 60 48.8

50 Percent

REPORT ON INDIAN BANKING SECTOR

27.5

24.5

Percent

150,000

35

29.5

40 38.1

30 20

13.1

10

46.1

48.7

42.1

11.8

47.9

37.6

13.6

45.0

41.0

11.1

44.3

10.6

49.2

48.0 42.2

40.9

10.0

9.8

49.3

48.9

41.6

41.3

9.1

9.8

0 FY00

FY01

FY02

Bills Purchased & Discounted

FY03

FY04

FY05

FY06

Cash Credits, Overdrafts & Loans

FY07

FY08 Term Loans

Source: RBI and CARE Research

Total advances of foreign banks grew at a CAGR of 25.3% from FY03 to FY08 to touch Rs1,61,133 crores in FY08. Share of term loans in total advances was at 48.9% for FY08, which has remained more or less constant in last 5 years.

51

Fig 4.21 – Security-wise break-up of total advances for Foreign Banks

Percent

100 90 35.9

80 70 60

8.1

50 40 30 20

38.8

34.9

9.3

12.0

32.6 11.3

34.0 7.3

56.1

51.9

53.1

56.2

58.7

FY00

FY01

FY02

FY03

FY04

36.4 5.6

57.9

42.3

45.7

4.9

3.6

52.7

50.8

FY06

FY07

52.8

3.9 43.2

REPORT ON INDIAN BANKING SECTOR

10 0

Secured By Tangible Assets

FY05

Covered By Bank/ Government Guarantees

FY08 Unsecured

Source: RBI and CARE Research

Share of unsecured advances has always been higher for foreign banks. The exposure to unsecured loans was as high as 52.8% of total advances, more than double of that of the industry.

4.8 Bank group-wise Deposit -Advances Maturity Matching Table 4.11 – Maturity-wise break-up of deposits for various bank groups

Deposits Total 1 - 14 days 15 - 28 days 29 days to 3 months(M) Over 3 M to 6 M Over 6 M to 1 year Up to 1 year Over 1 year to 3 years Over 3 years to 5 years Over 5 years Over 1 year Source: RBI and CARE Research

52

SBI and Nationalise Foreign Private Associates d Banks Banks Banks SCBs 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 100 100 100 100 100 100 100 100 100 100 10.6 10.1 7.6 6.8 24.2 23.5 9.5 7.4 9.6 8.7 1.3 1.5 3.6 3.2 6.1 9.1 4.2 4.0 3.3 3.3 6.4 6.1 9.5 9.2 14.4 16.8 13.3 13.1 9.8 9.7 6.3 6.7 8.8 9.5 9.6 7.7 12.0 12.7 8.9 9.4 11.9 11.0 15.6 19.4 9.7 7.6 18.1 18.4 14.9 16.5 36.5 35.5 45.1 48.1 64.0 64.7 57.1 55.6 46.6 47.6 28.5 23.2 29.2 28.0 35.6 33.3 36.4 34.6 30.8 28.5 18.7 15.9 7.7 7.7 0.4 0.4 3.9 3.8 9.1 8.4 16.4 25.4 18.0 16.2 0.0 1.6 2.6 6.0 13.5 15.4 63.5 64.5 54.9 51.9 36.0 35.3 42.9 44.4 53.4 52.4

Table 4.12 – Maturity-wise break-up of advances for various bank groups

REPORT ON INDIAN BANKING SECTOR

Deposits Total 1 - 14 days 15 - 28 days 29 days to 3 months(M) Over 3 M to 6 M Over 6 M to 1 year Up to 1 year Over 1 year to 3 years Over 3 years to 5 years Over 5 years Over 1 year Source: RBI and CARE Research

SBI and Associates 2007 2008 100 100 14.4 1.6 4.8 4.5 5.5 30.8 40.4 10.5 18.3 69.2

15.2 2.6 4.2 3.8 6.9 32.7 37.2 11.4 18.7 67.3

Nationalise d Banks 2007 2008 100 100 10.7 3.3 8.3 7.5 10.1 39.8 29.5 13.6 17.1 60.2

8.7 3.1 10.0 7.8 10.9 40.7 31.3 11.1 17.0 59.3

Foreign Banks 2007 2008 100 100 17.1 7.0 14.4 8.3 5.4 52.2 31.2 6.1 10.5 47.8

Private Banks 2007 2008 100 100

12.9 7.0 13.8 9.2 6.8 49.6 34.4 6.6 9.4 50.4

5.6 1.3 6.4 7.3 12.0 32.6 39.3 11.8 16.3 67.4

5.9 1.8 7.2 7.0 13.1 35.0 34.7 12.0 18.3 65.0

SCBs 2007 2008 100 100 10.9 2.7 7.4 6.8 9.1 36.9 34.3 12.0 16.8 63.1

9.9 3.0 8.3 6.8 10.2 38.1 33.6 11.1 17.2 61.9

Table 4.13 – Maturity-mismatch between deposits and advances SBI and Asso 2007 2008 % % -3.8 -5.1 -0.3 -1.1 1.6 2.0 1.7 2.9 6.4 4.1 5.7 2.8 -11.9 -14.0 8.1 4.5 -2.0 6.7 -5.7 -2.8

Mismatch 1 - 14 days 15 - 28 days 29 days to 3 M Over 3 months to 6M Over 6 months to 1 yr upto 1 year Over one year to 3 yrs Over 3 years to 5 yrs Over 5 years Over 1 year Source: RBI and CARE Research

Nationalised 2007 2008 % % -3.1 -1.9 0.3 0.0 1.2 -0.8 1.3 1.7 5.5 8.4 5.3 7.4 -0.3 -3.3 -5.9 -3.3 1.0 -0.7 -5.3 -7.4

Foreign 2007 2008 % % 7.1 10.6 -0.9 2.1 0.0 3.1 1.3 -1.5 4.3 0.8 11.8 15.1 4.4 -1.0 -5.7 -6.3 -10.5 -7.8 -11.8 -15.1

Private banks 2007 2008 % % 3.9 1.6 2.9 2.2 6.8 5.8 4.7 5.7 6.1 5.2 24.5 20.6 -2.9 -0.1 -7.9 -8.2 -13.7 -12.2 -24.5 -20.6

SCBs 2007 2008 % % -1.3 -1.3 0.6 0.3 2.4 1.4 2.1 2.6 5.9 6.4 9.7 9.5 -3.5 -5.1 -2.9 -2.7 -3.3 -1.7 -9.7 -9.5

Private sector banks has highest mismatch The above table shows the mismatch between the maturities patterns of deposits and loans for the various bank groups. For all SCBs taken together, banks have higher proportion of short-term deposits compared to short-term advances. As on March 31, 2008,, the banks have 47.6% of its total deposits as short-term deposits as against this, short-term loans and advances were 38.1%. This shortfall is used to fund long-term loans and advances. We believe that the mismatch to a certain extent is needed for the banks to generate higher Net interest margin. High mismatch may create asset-liability mismatch problem especially when the banks find it difficult to roll over the low-cost deposits. The mismatch is highest in case of private sector banks which is as high as 20.6% shortfall between short-term deposits and short-term loans. The mismatch is lowest in case of SBI and its associate at 2.8% for FY08. 53

Chapter 5 Investments Investment of a bank can be divided as follows

Fig 5.1 – Break-up of Investments Investments

REPORT ON INDIAN BANKING SECTOR

SLR Investments

Government and other approved securities

Non – SLR Investments

Commercial papers, shares, bonds and debenture issued by corporate

Source: RBI and CARE Research

5.1 SLR Investments The Banking Regulation Act, 1949 requires the banks to invest a prescribed minimum of their net demand and time liabilities in Government and other approved securities. The ratio of investment in government and other approved securities to Net demand and time liabilities of a bank is know as Statutory Liquidity Ratio (SLR). As a part of financial reforms and to tap the growing need of credit of the economy, the SLR requirement for banks was gradually reduced to 25% in October 1997 from its peak of 38.5% in February 1992. SLR requirements were kept at 25% from October 1997 till November 2008. After 10 years, on November 2, 2008, the RBI reduced the SLR requirement by 100 bps to 24%. This was mainly done due to the liquidity crunch faced by the banking sector and the economy as a whole.

54

Fig 5.2 – SLR Investment and Requirement by SCBs 42 40 38

SLR cut by 100 bps after 10 years to counter liquidity crunch and support growing credit demand

36 Percent

34 32 30 28 26 24 22

Mar-09

Sep-08

Mar-08

Sep-07

Mar-07

Sep-06

Mar-06

Sep-05

Mar-05

Sep-04

Mar-04

Sep-03

Mar-03

SLR Investments

SLR requirement

Source: RBI and CARE Research

Fig 5.3 – SLR Investments by SCBs over the years 42 40 Period of high credit growth reduced the SLR invest by banks to fund credit offtake

38 36 34 Per cent

32 30

Period of slowdown and low credit offtake forced banks to park the funds in investments

28 26 24 22

Source: RBI and CARE Research

55

Mar-09

Sep-08

Mar-08

Sep-07

Mar-07

Sep-06

Mar-06

Sep-05

Mar-05

Sep-04

Mar-04

Sep-03

Mar-03

Sep-02

Mar-02

Sep-01

Mar-01

Sep-00

Mar-00

Sep-99

Mar-99

Sep-98

20 Mar-98

REPORT ON INDIAN BANKING SECTOR

20

Investment in SLR by SCBs has increased from 30.9% as in March 1999 to 40.6% as in May 2004. The increase in investments in government securities can be attributed to : 1. The period from FY1999 to FY03 witness reduced credit demand due to industrial slowdown in India. This led the banks to park more funds in government securities which are considered to be safe. Also interest rates have declined during the same period, which offered banks high yields on investments.

The period of industry slowdown (FY1999 to FY03) was followed by a period of high economic growth and a sharp pick-up in credit. During the last five years (From FY03 to FY08), the total advances by SCBs grew at CAGR of 27.4% as against CAGR growth of 17.9% during the previous five years i.e. from FY1998 to FY03.

Fig 5.4 –Mismatch between the CAGR in deposits and advances of SCBs

Percent

REPORT ON INDIAN BANKING SECTOR

2. From March 1996 onwards, Banks were required to maintain 8% of their riskweighted assets as capital. The period of industrial slowdown increased the risk of high Non Performing Assets (NPA) levels for banks. The need for increase in capital to meet the capital adequacy norms, coupled with the increased risk environment, made the banks more risk averse. Investments in government securities which carry 0% risk weights for capital adequacy became safe and obvious choice for banks.

50 45 40 35 30 25 20 15 10 5 0

Gap funded by restricting and liquiditating SLR and Non SLR Investments

27.4 16

Deposits

17.9

19.6

Advances

Deposits

CAGR FY98 to FY03

Source: RBI and CARE Research

56

Advances

CAGR FY03 to FY08

Fig 5.5 – Credit-deposit and investment-deposit ratio of SCBs 80 70.07

70

73.46

74.61

62.63 Percent

60

53.69

54.53

54.82

49.82

50

46.62

48.89

51.13

50.95 47.33

40

40.03 35.25

30

35.43

REPORT ON INDIAN BANKING SECTOR

20 FY01

FY02

FY03

FY04

Credit - Deposit ratio

FY05

FY06

FY07

FY08

Investment-deposit ratio

Source: RBI and CARE Research

During the period FY03 to FY08, high credit demand was coupled with lower growth in overall deposits. During this period, the sovereign yield also hardened significantly. Factors such as robust credit growth as compared to deposits growth and hardened sovereign yield led to significant adjustment in investment portfolio. Banks resorted to restricting fresh SLR investment and at also liquidation of the SLR investment to fund credit growth.

5.2 Non-SLR Investments Non-SLR investments by SCBs comprise of commercial papers and shares, debenture/bonds issued by public sector undertakings and by the private corporate sector and units of mutual funds.

57

Fig 5.6 – Composition of Non-SLR Investments over the years for SCBs 90 80 70

Per cent

60 50 40 30 20 10

REPORT ON INDIAN BANKING SECTOR

0 FY02

FY03

Bonds/debentures

FY04

FY05

Commercial Paper

FY06

Shares

FY07

FY08

Oct'08

Units of Mutual Funds

Source: RBI and CARE Research

There has been a significant change in the composition of Non-SLR investments. Investments in fixed rate instruments (bonds and debentures) have declined over the years from 81.7% of total non-SLR investment in FY02 to 49.1% in FY08 and further to 47.5% in October 2008. The other three heads viz. commercial papers, shares and mutual funds have increased their proportion in total non-SLR investments. Investment in commercial papers, shares and mutual funds have increased from 7.2%, 6.6% and 4.5% of total non-SLR investment in FY02 to 14.3%, 25.7% and 12.5%, respectively, in October 2008.

58

5.3 Bank Group-wise Credit-Deposit ratio, Investment-Deposit ratio and (Credit + Investment)/Deposit ratio Fig 5.7 – Credit, Investment to deposit ratio for SBI and Associates 120 110 100

98.5

99.7

108.2

107.9

110.0

40

110.8 76.7

68.5

70 60

109.6 76.2

80

50.4

52.9

50 48.2

46.9

57.1 48.4

57.2

56.3

50.9

51.6 41.4 33.4

30

34.1

20 FY01

FY02

Credit - Deposit ratio

FY03

FY04

FY05

Investment-deposit ratio

FY06

FY07

FY08

(Credit + Investment) - Deposit ratio

Source: RBI and CARE Research

Fig 5.8 – Credit, Investment to deposit ratio for Nationalised Banks 120 110 100 90 Percent

REPORT ON INDIAN BANKING SECTOR

Percent

90

105.5

80

106.9 91.6

94.6

99.1

70 60 50 40 30

61.2 48.3 43.3

51.2 43.5

52.3 46.8

105.9

99.5 68.0

103.7 70.4

103.5 71.7

51.9 47.6

45.7

37.8

33.3

31.9

20 FY01

FY02

Credit - Deposit ratio

Source: RBI and CARE Research

59

FY03

FY04

FY05

Investment-deposit ratio

FY06

FY07

FY08

(Credit + Investment) - Deposit ratio

Fig 5.9 – Credit, Investment to deposit ratio for Private Sector Banks 140 120

127.1 118.1

Percent

100

115.0

113.9

115.2

95.2 80 60 40

68.7 49.8

66.6

58.4 51.5

45.4

63.4

70.3

50.5

44.7

73.0

42.1

114.0 75.1

38.9

118.0 76.8

41.2

20 FY01

FY02

FY04

FY05

Investment-deposit ratio

FY06

FY07

FY08

(Credit + Investment) - Deposit ratio

Source: RBI and CARE Research

Fig 5.10 – Credit, Investment to deposit ratio for Foreign Banks 160 140 120 Percent

REPORT ON INDIAN BANKING SECTOR

Credit - Deposit ratio

FY03

133.1

129.8

134.1

136.8 127.4

100 80

72.6

75.4

75.3

87.2

131.8 85.8

75.5

131.2

83.8

136.1

84.3

60 60.4

54.4

58.9

51.9

FY01

FY02

FY03

FY04

40

49.6

46.1

47.4

51.8

20 Credit - Deposit ratio

FY05

Investment-deposit ratio

FY06

FY07

FY08

(Credit + Investment) - Deposit ratio

Source: RBI and CARE Research

Robust economic growth and massive capital expenditure both by government and private sector has resulted in higher demand for credit. The ratio of Credit + Investment divided by total deposit has surpassed 100% in FY02 and has increased to 110% for FY08. This means that banks have lend more than the total deposits collected even after keeping the statutory investment aside. Credit growth has been funded through non deposit borrowings. The borrowing rates for banks were lower during the same period which gave banks better spread for funding advances through borrowed funds.

60

The ratio of Credit + Investment divided by total deposit was highest for foreign banks at 136%, followed by private sector banks 118%. Private and foreign banks have more resorted to borrowed funds for funding credit requirement mainly because of ¾ Aggressive approach adopted by the private and foreign banks to increase their overall business. ¾ Private and foreign banks have fewer branches as compared to PSBs. Branch network which is essential for garnering high deposits. ¾ Credit offtake is driven by the service quality in terms of ease and timely disbursement of credit which is better than the PSBs.

REPORT ON INDIAN BANKING SECTOR

¾ These banks concentrated on retail credit more as compared to PSBs, where service became the key reason for choice of a bank.

61

Chapter 6 Total Income Total income of a bank can be divided as follows

Fig 6.1 – Break-up of total income Total Income

Other Income

Core Income

Non-core Income

Source: RBI and CARE Research

6.1

Interest on Advances and Investments

Income of the bank can be divided into two broad categories: Interest income and other income. Interest income comes from four sources: 1. Interest on advances 2. Interest on investments 3. Interest on money with RBI and other inter-bank lending 4. Others

Fig 6.2 – Break-up of Interest income of SCBs 75 71.4

70 65

65.9

60 Percent

REPORT ON INDIAN BANKING SECTOR

Interest Income

58.9

55 50

48.2

46.7

43.9

45.2

45 40

52.3 48.7

48.6 45.7

44.4

42.3 35.8

35

29.3

30

25.5

25 FY01

FY02

FY03

FY04

Interest/Discount On Advances/Bills

Source: RBI and CARE Research

62

FY05

FY06

FY07

FY08

Income On Investments

In the recent years, the banks have liquidated and reduced the share of investments in its total asset base keeping it close to the statutory minimum level which has got reflected in the falling trend of interest income from investments. Share of interest on investments have reduced in favor of interest on advances as banks have invested less funds in investment to fund credit growth. Share of interest income on advances and bills have increased from 48.6% in FY04 to 71.4% in FY08 as against this, share of income on investment has reduced from 45.7% in FY04 to 25.5% in FY08.

6.2 Other Income

REPORT ON INDIAN BANKING SECTOR

Table 6.1 – Proportion of other income in total income for various bank groups (in %)

Year

SCBs FY01 13.0 FY02 15.9 FY03 18.3 FY04 21.6 FY05 18.1 FY06 16.0 FY07 14.1 FY08 16.1 Source: RBI and CARE Research

SBI & Associates 13.6 13.4 16.4 21.0 17.7 16.2 12.2 14.4

Nationalised Banks 11.2 14.5 16.7 20.0 16.2 12.3 10.5 12.3

Private Sector Banks 12.6 20.5 22.9 23.0 19.5 18.7 17.9 19.2

Foreign Banks 21.0 25.2 25.5 30.9 29.7 30.4 27.8 30.1

The proportion of other income in total income is highest for foreign banks at 30.1% for FY08, whereas the industry average for the same year is at 16.1%. For private banks it stood at 19.2% of total income. The proportion is higher for these banks because of the expertise developed by them to provide fee-based services and advance technologies employed by them to do the same. Other income can be divided broadly into two categories.

6.2.1 Fee income Fee income, which includes bank charges, draft charges, fees for cash management, corporate bank accounts services, card income and fees, processing fees, depository services, commission and brokerage, fees from sale of third-party products e.g. mutual funds and insurance products, forex management service charges and other fees generated due to normal banking activities. Core fee income has no correlation with interest rate but is correlated to credit growth and economic activity. Banks have over the years increased their concentration on core fee-based income to improve the bottom line. Since last few years, increase in economic activity and good primary and secondary securities markets have helped the banks to garner large increase in their core fee-based incomes from depository and other related services.

63

Table 6.2 – Trend in other income (excluding Profit on sale/revaluation of investments and fixed assets) (Rs Cr)

REPORT ON INDIAN BANKING SECTOR

Year FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08

SCBs 13,961 14,666 17,354 20,422 25,995 33,282 40,808 50,201

CAGR 23.7 (FY03-FY08) Source: RBI and CARE Research

SBI & Associates 4,660 4,986 5,329 5,991 7,020 8,832 9,258 10,287 14.1

Nationalised Private Sector Banks Banks 5,470 1,659 5,694 1,765 6,187 3,259 6,916 4,113 8,884 5,675 10,274 8,195 12,716 10,954 15,442 14,159 20.1

34.1

Foreign Banks 2,171 2,220 2,580 3,401 4,416 5,981 7,879 10,314 31.9

Fee income for SCBs grew at a CAGR of 23.7% from FY03 to FY08 as compared to CAGR of 17.1% in total interest earned. Private and foreign banks' fee income grew at a faster rate than the industry average.

Table 6.3 – Bank group-wise share in interest and fee income for FY08 Share in Interest income Share in Fee income SBI and Associates 22.8 20.5 Nationalised Banks 46.4 30.8 Private Sector Banks 23.0 28.2 Foreign Banks 7.9 20.5 Total (SCBs) 100.0 100.0 Source: RBI and CARE Research

Private and foreign banks were increasingly focused on fee-based services due to high margins in these activities. Advance technology and early entry into the service segments such as forex management, NRI services, sale of third party products, credit and debit cards gives them an edge over PSBs to garner high share.

6.2.2 Non-fee income Non- fee income includes one-time or extra ordinary item like profit/loss on sale of investments and fixed assets. Profit on sale and revaluation of fixed assets constitutes small proportion of total non-fee based income.

64

Profit on sale/revaluation of Investments One of the major components of other income is profit on sale/revaluation of investments held by banks. Profit and loss on investments is related to the interest rate movements in the economy as also to the excess investment held by banks over the SLR requirements.

Fig 6.3 – Trend in profit on sale/revaluation of Investments and 10 year bond yield falling interest rate increased the trading profits

25000 10.2 7.3

Rs cr

15000

REPORT ON INDIAN BANKING SECTOR

10

6.65

7.53

7.97 8 7.93

6.13 10000

6 5.15

5000

4

0

2 FY01

FY02

FY03

FY04

FY05

FY06

FY07

-5000

Percent

20000

12

FY08 0

Profit on sale/revaluation on Investments

10 Year bond yield

Source: RBI and CARE Research

There is an inverse relationship between the bond price and interest rate. When interest rate falls, the bond price increases and vice-versa. From FY02 to FY04, the benchmark yield on 10-year bonds has actually decreased from 7.3% in FY02 to 5.15% in FY04. Banks SLR investments during these periods have also increased to 40% of their total deposits as against the stipulated SLR requirement of 25%. Re-pricing and trading in upward bond price and softening interest rate scenario, increased the profit from sales and revaluation of investments. The trend reversed from FY05 onwards, where interest rate began to rise and fall in bond prices reduced the profit from investments. Banks also started liquidating their investments to fund high credit growth during the period of falling bond prices. Profit from sale/revaluation of investment turned negative in FY07, when bond yield touched a high of 7.97%. As shown in the table below, banks groups made decent profit from sale and revaluation of investments in FY03 and FY04. Profit declined across the board for all banks as interest rates hardened.

65

Table 6.4 – Profit on sale and revaluation of investment for various bank groups (Rs cr)

Year

SCBs

REPORT ON INDIAN BANKING SECTOR

FY01 3,164.4 FY02 9,334.1 FY03 14,254.2 FY04 19,279.5 FY05 8,396.9 FY06 1,899.4 FY07 (2,395.1) FY08 8,901.0 Source: RBI and CARE Research

66

SBI & Associates 694.6 1,014.9 2,670.0 4,927.8 2,461.5 693.2 (1,471.5) 1,519.0

Nationalised Banks 1,676.9 4,807.2 7,082.1 10,243.5 5,809.3 1,984.4 52.3 4,614.0

Private Sector Banks 441.5 2,487.4 3,999.0 3,497.2 703.0 (112.1) 59.8 2,631.0

Foreign Banks 351.3 1,024.6 503.1 611.0 (576.9) (666.1) (1,035.7) 134.0

Chapter 7 Total Expenses Total expenses of bank can be divided as follows.

Fig 7.1 – Break-up of total expenses Total Expenses

Operating Cost

Other Operating Cost

Staff Cost

Source: RBI and CARE Research

7.1 Operating cost Operating cost can be divided into two: staff cost and other operating cost (non-staff cost). We have analysed staff coast and non-staff cost separately. The operating cost as a percentage of total assets for SCBs has been declining over the years.

Fig 7.2 – Operating cost as a percentage of total assets for SCBs 2.9 2.7

2.84

2.5 Percent

REPORT ON INDIAN BANKING SECTOR

Interest Expenses

2.3

2.38

2.35

2.37

2.1

2.32

2.30 2.12

1.9

1.98

1.7 1.5 FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

Source: RBI and CARE Research

Operating cost was at 2.84% of total assets in FY01 which decreased to 1.98% of the total assets in FY08.

67

Public Sector Banks (PSBs) As shown below, operating cost as a percentage to total assets for the PSBs declined sharply over the years. Major decline was evident in last two years. For SBI and associates, operating cost as a percentage to total assets was at 2.9% in FY01 which reduced over the years to 2.4% in FY06 and declined sharply further to 1.9% in FY08. Nationalised banks have also followed the same trend over the years. Operating cost as a percentage to total asset declined from 2.3% in FY05 to 1.6% in FY08. The main reason attributed for this sharp decline is the higher growth in deposits and advances as compared to increase in the number of employees or branches. As the PSBs had established presence, increased business came without corresponding equal increase in employees or branches. Also, PSBs adopted newer technologies and computerisation of branches also helped in reducing cost.

2.93

2.9 2.7

2.90

2.54 2.47

2.5 Percent

REPORT ON INDIAN BANKING SECTOR

Fig 7.3 – Operating cost as a percentage of total assets for PSBs

2.36

2.28

2.39

2.3 2.32

2.23

2.1

2.21

2.28

2.07

2.13

1.9

1.84

1.7

1.87 1.62

1.5 FY01

FY02

FY03

SBI and Associates

Source: RBI and CARE Research

FY04

FY05

FY06

FY07

FY08

Nationalised Banks

Private and Foreign Banks The ratio of operating cost to total assets for private sector and foreign banks have more or less remained at the same level over the years. In fact for Private sector banks, the ratio has increased from 2.0% in FY01 to 2.4% in FY08. Initial years of operations, rapid branch expansion and high initial investment in technology has kept the ratio constant or increasing for these banks.

68

Fig 7.4 – Operating cost as a percentage of total assets for Private Sector and Foreign Banks 4.0 3.37

Percent

3.5

2.85

3.0

2.97

3.05

3.27 3.24

2.5

2.40

2.0

2.08

2.04

2.41

2.24

2.18

FY04

FY05

2.33

1.80

1.5 FY01

FY02

FY03

Private Sector Banks

FY06

FY07

FY08

Foreign Banks

Source: RBI and CARE Research

7.1.1 Staff cost Staff cost constitute the major portion of the total operating cost of the bank. The banks in efforts to increase the profitability, need to control the staff cost not only because it forms the major portion of the operating cost but also due to the fact that interest cost are driven more by macro-economic factors. However the proportion of staff expense is higher in case of PSBs as compared to private or foreign banks.

Fig 7.5 – Declining trend in staff cost as a percentage of operating cost for SCBs 80.0 70.0 60.0 Per cent

REPORT ON INDIAN BANKING SECTOR

3.32

3.17

68.0

64.7

62.1

60.2

50.0

58.8

56.5

54.5

51.6

40.0 30.0 20.0 10.0 0.0 FY01

FY02

Source: RBI and CARE Research

FY03

FY04

FY05

FY06

FY07

FY08

Staff cost (% of operating cost)

Staff cost as a proportion to the operating cost was as high as 68% in FY01. Over the years, the ratio has decreased to 51.6% in FY08. This can be attributed to the computerisation of banks over the years and also due to rapid growth of private and foreign banks which use advanced technology and with lower staff base. Staff cost analysis cannot be done in isolation as staff cost are generally linked to bank’s size and 69

presence across the regions. We therefore believe that staff cost should be viewed along with the total business generated by the bank. We have compared the ratio of average business to staff cost across the bank groups to do meaningful analysis into staff cost.

Fig 7.6 – Average business per unit of staff cost for various bank-groups 250

195.4

200 161.9 140.4

Rs

150 100

120.6

183.3

151.8

119.2

96.9

REPORT ON INDIAN BANKING SECTOR

50 0 SBI and Associates

Nationalised Banks FY07

Private Sector Banks

Foreign Banks

FY08

Source: RBI and CARE Research

In terms of Average business per unit of staff cost, the foreign banks followed by private sector banks were clearly the out performers both in FY07 and also in FY08. Reason which could be attributed to this are: ¾ Higher fee-based income as against higher asset-based income for PSBs, which can also be correlated to the table above where operating costs as a percentage of total costs are higher ¾ High investment in technology, which reduces the staff requirement for these banks. ¾ Business is operated through agency model, in which business is generated through agents which are not on pay roll of the company. Commissions to agents are generally lower as compared to employee cost. ¾ Private and foreign banks does not have wide branch network in rural India, where availability and understanding of technology among the customers is limited, so staff requirement is high. ¾ Use of new technology like Internet and phone banking and also ATM and electronic cards reduce the staff requirement. For e.g. ATM requires only security personnel and customers can do many banking operations all the time. This reduces pressure on branch staff. ¾ Lesser social responsibility as compared to PSBs for e.g. operates fewer branches in rural area as these branches get lesser business for the bank.

70

Bank group-wise performance Fig 7.7 – Staff cost as a percentage of operating cost for various bank-groups 75

Percent

65 55 45

REPORT ON INDIAN BANKING SECTOR

35 25 FY01

FY02

SBI and Associates

FY03

FY04

Nationalised Banks

FY05

FY06

Private Sector Banks

FY07

FY08 Foreign Banks

Source: RBI and CARE Research

Staff cost as a percentage to operating cost has decreased from 73% and 76%, respectively, in FY01 to 60.6% and 61.7%, respectively, in FY08, for SBI and associates and nationalised banks, respectively. This can be attributed to the Voluntary Retirement Scheme (VRS) launched by PSBs in FY01 and also advanced technology adopted by these banks. For foreign banks, contrary to the trend, the proportion has actually increased. It has gone up from 31.8% in FY01 to 39.9% in FY08. Foreign banks actually started operating in India on low penetration model, by targeting HNI and corporate clients which requires less staff to service as compared to retail clients. Also foreign banks were using the agent model in all possible areas of business like loans, deposits, cards and other services. Foreign banks have started increasing their branch network to tap more business which has relatively increased the proportion of staff cost Public Sector Banks (PSBs) Average business generated by PSBs per unit of staff cost is increasing over the years. Average business/staff cost increased from Rs.72.4 and Rs.70.9 in FY02 to Rs.120.6 and Rs.140.4 for FY08 for SBI and associates and nationalised banks, respectively. PSBs have over the years rationalised their staff requirement. During FY01, a VRS for staff was introduced in PSBs with a view to downsizing the staff strength and bringing down the operating cost. The VRS was implemented in 26 out of 27 PSBs and more than 1 lakh staff members were relieved, entailing an expenditure of Rs.11,885 crore. The banks have amortised this expenses over five years.

71

Staff expenses for PSBs have increased at CAGR of 11.8% from FY1997 to FY2000 (pre VRS period), as against this, the CAGR in staff cost was merely at 2.2% during the next four years from FY01 to FY04. These banks have adopted the use of technologically-advanced banking products in recent years like ATM, use of cards, core banking, internet and phone banking, which has reduced the incremental staff requirement compared to the increase in the size of the bank.

Fig 7.8 – Average business per unit of staff cost for PSBs 155 140.4

140 119.2

110 80 65 50

120.6

99.2

95 75.9

70.9 72.4

FY03

83.9

80.1

73.9

FY02

79.9

79.8

73.8 FY04

96.9

FY05

FY06

SBI and Associates

Source: RBI and CARE Research

FY07

FY08

Nationalised Banks

Private and Foreign Banks Average business per unit of staff cost for private banks have actually declined in FY08 to 151.8 from 161.9 in FY07, mainly due to the fact that, banks under these groups are under expansion mode and new branches or additional staff will take a bit long to generate substantial business.

Fig 7.9 – Average business per unit of staff cost for Private Sector and Foreign Banks 280

263.4 245.1 229.7

240 200 Rs

REPORT ON INDIAN BANKING SECTOR

Rs

125

228.4 195.4

177.1

183.3

160 120

149.8

152.1

165.6

152.2

156.6

161.9

151.8

80 FY02

FY03

FY04

FY05

Private Sector Banks Source: RBI and CARE Research

72

FY06 Foreign Banks

FY07

FY08

7.1.2 Non-Staff cost Operating cost excluding staff cost has increased at a CAGR of 21.1% from Rs143.9bn in FY02 to Rs374.1 bn in FY08 for SCBs. Within the sub-heads, the expenditure on advertisement and publicity has shown the highest CAGR growth of 34% in the last five years.

Table 7.1 – Trend in Operating cost excluding staff costs (Rs cr) Financial

REPORT ON INDIAN BANKING SECTOR

Year

Nationalised

Private Sector

Foreign

Banks

Banks

Banks

SCBs

SBI

FY01

10,927.9

2,897.4

4,140.8

1,769.2

2,120.6

FY02

11,884.0

2,727.3

4,618.3

2,267.9

2,270.6

FY03

14,386.3

3,015.0

5,403.6

3,755.8

2,211.9

FY04

17,320.1

3,764.0

6,163.2

4,840.3

2,552.7

FY05

20,656.7

4,367.8

7,504.1

5,732.1

3,052.7

FY06

25,740.1

5,094.9

8,835.3

7,961.0

3,849.0

FY07

30,158.4

5,516.5

9,935.0

10,046.7

4,660.2

FY08

37,408.0

6,698.0

11,337.0

13,157.0

6,225.0

CAGR

21.1

17.3

16.0

28.5

23.0

Source: RBI and CARE Research

Non-staff operating cost has increased at a CAGR of 21.1% for SCBs during FY03 to FY08. The CAGR growth for PSBs was lower as compared with private and foreign banks. Private and foreign banks have adopted low-staff and high-technologically driven model for growth. They use agent model in place of staff, so agency commission are included in other operating cost. This was the prime reason for high share and high growth of non-staff cost in total operating cost.

Table 7.2 – Trend in Advertising and Publicity cost (as a % of total operating cost) Year

SCBs

SBI

Nationalised

Private Sector

Foreign

Banks

Banks

Banks

FY01

1.0

0.3

0.3

2.9

5.7

FY02

0.9

0.3

0.4

2.0

4.3

FY03

1.1

0.4

0.5

2.3

4.1

FY04

1.4

0.7

0.7

2.6

5.2

FY05

1.6

0.6

0.9

3.0

6.3

FY06

2.3

0.8

1.0

2.9

10.4

FY07

2.3

0.7

1.2

2.6

9.1

FY08

2.3

1.2

1.2

2.4

6.8

Source: RBI and CARE Research

73

Among the sub-heads of other operating cost, it is important to look at the advertisement and publicity cost. Overall the banks have increased spend on advertisement and publicity from 1% of total operating cost in FY01 to 2.3% in FY08. However within the bank groups, the PSBs have increased their spends on advertisement. Foreign and private banks used advertisement, telephone and other media devices to reach to the customers. Therefore the share of advertisement expenditure is as high as 6.8% of operating cost for foreign banks in FY08.

REPORT ON INDIAN BANKING SECTOR

However, the proportion of advertisement cost in total operating cost has decreased both for private and foreign banks mainly due to the benefit of economies of scale. Advertisement is a fixed-cost item unlike other variable and semi-variable cost and does not increase as the size of the business increases. Share of advertisement in total operating cost has decreased from 2.9% in FY06 to 2.4% in FY08 for private banks and 10.4% in FY06 to 6.8% in FY08 for foreign banks.

74

Chapter 8 Spread and Net interest Margin (NIM) Spread of the bank is defined as the difference between the Return on investments and advances and Cost of the funds. Return and cost can be defined as under :

REPORT ON INDIAN BANKING SECTOR

Cost of Deposits (%) = Interest Paid on Deposits/Deposits.*100 Cost of Borrowings (%) = Interest Paid on Borrowings/Borrowings*100. Cost of Funds (%)= (Interest Paid on Deposits + Interest Paid on Borrowings) / (Deposits + Borrowings)*100 Return on Advances (%) = Interest Earned on Advances /Advances*100 Return on Investments (%)= Interest Earned on Investments /Investments*100 Return on Funds = (Interest earned on Advances + Interest earned on Investments)/(Advances + Investments)*100 Gross Spread = Return on Funds – Cost of Funds Net interest Margin (NIM) = (Interest earned - Interest paid) / Average Total Assets Spread determines the Profitability of a bank and can be improved by either cutting down the cost of the funds i.e. cost of deposits and borrowings or by increasing the return on funds i.e. return on the advances and investments made by the bank. Cost of deposits has a larger bearing over the cost of funds as deposits constitute the larger proportion of total funds of a bank.

8.1 Spread and NIM for SCBs Table 8.1 – Spread of SCBs over the years (in %) No. Particulars 1 Cost of Deposits 2 Cost of Borrowings 3 Cost of Funds 4 Return on Advances 5 Return on Investments 6 Return on Funds 7 Spread (6-3) Source: RBI and CARE Research

FY04 4.9 2.5 4.8 8.1 8.2 8.2 3.4

FY05 4.2 1.7 4.0 7.1 7.6 7.1 3.1

FY06 4.1 3.0 4.0 7.2 7.7 7.4 3.3

FY07 4.4 3.3 4.3 7.9 6.9 7.6 3.2

FY08 5.4 3.7 5.3 8.9 6.7 8.2 3.0

In spite of rapid growth in the credit off take, spread for SCBs decreased from 3.3% in FY06 to 3.0% in FY08, mainly due to the following reasons 1. Cost of the deposits increased by 130 bps from FY06 to FY08. In order to meet high credit demand banks offered higher interest rate across the maturity and especially on short term deposits to increase deposit base. Thus, even after high credit growth, spread declined as high growth in credit came at higher cost to the banks. 2. Return on investment decreased by 100 bps due to softening of interest rate. Due to lower return on investments, return on funds increased by merely 80 bps from FY6 to FY08, despite an increase in return on advances by 170 bps during the same period.

75

Fig 8.1 – Net Interest Margin for SCBs (in %) 3.20 3.08

3.10 3.00 Percent

2.90

3.08

3.04

2.99

2.91

2.80 2.70

2.61

2.60 2.50 2.40

REPORT ON INDIAN BANKING SECTOR

2.30 FY03 Source: RBI and CARE Research

FY04

FY05

FY06

FY07

FY08

Net interest margin is directly correlated with the spread. In the period of high spread from FY04 to FY06, the NIM was above 3.0% level. In the period of declining spread (3.3% in FY06 to 3.0% in FY08), NIM also declined from 3.04% in FY06 to 2.6% in FY08.

8.2 Bank group-wise performance Public Sector Banks (PSBs) Table 8.2 – Spread of PSBs over the years (in %) No. Particulars 1 Cost of Deposits 2 Cost of Borrowings 3 Cost of Funds 4 Return on Advances 5 Return on Investments 6 Return on Funds 7 Spread (6-3) Source: RBI and CARE Research

FY04 5.1 2.3 5.0 7.9 8.5 8.2 3.2

FY05 4.4 1.3 4.2 6.9 7.9 6.9 2.8

FY06 4.3 2.5 4.2 7.1 8.2 7.5 3.3

FY07 4.5 2.8 4.4 7.7 7.1 7.5 3.1

FY08 5.4 3.6 5.3 8.6 6.8 8.0 2.7

PSBs had their spreads below the industry average at 2.7% for FY08. The spread is lowest among the various banking groups. Cost of the funds increased by 90 bps as compared to just 50 bps increase in the return on the funds. There was an improvement in return on advances (increased by 90bps y-o-y) in FY08 but the return on investment dipped by 30 bps. Over the last three years, spread has declined from 3.3% in FY06 to 2.7% in FY08, mainly due to increase in cost of funds from 4.2% to 5.3% and simultaneous decline in return on investment from 8.2% to 6.8% during the same period.

76

Percent

Fig 8.2 – Net Interest Margin for PSBs (in %) 3.55 3.35 3.15 2.95 2.75 2.55 2.35 2.15 1.95 1.75

2.90

3.27 3.13

3.22

2.98

2.92

3.00 2.85 2.49 2.33

FY03

REPORT ON INDIAN BANKING SECTOR

3.29

3.16

FY04

Source: RBI and CARE Research

FY05 SBI and Associates

FY06

FY07

FY08

Nationalised Banks

NIM for SBI and Associates and Nationalised banks declined from 3.22% and 2.92% in FY06 to 2.49% and 2.33% in FY08 respectively in the period of following spread from 3.3% to 2.7%.

Old Private Sector Banks Table 8.3 – Spread of Old Private Sector Banks over the years (in %) No. Particulars 1 Cost of Deposits 2 Cost of Borrowings 3 Cost of Funds 4 Return on Advances 5 Return on Investments 6 Return on Funds 7 Spread (6-3) Source: RBI and CARE Research

FY04 5.4 2.8 5.3 8.8 8.1 8.5 3.1

FY05 4.6 2.7 4.6 8.0 7.7 8.0 3.4

FY06 4.5 3.1 4.5 7.9 7.2 7.7 3.2

FY07 4.9 3.4 4.8 8.6 7.0 8.0 3.2

FY08 5.7 4.6 5.7 9.6 6.5 8.6 2.9

The Spread of old private sector banks was marginally below the industry average at 2.9%. However, contraction in spread was lower for old private sector banks in the last three years as compared to PSBs. The spread of old private sector banks declined by 30 bps from FY05 to FY08 as compared to 60 bps decline in PSBs.

77

New Private Sector Banks Table 8.4 – Spread of New Private Sector Banks over the years (in %) No. Particulars 1 Cost of Deposits 2 Cost of Borrowings 3 Cost of Funds 4 Return on Advances 5 Return on Investments 6 Return on Funds 7 Spread (6-3) Source: RBI and CARE Research

FY04 4.2 1.5 3.7 8.8 6.2 7.7 4.0

FY05 3.4 1.4 3.0 7.3 5.3 7.3 4.3

FY06 3.6 3.1 3.5 7.3 5.5 6.6 3.1

FY07 4.7 3.1 4.5 8.3 5.7 7.4 2.9

FY08 5.9 3.1 5.5 10.0 6.5 8.7 3.2

REPORT ON INDIAN BANKING SECTOR

Foreign Banks Table 8.5 – Spread of Foreign Banks over the years (in %) No. Particulars 1 Cost of Deposits 2 Cost of Borrowings 3 Cost of Funds 4 Return on Advances 5 Return on Investments 6 Return on Funds 7 Spread (6-3) Source: RBI and CARE Research

FY04 3.6 4.3 3.8 8.3 8.5 8.4 4.6

FY05 3.0 3.5 3.1 7.3 6.9 7.3 4.2

FY06 2.8 4.5 3.2 7.6 7.5 7.6 4.3

FY07 3.1 4.7 3.5 8.7 7.5 8.2 4.7

FY08 3.8 4.5 4.0 9.8 7.1 8.7 4.8

The spread for both new private sector banks (3.2%) and also for foreign banks (4.8%) is higher than the industry average of 3.0%. Foreign banks have highest spread, mainly due to low-cost deposits and also due to lending to the sectors where returns on advances are generally higher. Both new private sector banks and foreign banks have been able to increase their return on advances along with the corresponding increase in cost of funds. Contrary to the trend in the industry, new private sector banks could increase the return on investments.

78

Fig 8.3 – Net Interest Margin for Private and Foreign Banks (in %) 4.75

4.36 3.73

Percent

3.75

3.54

3.42

3.25 2.75 2.25

4.33

4.05

4.25

2.42

2.51

2.77

2.74

2.69

2.05

1.75 1.25

REPORT ON INDIAN BANKING SECTOR

FY03

FY04

FY05 Private Sector Banks

FY06

FY07

FY08

Foreign Banks

Source: RBI and CARE Research

Movement in NIMs was same as in the spread for private and foreign banks. Contrary to industry trend, NIM for foreign banks actually increased from 4.05% in FY06 to 4.33% in FY08

79

Chapter 9 Profitability 9.1 Scheduled Commercial Banks (SCBs) Table 9.1 – Statement of profit for SCBs (Rs cr)

REPORT ON INDIAN BANKING SECTOR

Particulars Interest earned Interest on advances Interest on Investments Interest on balance with RBI/others Interest Expended Interest on deposits Interest on RBI/bank borrowings Others Net Interest Income (NII) Other Income of which, commission and brokerage Operating expenses of which, staff cost Operating profit provisions and contingencies Net Profit Source: RBI and CARE Research

FY03

FY04

FY05

FY06

FY07

FY08

140,545 68,474 62,348

144,028 70,051 65,798

155,801 81,408 65,868

185,388 109,190 66,368

237,271 156,246 69,597

309,568 221,151 79,050

CAGR (FY03FY08) 17.1 26.4 4.9

9,723 93,520 82,621

8,180 87,567 77,605

8,525 89,079 77,255

9,830 107,161 89,742

11,428 143,965 120,261

9,367 207,999 179,661

(0.7) 17.3 16.8

2,622 8,277 47,025 31,575

2,487 7,475 56,462 39,724

2,899 8,926 66,722 34,426

6,129 11,290 78,227 35,368

8,634 15,071 93,306 38,929

10,867 17,471 101,569 59,316

32.9 16.1 16.7 13.4

10,567 38,007 23,621 40,593 23,567 17,025

11,825 43,515 26,195 52,671 30,400 22,271

14,794 50,136 29,479 51,012 30,065 20,947

18,641 59,201 33,461 54,394 29,812 24,582

24,208 66,319 36,160 65,916 34,714 31,202

30,901 77,213 39,805 83,672 40,939 42,733

23.9 15.2 11.0 15.6 11.7 20.2

Interest earned by SCBs as a whole increased at a CAGR of 17.1% to reach Rs.3,09,568 crores in FY08 from Rs.1,40,545 crores in FY03. Interest on advances registered a high CAGR of 26.4%, while Interest on investments showed the moderate growth of 4.9% and interest on balance with RBI and others remained more or less constant during the same period. The primary reason for lower growth in interest from investments and balance with RBI & others, was due to lower SLR investment and lower balance kept by banks with RBI due to high growth in advances. Interest expended on deposits grew at a CAGR of 16.8% as against the CAGR of 26.4% for advances. Banks have liquidated the investments portfolio to fund the credit growth, because of which there is a mismatch. However, the interest on borrowing registered a whopping CAGR of 32.9%. Banks have borrowed money for expansion and for meeting capital adequacy requirement. The NII grew from Rs.47,025 crore in FY03 to Rs.101,569 crore in FY08, registering a CAGR of 16.7% Other income grew at a CAGR of 13.4% from FY03 to FY08, lesser than the growth in Net interest income. Within the other income, commission and brokerages registered a high growth of 23.9%. High growth of core fee income boosted the other income for banks across the board. Operating expenses (15.2%) and provisions and contingencies (11.7%) for banks showed a moderate growth as compared to growth in NII and other income which resulted in Net profit, registering CAGR of 20.2% from FY03 to FY08. 80

9.2 Bank Group-wise performance 9.2.1 SBI and Associates Table 9.2 – Statement of profit for SBI and Associates (Rs cr)

REPORT ON INDIAN BANKING SECTOR

Particulars Interest earned Interest on advances Interest on Investments Interest on balance with RBI/others Interest Expended Interest on deposits Interest on RBI/bank borrowings Others Net Interest Income (NII) Other Income of which, commission and brokerage Operating expenses of which, staff cost Operating profit provisions and contingencies Net Profit Source: RBI and CARE Research

CAGR (FY03FY08)

FY03

FY04

FY05

FY06

FY07

FY08

40,869 15,998 19,918

40,956 16,250 20,903

44,051 18,920 21,333

49,301 25,517 19,089

56,339 36,148 16,512

70,427 51,354 16,916

11.5 26.3 (3.2)

4,953 27,207 26,064

3,803 25,395 24,028

3,799 24,842 23,276

4,694 28,040 25,289

3,679 33,859 28,639

2,157 47,809 41,588

(15.3) 11.9 9.8

225 918 13,662 7,998

203 1,165 15,561 10,919

520 1,046 19,209 9,480

1,554 1,198 21,260 9,526

2,366 2,854 22,479 7,799

3,231 2,990 22,618 11,817

70.4 26.7 10.6 8.1

3,957 10,431 7,416 11,229 6,718 4,512

4,205 12,117 8,353 14,363 8,745 5,619

4,793 13,410 9,043 15,279 9,603 5,676

5,310 15,760 10,665 15,026 9,070 5,956

6,661 15,987 10,470 14,292 7,720 6,572

7,926 16,992 10,294 17,443 8,438 9,005

14.9 10.3 6.8 9.2 4.7 14.8

SBI and Associates benefited the least from the rapid economic growth and consequent increase in credit offtake. The reason attributed to this could be the already established presence in the market as compared to other growing banks. NII registered a CAGR of 10.6% over FY03 to FY08, lowest among all banking groups. However provision and contingencies grew at a CAGR of mere 4.7%, reflecting lower provisions and better recovery of loans during the period. As a result, the Net profit grew at a CAGR of 14.8% (whereas, operating profit grew at a CAGR of 9.2%) from FY03 to FY08.

81

9.2.2 Nationalised Banks Table 9.3 – Statement of profit for Nationalised Banks (Rs cr)

REPORT ON INDIAN BANKING SECTOR

Particulars Interest earned Interest on advances Interest on Investments Interest on balance with RBI/others Interest Expended Interest on deposits Interest on RBI/bank borrowings Others Net Interest Income (NII) Other Income of which, commission and brokerage Operating expenses of which, staff cost Operating profit provisions and contingencies Net Profit Source: RBI and CARE Research

CAGR (FY03FY08)

FY03

FY04

FY05

FY06

FY07

FY08

66,324 33,200 30,081

68,540 33,684 32,269

76,314 40,314 33,056

88,574 53,002 32,668

111,769 74,396 33,308

143,597 102,726 37,173

16.7 25.3 4.3

3,043 42,646 40,557

2,587 40,369 38,186

2,944 43,922 39,306

2,904 52,464 44,723

4,065 69,597 60,544

3,698 101,093 91,130

4.0 18.8 17.6

573 1,516 23,678 13,273

545 1,639 28,171 17,172

660 3,956 32,391 14,713

1,307 6,434 36,110 12,379

1,740 7,313 42,172 13,072

2,189 7,774 42,504 20,098

30.7 38.7 12.4 8.7

3,336 18,466 13,062 18,486 10,702 7,784

3,605 20,232 14,068 25,111 14,184 10,928

4,218 23,633 16,129 23,471 13,716 9,756

4,818 25,548 16,713 22,941 12,359 10,582

5,860 27,268 17,333 27,976 14,396 13,580

7,074 29,605 18,268 32,997 15,411 17,586

16.2 9.9 6.9 12.3 7.6 17.7

On the similar line of SBI and Associates, the growth for Nationalised Banks was below the industry level. Interest on advance showed an impressive CAGR of 25.3% from FY03 to FY08. CAGR in NII was at 12.4% from FY03 to FY08 as compared to industry growth of 16.7%. Interest on borrowings and other interest payment increased considerably at a CAGR of 30.7% and 38.7%, respectively. Growth in the staff cost was lower than the industry average as the incremental business came at lesser or equal man power. Provision and contingencies grew at a CAGR of 7.6%, resulting in Net profit CAGR of 17.7%

82

9.2.3 Private Sector Banks Table 9.4 – Statement of profit for Private Sector Banks (Rs cr)

REPORT ON INDIAN BANKING SECTOR

Particulars Interest earned Interest on advances Interest on Investments Interest on balance with RBI/others Interest Expended Interest on deposits Interest on RBI/bank borrowings Others Net Interest Income (NII) Other Income of which, commission and brokerage Operating expenses of which, staff cost Operating profit provisions and contingencies Net Profit Source: RBI and CARE Research

CAGR (FY03FY08)

FY03

FY04

FY05

FY06

FY07

FY08

24,379 13,885 9,207

25,542 15,072 9,222

26,265 16,639 8,533

35,223 23,291 10,661

51,145 34,762 14,344

71,129 51,360 17,944

23.9 29.9 14.3

1,287 18,602 12,450

1,248 17,530 12,496

1,093 16,273 12,081

1,271 21,507 16,569

2,039 32,894 26,320

1,825 48,495 39,665

7.2 21.1 26.1

472 5,680 5,777 7,232

646 4,387 8,012 7,612

649 3,543 9,992 6,367

1,533 3,405 13,715 8,091

2,156 4,417 18,251 11,121

2,807 6,023 22,634 16,869

42.8 1.2 31.4 18.5

1,891 5,860 2,105 7,149 4,236 2,913

2,383 7,415 2,574 8,209 4,727 3,481

3,628 8,675 2,943 7,685 4,151 3,533

5,640 12,038 4,077 9,768 4,794 4,975

7,897 15,323 5,276 14,049 7,583 6,465

10,545 20,270 7,113 19,233 9,715 9,518

41.0 28.2 27.6 21.9 18.1 26.7

Interest earned for Private Sector Banks increased at a CAGR of 23.9% from FY03 to FY08. Interest on advances registered CAGR of 29.9%, while CAGR of Interest on investments was almost half at 14.3% during the same period. Interest on deposits grew by 26.1%. Interest on RBI/bank borrowing grew more rapidly at 42.8% as private banks had resorted to RBI and other borrowing to fund the high credit demand. Unlike PSBs, the growth in Interest expended was lower than the growth in Interest earned. As a result, NII showed a healthy growth of 31.4%, almost double of the industry average and best within the banking groups. The growth in other income was lower at 18.5%, however commission and brokerage grew at a CAGR of 41.0%. CAGR in provisions and contingencies was also lower at 18.1%. Net profit showed a CAGR of 26.7%.

83

9.2.4 Foreign Banks

REPORT ON INDIAN BANKING SECTOR

Table 9.5 – Statement of profit for Foreign Banks (Rs cr)

Particulars Interest earned Interest on advances Interest on Investments Interest on balance with RBI/others Interest Expended Interest on deposits Interest on RBI/bank borrowings Others Net Interest Income (NII) Other Income of which, commission and brokerage Operating expenses of which, staff cost Operating profit provisions and contingencies Net Profit Source: RBI and CARE Research

FY03

FY04

FY05

FY06

FY07

FY08

CAGR (FY03FY08)

8,973 5,392 3,141

8,990 5,045 3,404

9,170 5,535 2,946

12,291 7,380 3,951

18,019 10,941 5,432

24,417 15,712 7,017

22.2 23.9 17.4

440 5,065 3,550

541 4,272 2,895

689 4,041 2,591

961 5,150 3,161

1,645 7,615 4,758

1,688 10,604 7,279

30.8 15.9 15.4

1,351 164 3,907 3,071

1,093 284 4,718 4,022

1,070 380 5,129 3,866

1,734 254 7,141 5,371

2,371 486 10,404 6,937

2,641 684 13,813 10,531

14.3 33.1 28.7 27.9

1,382 3,250 1,038 3,728 1,911 1,817

1,632 3,752 1,200 4,987 2,744 2,243

2,154 4,417 1,365 4,577 2,595 1,982

2,872 5,854 2,005 6,658 3,590 3,069

3,789 7,741 3,081 9,600 5,015 4,585

5,357 10,356 4,131 13,988 7,376 6,612

31.1 26.1 31.8 30.3 31.0 29.5

Interest earned for foreign banks increased at a CAGR of 22.2% from FY03 to FY08. Interest on advances registered CAGR of 23.9%, while CAGR of Interest on investments was at 17.4% during the same period. Interest on deposits grew merely by 15.4%. Interest on RBI/bank borrowing grew by 14.3%. NII registered a CAGR of 28.7%, higher than industry average. CAGR in other income was among the best in the industry at 31.1% during FY03 to FY08. Operating expenses and provision and contingencies showed a CAGR growth of 26.1% and 31.0%. CAGRs in operating expenses and provisions & contingencies were not as low as other banking groups. However, other income as a percentage of total income is high for foreign banks which showed the industry-best CAGR growth. Net profit for the foreign banks showed a CAGR of 29.5%, which is best among the banking group.

84

Chapter 10 Non Performing Assets (NPAs) The level of Non-performing Assets (NPAs) is recognised as a critical indicator for assessing banks’ credit risk, asset quality and efficiency in allocation of resources to productive sectors. As per asset classification norms prescribed by the RBI (last updated in July 2008), loan asset of any bank can be classified as either performing or non-performing asset. Non-performing asset can be further classified as substandard, doubtful and loss assets.

Fig 10.1 – Classification of Non performing assets

REPORT ON INDIAN BANKING SECTOR

Assets

Performing Assets (pay interest and installments regularly)

Non-performing Assets (outstanding for more than 90 days)

Substandard Assets

Outstanding for more than 90 days but less than 15 months

Doubtful Assets

Outstanding for more than 15 months

Loss Assets

Loss has been identified by bank or internal/external auditor

Source: RBI and CARE Research

Banks have switched over to 90 days delinquency norm (from 180 days earlier) from March 2004 onwards, making NPA provisioning requirement stricter. Classification into substandard, doubtful and loss asset is primary for making provision in profit and loss account. Banks are required to make the provision for non-performing assets depending upon the classification category in which it falls.

85

Table 10.1 –Provision Requirement for non-performing assets depending upon the classification category Asset

Explanation

Provision

Category Loss

(%) To be written off from books

100

For Secured portion Doubtful

Sub standard

up to 1 year of advance has remained in doubtful category

20

up to 1 to 3 years of advance has remained in doubtful category

30

more than 3 years of advance has remained in doubtful category

100

General provision without making any allowance for ECGC guarantee

10

cover and securities available

Standard

0.25

Residential housing loans beyond Rs.20 lakhs

1

Advance to sectors like personal loans, credit card receivables, capital

2

market exposures, commercial real estate loans, advances to nondeposit taking NBFC Other advances (not included above)

0.4

Source: RBI and CARE Research

Banks have shown continuous improvement in asset quality over the years.

10.1 Trend in NPAs for Scheduled Commercial Banks (SCBs) Fig 10.2 – Trend in Gross NPAs to Gross Advances of SCBs 14

12.7

12

11.4

10 Percent

REPORT ON INDIAN BANKING SECTOR

Direct advances to agriculture and SME

10.4 8.8

8

7.2

6 4

5.5

4.9

4.6

2

5.2 3.3

4.0

3.3

2.5

1.8

FY05

FY06

0 FY00

FY01

FY02

FY03

FY04

% to Gross Advances Source: RBI and CARE Research

86

% Total Assets

2.5

1.5 FY07

2.3

1.3 FY08

Fig 10.3 – Trend in Net NPAs to Net Advances of SCBs 8 6.8

7

6.2

Percent

6

5.5

5

4.4

4

2.9

3

1.9

2.7

2

2.5

2.3

1

1.2 1.9

1.2

0 FY00

FY01

FY02

REPORT ON INDIAN BANKING SECTOR

Source: RBI and CARE Research

FY03

FY04

% to Net Advances

0.9

0.7

FY05

FY06

1.0

1.0 0.6

0.6

FY07

FY08

% Total Assets

A significant improvement in recovering the NPAs combined with a sharp increase in gross advances for SCBs led to a sharp decline in the ratio of gross NPAs to gross advances to 2.3% in FY2008 from 12.3% in FY2000. The NPA levels were high due to various reasons such as lack of proper legal procedure for recovery, industrial inefficiency, willful default by borrowers, operating inefficiencies at bank level and lack of stringent credit risk appraisal mechanism.

Table 10.2 –Gross and Net NPAs of SCBs (Rs cr and in %) Gross NPAs

Net NPAs

% to Gross

Gross

%

Net

Advances

Assets

Advances

% to Net

%

Advances

Assets

Year

Advances

FY00

4,75,113

60,408

12.7

5.5

4,44,292

30,073

6.8

2.7

FY01

5,58,766

63,741

11.4

4.9

5,26,328

32,461

6.2

2.5

FY02

6,80,958

70,861

10.4

4.6

6,45,859

35,554

5.5

2.3

FY03

7,78,043

68,717

8.8

4.0

7,40,473

32,671

4.4

1.9

FY04

9,02,026

64,785

7.2

3.3

8,62,643

24,615

2.9

1.2

FY05

11,52,682

59,373

5.2

2.5

11,15,663

21,754

1.9

0.9

FY06

15,51,491

51,097

3.3

1.8

15,16,812

18,543

1.2

0.7

FY07

20,12,510

50,486

2.5

1.5

19,81,237

20,101

1.0

0.6

FY08

25,07,885

56,435

2.3

1.3

24,77,039

24,734

1.0

0.6

Amount

Source: RBI and CARE Research

87

Amount

Banks have over the years made a substantial improvement in asset quality. The factors responsible for decline in NPAs as a percentage of advances are as follows. ¾ Over the years, banks’ management, RBI and central government have adopted cautious approach towards high level of NPAs. RBI and central government have taken several steps to contain the NPA levels. Stricter provisioning requirement for NPAs and gradually increasing capital adequacy norms to match international practice have made banks more prudent and cautious in lending. Changed NPA assets classification norms have ensured early detection of NPAs and thereby quicker remedial actions.

REPORT ON INDIAN BANKING SECTOR

¾ The Indian economy passed through the boom phase of economic cycle during FY04 to FY08. There was a widespread increase in the demand for products and services across the various sectors. High level of capacity utilisation, better pricing power due to high demand and lower interest rates increased the ability of the borrower to service debts. ¾ The credit appraisal mechanism employed by banks has improved over the years with banks using improved risk assessment procedures and newer techniques including statistical models for assessing viability of projects. ¾ Banks (baring few private sector and foreign banks) do not have their loan portfolio concentrated for a particular advance type. Banks have also increased their retail portfolio, which provides diversification not only for type of credit but also due to large borrowers’ base. Retail loan per loan account is usual lower than the commercial credit. ¾ The growth in the economy was accompanied by high off take in credit for funding expansion plans of companies and high spending by government on infrastructure. Advances and total assets increased rapidly over the period from FY03 to FY08. With incremental rate of NPAs being lower than incremental rate of credit, the NPAs as a percentage of bank credit declined. ¾ Government took several measures to increase the recovery of NPAs. This includes setting up of Lok adalats, Debt recovery tribunals, asset reconstruction companies and corporate debt restructuring mechanism. This has resulted in higher recovery rate of NPAs.

88

10.2 NPAs, Provisions and Write-back for banking groups Fig 10.4 – Addition and reduction in gross NPAs for SCBs over the years Addition to gross NPAs higher than reductiion, 1st time in last 6 years

37500

Rs Cr

30000 22500 15000 7500

FY03

Source: RBI and CARE Research

FY04

FY05 Additions

FY06

FY07

FY08

Reductions

Reduction in gross NPAs out paced the addition made to gross NPAs for SCBs taken together from FY02 to FY07. Reduction was highest in FY06 for SCBs at Rs.7,309 crores Addition made was high than the reduction for the first time in FY2008 since the last six years. The increase in provision was mainly attributed to the sharp increase in provisioning requirement for new private sector banks. The provision amount for new private sector banks was at Rs.6,412 crores (up 67.4% y-o-y as against this, gross advance was up 27.9% y-o-y) in FY08, as compared to Rs.3,830 crores in FY07 and Rs.2,358 crores in FY06.

Fig 10.5 – Addition and reduction in gross NPAs for PSBs 3500 2500 1500 500 Rs cr

REPORT ON INDIAN BANKING SECTOR

0

-500

FY05

FY06

FY07

-1500 -2500 -3500 -4500 Nationalised Banks

Source: RBI and CARE Research

89

SBI and Associates

FY08

Fig 10.6 – Addition and reduction in gross NPAs for Private and Foreign Banks 4000

Sharp increase in excess provision for new private sector banks

3000

Rs cr

2000 1000 0 -1000 FY03

FY04

FY05

FY06

FY07

FY08

REPORT ON INDIAN BANKING SECTOR

-2000 Old Private Sector Banks

New Private Sector Banks

Foreign Banks

Source: RBI and CARE Research

For FY08, addition to gross NPAs was negative for both nationalised and old private sector banks. New private sector banks took the worst hit on their asset quality and made a net addition of Rs.6,375 crores in two years (FY07 and FY08), as compared to net recovery and write back of Rs. 236 crores in FY05 and FY06 taken together. In FY08, out of total net addition to gross NPAs of Rs.6,137 crores, new private sector banks account for 67.5% at Rs.4,140 crores while the share in gross advances for new private sector banks was just at 16.4% for FY08. Foreign banks also took hit on their asset quality with net addition to gross NPAs standing at Rs.624 crores as compared to Rs.420 crores in FY07. The net addition to gross NPAs was negative at Rs.722 crores for FY05 and FY06 taken together. SBI and Associates’ addition to gross NPAs increased from Rs.6,264 crores in FY07 to Rs.9,476 crores in FY08 (up 51.2% y-o-y). SBI and Associates’ net addition to gross NPA was at Rs.2,801 crores for FY08 as compared to net addition of Rs.136 crores in FY07.

90

Table 10.3 –Gross and Net NPAs of various bank groups (Rs cr and in %) Gross NPAs

Net NPAs

% to Gross Year

Advances

Amount

Gross

%

Net

Advances

Assets

Advances

Amount

% to Net

%

Advances

Assets

REPORT ON INDIAN BANKING SECTOR

Public Sector Banks (PSBs) FY00

379,461

53,033

14.0

6.0

352,714

26,187

7.4

2.9

FY01

442,134

54,672

12.4

5.3

415,207

27,977

6.7

2.7

FY02

509,368

56,473

11.1

4.9

480,681

27,958

5.8

2.4

FY03

577,813

54,090

9.4

4.2

549,351

24,867

4.5

1.9

FY04

661,975

51,538

7.8

3.5

631,383

18,860

3.0

1.3

FY05

877,825

48,399

5.5

2.7

848,912

16,904

2.0

1.0

FY06

1,134,724

41,358

3.6

2.1

1,106,288

14,566

1.3

0.7

FY07

1,464,493

38,968

2.7

1.6

1,440,146

15,145

1.1

0.6

FY08

1,819,074

40,595

2.2

1.3

1,797,504

17,836

1.0

0.6

Old Private Sector Banks FY00

35,404

3,815

10.8

5.2

33,879

2,393

7.1

3.3

FY01

39,738

4,346

10.9

5.1

37,973

2,771

7.3

3.3

FY02

44,057

4,851

11.0

5.2

42,286

3,013

7.1

3.2

FY03

51,329

4,550

8.9

4.3

49,436

2,740

5.5

2.6

FY04

57,908

4,393

7.6

3.6

55,648

2,140

3.8

1.8

FY05

70,412

4,200

6.0

3.1

67,742

1,859

2.7

1.4

FY06

85,154

3,759

4.4

2.5

82,957

1,375

1.7

0.9

FY07

94,872

2,969

3.1

1.8

92,887

891

1.0

0.6

FY08

113,404

2,557

2.3

1.3

111,670

740

0.7

0.4

New Private Sector Banks FY00

22,816

946

4.1

1.6

22,156

638

2.9

1.1

FY01

31,499

1,617

5.1

2.1

30,086

929

3.1

1.2

FY02

76,901

6,811

8.9

3.9

74,187

3,663

4.9

2.1

FY03

94,718

7,232

7.6

3.8

89,515

4,142

4.6

2.2

FY04

119,511

5,961

5.0

2.4

115,106

2,717

2.4

1.1

FY05

127,420

4,582

3.6

1.6

123,655

2,353

1.9

0.8

FY06

232,536

4,052

1.7

1.0

230,005

1,796

0.8

0.4

FY07

325,273

6,287

1.9

1.1

321,865

3,137

1.0

0.5

FY08

412,441

10,426

2.5

1.4

406,733

4,907

1.2

0.7

Source: RBI and CARE Research

91

Table 10.3 –Gross and Net NPAs of SCBs (Rs cr)..contd Gross NPAs

Net NPAs

% to Gross Year

Advances

Amount

Gross

%

Net

Advances

Assets

Advances

Amount

% to Net

%

Advances

Assets

REPORT ON INDIAN BANKING SECTOR

Foreign Banks FY00

37,432

2,614

7.0

3.2

35,543

855

2.4

1.0

FY01

45,395

3,106

6.8

3.0

43,063

785

1.8

0.8

FY02

50,631

2,726

5.4

2.4

48,705

920

1.9

0.8

FY03

54,184

2,845

5.3

2.4

52,171

921

1.8

0.8

FY04

62,632

2,894

4.6

2.1

60,506

898

1.5

0.7

FY05

77,026

2,192

2.8

1.4

75,354

639

0.8

0.4

FY06

98,965

1,928

1.9

1.0

97,562

808

0.8

0.4

FY07

127,872

2,263

1.8

0.8

126,339

927

0.7

0.3

FY08

162,966

2,857

1.8

0.8

161,133

1,250

0.8

0.3

Source: RBI and CARE Research

PSBs have reduced their NPAs in percentage terms over the years. Gross NPAs to gross advances were at 14% in FY2000, which has been reduced to 2.2% in FY08. The same trend can be observed for gross NPAs to total assets and for Net NPAs. From FY02 onwards till FY07, the gross NPAs have actually declined in absolute terms (from Rs.56,473 crores to Rs.38,968 crores). However in FY08, the gross NPA increased to Rs.40,595 crores. Old private sector banks have shown a tremendous improvement in NPA levels. Not only in terms of percentage to advances but also in absolute terms, they have decreased since FY02. Net NPAs decreased from Rs. 3,013 crores in FY02 to Rs.740 crores in FY08. Faster recovery mechanism and sound credit quality assessment procedure followed by these banks have resulted in lower NPA levels. However, the new private sector banks and foreign banks NPA levels have actually increased in recent years. Net NPA to advances have increased for new private sector banks from 0.8% in FY06 to 1.2% in FY08. For foreign banks also, there is an increase in Net NPA in absolute terms however the Net NPAs to Advances remained constant at 0.8% in the last two years (FY07 and FY08).

92

REPORT ON INDIAN BANKING SECTOR

Table 10.4 –Distribution of banks by ratio of Net NPAs to Net Advances Bank Group Public Sector Banks (PSBs) Up to 2 per cent Above 2 and up to 5 per cent Above 5 and up to 10 per cent Above 10 per cent Old Private Sector Banks Up to 2 per cent Above 2 and up to 5 per cent Above 5 and up to 10 per cent Above 10 per cent New Private Sector Banks Up to 2 per cent Above 2 and up to 5 per cent Above 5 and up to 10 per cent Above 10 per cent Foreign Banks Up to 2 per cent Above 2 and up to 5 per cent Above 5 and up to 10 per cent Above 10 per cent Source: RBI and CARE Research

FY01 27 1 5 16 5 23 1 4 11 7 8 1 5 2 0 42 21 6 4 11

FY02 27 0 9 15 3 22 2 2 13 5 8 1 3 4 0 40 21 4 1 14

FY03 27 4 14 7 2 21 2 4 13 2 9 3 2 3 1 36 20 2 6 8

FY04 27 11 13 3 0 20 2 9 7 2 10 4 5 0 1 33 22 2 3 6

FY05 28 19 7 2 0 20 4 12 4 0 9 5 3 1 0 31 23 2 2 4

FY06 28 23 5 0 0 20 11 7 2 0 8 6 2 0 0 29 25 0 0 4

FY07 28 27 1 0 0 17 15 1 1 0 8 7 1 0 0 29 27 1 0 1

FY08 28 28 0 0 0 15 15 0 0 0 8 7 1 0 0 28 25 2 1 0

Out of the total of 79 reporting banks, 75 banks had the ratio of Net NPAs to net advances below 2% at the end of FY08 (compared to 24 banks out of 100 as on 31st March 2001). All the PSBs and old private sector banks had a ratio below the 2% level (as compared to only one each out of 27 and 23 public and old private sector banks as on 31st March 2001.) Three banks, one new private sector and two foreign banks had ratio between 2% to 5% and only one foreign bank had ratio above 5%.

10.3 Sector-wise NPA break-up NPAs of banks can be classified into two broader categories. Priority sector NPAs and nonpriority sector NPAs. NPAs from agriculture, small-scales industries and other loans classified as priority lending together constitute priority sector NPAs.

Table 10.5 –Sector-wise classification of NPAs for SCBs and PSBs (Rs cr) Sector A. Priority Sector i) Agriculture ii) SSI iii) Others B. Public Sector C. Non-Priority Sector Total (A+B+C) Source: RBI and CARE Research

93

FY06 24,658 6,718 7,725 10,215 345 24,205 49,208

All SCBs FY07 25,838 7,367 6,488 11,983 493 21,510 47,841

FY08 28,705 9,735 6,456 12,514 299 23,721 52,725

Public Sector Banks (PSBs) FY06 FY07 FY08 22,374 22,954 25,287 6,203 6,506 8,268 6,917 5,843 5,805 9,253 10,604 11,214 340 490 299 18,664 15,158 14,163 41,378 38,602 39,749

Table 10.6 –Sector-wise classification of NPAs for Private Sector Banks (Rs cr) Sector

REPORT ON INDIAN BANKING SECTOR

A. Priority Sector i) Agriculture ii) SSI iii) Others B. Public Sector C. Non-Priority Sector Total (A+B+C) Source: RBI and CARE Research

Old private Sector Banks

New private Sector Banks

FY06

FY07

FY08

FY06

FY07

FY08

1,632 265 656 711 1 2,078 3,711

1,416 249 490 677 1,553 2,969

1,632 265 656 711 1 2,078 3,711

1,416 249 490 677 1,553 2,969

1,632 265 656 711 1 2,078 3,711

1,416 249 490 677 1,553 2,969

Agriculture NPAs for all SCBs increased sharply by 32.1% in FY08, to near Rs.100 bn. As compared to this, the y-o-y increase in total and priority sector NPAs was at 10.2% and 11.1%, respectively. NPAs from agriculture for new private sector banks doubled to Rs.12.2 bn in FY08 as against Rs.6.1 bn in FY07. NPAs from non-priority sector showed a negative growth for PSBs and old private sector banks in FY08. However due to sharp increase in NPAs from non-priority sector (73% y-o-y) for new private sector banks, the overall NPAs from non-priority sector increased by 10.3% to Rs.237 bn in FY08.

10.4 Recovery of NPAs The problem of a huge backlog of NPAs impinged severely on banks performance and their profitability. In order to regulate and control the NPAs and quicken the recovery, the GOI has set up Debt Recovery Tribunals (DRTs) and Debt Appellate Tribunals under the "Recovery of Debts Due to Banks and Financial Institutions Act, 1993". As a corollary to this and to speed up the process of recovery from NPAs, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 was introduced.

Recovery of Debts Due to Banks and Financial Institutions Act, 1993 The civil courts are burdened with diverse types of cases. Recovery of dues due to banks and financial institutions is not given any priority by the civil courts. The banks and financial institutions like any other litigants have to go through a process of pursuing the cases for recovery through civil courts for unduly long periods. As on September 1990, there were more than 15 lakhs cases pending with various courts involving debt of around Rs.60 bn. Considering the gravity of the problem of high NPA levels of banks coupled with considerable difficulties experienced by banks in recovering loans and enforcement of securities charge with them, there was a need for special authority to deal with the cases of debt recovery. Both Narasimham committee and Tiwari committee in their report to the Ministry of Finance recommended the setting up of special legislation and special tribunals to expedite the recovery process in the financial sector. Thus came The Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The Act provides for establishment of DRTs and Debt Appellate Tribunals to entertain and decide on cases of debt recovery of banks and financial institutions. Civil courts have been barred from taking up the cases of debt recovery.

94

SARFAESI Act, 2002 The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) empowers Banks/Financial Institutions to recover their NPAs without the intervention of the Court. The Act provides three alternative methods for recovery of NPAs, namely, ¾ Securitisation (the Act provides for the legal framework for Securitisation of assets) ¾ Asset Reconstruction (Transfer of NPAs to asset reconstruction company, which will then dispose of those assets and realise the proceeds)

REPORT ON INDIAN BANKING SECTOR

¾ Enforcement of Security without the intervention of the Court Asset Reconstruction Corporation of India (ARCIL) is the first Asset Reconstruction Company in the country to commence business of resolution of NPAs upon acquisition from Indian banks and financial institutions. It commenced business immediately after the enactment of the Securitisation Act, 2002. The RBI has so far issued Certificate of Registration (CoR) to 11 Securitisation Companies/Reconstruction Companies (SCs/RCs), of which six have commenced their operations till June 2008. To enhance the possibility of banks realising better value for their NPAs through the expertise and resources of foreign institutions with international experience in management of stressed assets, the GOI permitted FDI up to 49 per cent in the equity capital of SCs/RCs registered with the RBI.

Table 10.7 –Financial Assets Securitised by Securitisation and Reconstruction companies June 2007 Book Value of Assets acquired Security Receipts issued Amount of Security Receipts redeemed

June 2008

y-o-y growth (%)

28,544

41,414

45.1

7,436

10,658

43.3

660

1,299

96.8

Source: RBI and CARE Research

The NPAs acquired by the SCs/RCs grew by 45.1% on y-o-y basis. Security receipts redeemed doubled to Rs.1,299 crores from Rs.660 crores. Among the various channels of recovery available to banks for dealing with bad loans, the SARFAESI Act and the DRTs have been the most effective in terms of the amount recovered.

95

Table 10.8 – NPAs recovered through various channels (Rs cr) Channel Lok Adalats DRTs SARFAESI Act

No. of cases referred FY05

FY06

FY07

FY08

FY05

FY06

FY07

FY08

185,395

181,547

160,368

186,535

801

1,102

758

2,142

4,744

3,524

4,028

3,728

14,317

6,123

9,156

5,819

39,288

38,969

60,178

83,942

13,224

9,831

9,058

7,263

Channel

Recovered (Rs cr)

% recovered

FY05

FY06

FY05

FY06

FY05

FY06

FY05

FY06

113

223

113

223

14.1

20.2

14.0

8.2

DRTs

2,688

4,710

2,688

4,710

18.8

76.9

37.8

51.9

SARFAESI Act

2,391

3,423

2,391

3,423

18.1

34.8

41.4

61.0

Lok Adalats

REPORT ON INDIAN BANKING SECTOR

Amount involved (Rs cr)

Source: RBI and CARE Research

Cases referred under the SARFAESI Act have increased 39,288 in FY05 to 83,942 in FY08. However, total amount involved has been showing declining trend over the years. The total amount involved decreased from Rs.13,224 crores in FY05 to Rs.7,263 crores in FY08. The amount recovered as a percentage to the amount involved is lowest for Lok Adalats and highest under SARFAESI Act.

Table 10.9 – Recovery of direct agriculture advances (Rs cr) Year FY03 FY04 FY05 FY06 FY07 Source: RBI and CARE Research

Demand 28,940 33,544 45,454 46,567 73,802

Recovery 21,011 25,002 35,733 37,298 58,840

Over dues 7,929 8,542 9,721 9,269 14,958

% recovery 72.6 74.5 78.6 80.1 79.7

Recovery rate of direct agriculture advances has been increasing over the years from 72.6% in FY03 to 80.1% in FY06. However for FY07, the recovery rate declined to 79.1%.

96

Fig 10.7 – Share of priority sector NPAs in total NPAs 70 60 Percent

50 40 30 20 10

47.5 43.5 40.9 11.4

54.1

49.1 42.1

45.3

8.9

50.1 44.0 15.8

63.6

59.5 54.0 47.7 23.4

54.4 52.3 20.0

REPORT ON INDIAN BANKING SECTOR

0 FY04 FY05 Public Sector Banks New Private Sector Banks Source: RBI and CARE Research

FY06

FY07 FY08 Old Private Sector Banks SCBs

Share of NPAs from priority sector is increasing over the years. Share of priority sector NPAs increased from 43.5% in FY04 to 54.4% in FY08 as against this, NPAs from non-priority sector has declined. Share of priority sector NPAs in total NPAs is highest for PSBs at 63.6% and lowest for new private sector banks at 20%.

10.5 Bank group-wise performance Asset quality for each of the banking group has improved since FY1999-2000. Comparison of performance over the years within a banking group will not show any outperforming bank group. We believe that, we need to look into the trend in share of individual banking group in total advances and NPAs of SCBs in order to evaluate which bank group has been an out-performer in terms of asset quality improvement.

97

10.5.1 Public Sector Banks (PSBs)

88 86 84 82 80 78 76 74 72 70

87.8

85.8 81.5 79.7

79.9

80.9

79.6

78.7

77.2

79.1 74.8

FY00

FY01

FY02

76.2

74.3

73.4

FY03

FY04

Share in Gross Advances

73.1 FY05

72.5 71.9

72.8

FY06

FY07

FY08

Share in Gross NPAs

Source: RBI and CARE Research

Fig 10.9 – Share of advances of PSBs to total banking net advances and PSBs’ net NPAs to total banking net NPAs

Percent

REPORT ON INDIAN BANKING SECTOR

Percent

Fig 10.8 – Share of advances of PSBs to total banking gross advances and PSBs’ gross NPAs to total banking gross NPAs

88 86 84 82 80 78 76 74 72 70

87.1

86.2

78.6 79.4

76.1

78.9 74.4

FY00

FY01

76.6

FY02

78.6

77.7

72.7 76.1

74.2 FY03

72.9

73.2 FY04

Share in Net Advances

72.6

FY05

FY06

75.3 FY07

72.1 FY08

Share in Net NPAs

Source: RBI and CARE Research

For PSBs, the gap between the share in advances and share in NPAs is closing in, implying a favorable asset profile. In FY2000, the share of gross NPAs in total NPAs of all SCBs was at 87.8%, as against this, share in gross advances was at 79.9%. However over the years, share in NPAs have reduced at a faster rate as compared to advances. The share in NPAs, were always been higher than the share in advances. Contrary to the trend, in FY08, the share is total advances of SCBs were higher at 72.5% as compared to share in gross NPAs which stood at 71.9%. Share in gross NPAs, declined sharply from 77.2% in FY07 to 71.9% in FY08, as against this, the share in gross advances declined only marginally from 72.8% to 72.5%. Similar trend can be observed in Net advances and Net NPAs.

98

10.5.2 Old Private Sector Banks Fig 10.10 – Share of Old Private Sector Banks to the total banking gross advances and Old Private Sector Banks’ gross NPAs to total banking gross NPAs 8

7.5

7.1

6.8

Percent

7 6.8

6.6 6.6

6.5

6.3

6

6.8 6.4

7.4

7.1

5.9

6.1 5.5

5

4.5 4.5

4 FY00

FY01

FY02

FY03

FY04

Share in Gross Advances

FY05

FY06

FY07

FY08

Share in Gross NPAs

Source: RBI and CARE Research

Fig 10.11 – Share of Old Private Sector Banks to the total banking net advances and Old Private Sector Banks’ net NPAs to total banking net NPAs 10 9 7

8.5

8.0

8 Percent

REPORT ON INDIAN BANKING SECTOR

4.7

7.6

6 5

7.2

8.5

8.7

8.4

8.5 7.4

6.5

6.7

6.5

6.1

4.7

5.5

4

4.5

4.4

3

3.0

2 FY00

FY01

Source: RBI and CARE Research

FY02

FY03

FY04

Share in Net Advances

FY05

FY06

FY07

FY08

Share in Net NPAs

Similar to PSBs, share of old private sector banks in gross NPAs has drastically come down in two years from 7.4% in FY06 to 4.5% in FY08 and share in net NPAs came down from 7.4% in FY06 to 3.0% in FY08. Share in advances also reduced but at a lower rate.

99

10.5.3 New Private Sector Banks

20 18 16 14 12 10 8 6 4 2 0

18.5 16.2 15.0 11.3

4.8

9.6

5.6

9.2

12.2

16.4

11.1 12.5

10.5

13.2 7.7

7.9

FY05

FY06

1.6 2.5 FY00

FY01

FY02

FY03

FY04

Share in Gross Advances

FY07

FY08

Share in Gross NPAs

Source: RBI and CARE Research

Fig 10.13 – Share of New Private Sector Banks to the total banking net advances and New Private Sector Banks’ net NPAs to total banking net NPAs

Percent

REPORT ON INDIAN BANKING SECTOR

Percent

Fig 10.12 – Share of New Private Sector Banks to the total banking gross advances and New Private Sector Banks’ gross NPAs to total banking gross NPAs

20 18 16 14 12 10 8 6 4 2 0

15.2 11.5

5.0 2.1 FY00

10.3

5.7

13.3

12.7 12.1

15.6

11.1

11.0

10.8

FY04

FY05

16.2

19.8 16.4

9.7

2.9 FY01

Source: RBI and CARE Research

FY02

FY03

Share in Net Advances

FY06

FY07

FY08

Share in Net NPAs

There is a sharp increase in the share of the new private sector banks in total banking NPAs in FY07 and FY08. Share in gross NPAs increased from 7.9% in FY06 to 18.5% in FY08. Compared to this share in gross advances increased marginally from 15.0% in FY06 to 16.4% in FY08. Similar trend can be observed in Net NPAs and Net advances. .

100

10.5.4 Foreign Banks Fig 10.14 – Share of Foreign Banks to the total banking gross advances and Foreign Banks’ gross NPAs to total banking gross NPAs 10 9

Percent

8

7.9

8.1 7.4

6.9

6.7 6.4

6.4

6.5

6 5 4

4.3

4.9 3.8

3

4.1

4.5

FY03

FY04

3.7

3.8

FY05

FY06

4.5

5.1

2 FY00

FY01

FY02

Share in Gross Advances

FY07

FY08

Share in Gross NPAs

Source: RBI and CARE Research

Fig 10.15 – Share of Foreign Banks to the total banking net advances and Foreign Banks’ net NPAs to total banking net NPAs 9 8

8.0

8.2

7.5

7.0

7.0

7 Percent

REPORT ON INDIAN BANKING SECTOR

7.0

7

6.8

6.4

6 5 4 3

4.4 2.8

2.4

2.6

2.8

3.6

6.4

6.5

4.6

5.1

FY07

FY08

2.9

2 1 FY00

FY01

Source: RBI and CARE Research

FY02

FY03

FY04

Share in Net Advances

FY05

FY06

Share in Net NPAs

The difference in share in advances and share in NPAs has been narrowed down. Share in gross advances and gross NPAs were at 7.9% and 4.3%, respectively (Difference 3.6%) in FY2000. Share in gross advances and gross NPAs stood at 6.5% and 5.1%, respectively, (Difference 1.4%) in FY08. NPA for foreign banks have increased over the years especially from FY06 to FY08.

101

Chapter 11 Capital Adequacy Ratio (CAR)

Each asset (loans + investments) of a bank has its unique risk profile and have to be bucketed into different risk classes in order to determine the level of capital required to be set aside for a particular asset risk class. The risk categorisation is done on the basis of risk weights with weights ranging from 0% for a risk free asset to 150% for a highly risky asset. The risk weight is defined as percentage of capital that is required to be set aside with 100% risk weight equating a 9% of assets set aside as capital , giving a capital adequacy ratio of 9%. For example, investment in SLR securities (risk free asset) attracts 0% risk weight (i.e. bank need not set aside any capital against the same); whereas loans to sensitive sectors like commodities and capital markets attract relatively higher risk weight of 125 % (banks have to set 11.25 % of capital against the same). RBI administers the risk weight of asset classes and brings the changes in them as per the changes in risk associated with it. The Capital of any bank consists Tier 1 (equity capital) and Tier 2 (debt) capitals. Tier I capital is a core capital and includes Shareholders’ capital and retained earnings. Tier 2 capital includes that part of capital of the bank which is funded through debt.

Fig 11.1 – Trend in total CRAR, Tier 1 and Tier 2 for SCBs 14 12

12.8

8

12.3

12.3

10 Percent

REPORT ON INDIAN BANKING SECTOR

A sound and efficient banking system is essential for maintaining the financial stability in an economy. Therefore, considerable emphasis has been placed on strengthening the capital base of the banking sector over the years. The RBI defines and monitors Capital Adequacy Ratio (CAR) in an endeavor to maintain a minimum acceptable ratio that emboldens its confidence in the banking system. The CAR also referred to as Capital to Risk-weighted Assets Ratio (CRAR) is a measure of capacity of the banking system to absorb any unexpected losses and protect the depositors. CAR is calculated as a ratio of capital to risk weighted assets of the bank.

9.3

8.4

8.3

13.0

9.1

6 4

4.4

4.0

2

3.9

3.1

0 FY05

FY06 Tier 1

FY07 Tier 2

FY08 CRAR

Source: RBI and CARE Research

The trend in improvement in CAR continued in FY08. CRAR ratio for all SCBs taken together improved from 12.3% in FY07 to 13.0% in FY08, reflecting relatively higher growth rate in capital funds maintained by the banks as compared with the growth in the risk weighted assets. 102

CAR for all the SCBs taken together was significantly above the stipulated minimum of 9% under BASEL II norms. There is a significant improvement in Tier 1 CAR which increased from 8.3% in FY07 to 9.1% in FY08 while there was a marginal decline in Tier 2 CAR which declined from 4.0% in FY07 to 3.9% in FY08. The increase in Tier 1 CAR was on account of raising of resources by banks from capital market for ensuring the compliance with Basel II norms.

Table 11.1 – Resources raised by banks over the years (Rs cr)

REPORT ON INDIAN BANKING SECTOR

Rs in crore

Public

Private Sector

Sector Banks

Banks

Equity

Debt

Equity

Grand Total

Total

Debt

Equity

Debt

FY05

3,336

-

4,108

1,478

7,444

1,478

8,922

FY06

5,413

-

5,654

-

11,067

-

11,067

FY07

782

-

284

-

1,066

-

1,066

FY08

17,552

-

12,403

500

29,955

500

30,455

Source: RBI and CARE Research

During FY08, SCBs, both the public and private banks, raised significantly higher resources from the primary capital market as compared with the previous year. Total resource mobilisation by banks through public issues (excluding offer for sale) in the domestic capital market amounted to Rs.30,455 crores during FY08 as against Rs.1,066 crores during FY07. This can be attributed to the good performance of secondary capital market which allows banks to raise higher amount for less dilution of equity (growth in Bankex for FY06, FY07, FY08 were at 36.8%, 24.3% and 18.0%, respectively), need to raise the funds for the compliance of Basel II norms, higher risk weight for sensitive sectors. Banks raised around Rs.29,955 crores from equity, which resulted in increase of Tier 1 CAR from 8.3% to 9.1%. Tier 1 CAR ratio was way above the stipulated CAR under Basel II norms which is at 6%. Out of six issues, five were equity issues, of which two were floated by PSBs for Rs.17,552 crores and four issues by private sector banks (including one debt issue) for Rs.12,903 crores.

Table 11.2 – Bank group-wise trend in CAR over the years (in %) Bank Groups

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

All SCBs

11.1

11.4

12.0

12.7

12.9

12.8

12.3

12.3

13.0

Public Sector Banks (PSBs)

10.7

11.2

11.8

12.6

13.2

12.9

12.2

12.4

12.5

Nationalised Banks

10.1

10.2

10.9

12.2

13.1

13.2

12.3

12.4

12.1

SBI and Associates

11.6

12.7

13.3

13.4

13.4

12.4

11.9

12.3

13.2

Old Private Sector Banks

12.4

11.9

12.5

12.8

13.7

12.5

11.7

12.1

14.1

New Private Sector Banks

13.4

11.5

12.3

11.3

10.2

12.1

12.6

12.0

14.4

Foreign Banks

11.9

12.6

12.9

15.2

15.0

14.0

13.0

12.4

13.1

Source: RBI and CARE Research

103

New private sector banks has highest CAR of 14.4%. Only nationalised banks had CRAR of 12.1% which is below the industry average of 13.0%. CAR for the FY03 was at 12.7%. This marginally decreased to 12.3% in FY07 and stood at 13.0% in FY08. This in our view suggests that, banks have adequately funded their risk assets in the years over significant growth in loans.

Table 11.3 – Distribution of banks by CRAR FY07 Bank Group (in %)

<4

4 -9

FY98

9-10

10-12

12 >

<4

4 -9

9-10

10-12

12 >

Nationalised Banks

-

-

-

8

12

-

-

-

11

9

State Bank Group

-

-

-

3

5

-

-

-

2

6

1

-

2

5

9

-

-

1

3

11

Banks

-

-

-

4

4

-

-

-

2

6

Foreign Banks

-

-

-

7

22

-

-

1

3

24

Total

1

-

2

27

52

-

-

2

21

56

Old Private Sector

REPORT ON INDIAN BANKING SECTOR

Banks New Private Sector

Source: RBI and CARE Research

At the individual bank level, all the banks had their CAR above the prescribed limit of 9.0% as on 31st March 2008. Out of total of 79 banks, 56 banks have the CAR of 12% and above. Only nationalised banks have higher proportion of banks falling in 10% to 12% of CAR category (11 out of 20 banks).

104

Chapter 12 Consolidation: Is it imminent for the Indian Banking Sector?? Merger and Acquisition (M&A) is not a new phenomenon for Indian banking sector as it took place even before independence. Since Nationalisation of banks in India, 33 banks/financial institution have been amalgamated. Out of these 25 mergers were of private banks with PSBs and 8 were between private sector banks.

REPORT ON INDIAN BANKING SECTOR

Table 12.1 – List of banks amalgamated since nationalisation of banks in India in 1969 No. Name of Transferor Bank/Institution 1 Bank of Bihar Ltd. 2 National Bank of Lahore Ltd. 3 Miraj State Bank Ltd. 4 Lakshmi Commercial Bank Ltd. 5 Bank of Cochin Ltd. 6 Hindustan Commercial Bank Ltd. 7 Traders Bank Ltd. 8 United Industrial Bank Ltd. 9 Bank of Tamilnadu Ltd. 10 Bank of Thanjavur Ltd. 11 Parur Central Bank Ltd. 12 Purbanchal Bank Ltd. 13 New Bank of India 14 Kashi Nath Seth Bank Ltd. 15 Bari Doab Bank Ltd. 16 Punjab Co-operative Bank Ltd. 17 Bareilly Corporation Bank Ltd. 18 Sikkim Bank Ltd. 19 Times Bank Ltd. 20 Bank of Madura Ltd. 21 ICICI Ltd. 22 Benares State Bank Ltd. 23 Nedungadi Bank Ltd. 24 South Gujarat Local Area Bank Ltd. 25 Global Trust Bank Ltd. 26 IDBI Ltd. 27 Bank of Punjab Ltd. 28 Ganesh Bank of Kurundwad Ltd. 29 United Western Bank Ltd. 30 Bharat Overseas Bank Ltd. 31 Sangli Bank Ltd. 32 Lord Krishna Bank Ltd. 33 Centurion Bank of Punjab Ltd. Source: RBI and CARE Research

105

Name of Transferee Bank/Institution State Bank of India State Bank of India Union Bank of India Canara Bank State Bank of India Punjab National Bank Bank of Baroda Allahabad Bank Indian Overseas Bank Indian Bank Bank of India Central Bank of India Punjab National Bank State Bank of India Oriental Bank of Commerce Oriental Bank of Commerce Bank of Baroda Union Bank of India HDFC Bank Ltd. ICICI Bank Ltd. ICICI Bank Ltd. Bank of Baroda Punjab National Bank Bank of Baroda Oriental Bank of Commerce IDBI Bank Ltd Centurion Bank Ltd. Federal Bank Ltd. IDBI Bank Ltd. Indian Overseas Bank ICICI Bank Ltd. Centurion Bank of Punjab Ltd. HDFC Bank Ltd.

Year 1969 1970 1985 1985 1985 1986 1988 1989 1990 1990 1990 1990 1993 1996 1997 1997 1999 1999 2000 2001 2002 2002 2003 2004 2004 2005 2005 2006 2006 2007 2007 2007 2008

However the M&A activity which has taken place so far in India was mainly policy driven. For example banks were amalgamated or merged with larger banks for public interest (merger of private banks with public banks post independence), to protect the interest of depositors, weaker or financially distressed banks were merged with sound and financially health banks. Merger of United Western bank with IDBI bank and Global Trust Bank with Oriental Bank of Commerce are the examples of policy driven mergers. There is a need for market driven merger which will be based on business and commercial consideration in the Indian banking sector. There would be a need to build large size banks which can compete globally and also foreign banks entering into the India would like to explore the inorganic route for growth. Globally banks have been merged with each other to create large size banks since year 2001. Following is the list of no. of banks in each country which has reduced over the years.

REPORT ON INDIAN BANKING SECTOR

Table 12.2 – List of countries and no. of banks operating within a country Country Advanced Economies Greece Korea France Germany UK Denmark Singapore Japan US Italy Spain Emerging Economies South Africa Israel Poland Peru Egypt Argentina India Brazil Mexico Chile Philippines Source: RBI and CARE Research

106

2001

2005 Variation in %

44 20 444 304 398 190 128 234 8,075 830 285

21 13 294 251 333 161 110 215 7,515 784 272

-52.3 -35.0 -33.8 -17.4 -16.3 -15.3 -14.1 -8.1 -6.9 -5.5 -4.6

59 26 69 15 53 86 100 180 32 27 42

34 15 54 12 43 71 88 161 29 26 41

-42.4 -42.3 -21.7 -20.0 -18.9 -17.4 -12.0 -10.6 -9.4 -3.7 -2.4

Consolidation of small PSBs in India CARE Research believes that merger of small banks with the large banks is inevitable in years to come due to following reasons ¾ Capital constraints The GoI has over the years has infused capital in PSBs in order to support their growth. Government has also allowed raising of capital through various new instruments such as perpetual preference shares (eligible for tier 1 capital) to increase the capital base of the bank. In February 2009, GoI infused funds into 3 PSBs in order to increase their capital base as the CAR of these PSBs was lower than 12% as on September 2008.

REPORT ON INDIAN BANKING SECTOR

Table 12.3 – Fund infusion by government into PSBs Name

Rs Cr

Central Bank of India Vijaya Bank UCO Bank

1,400 1,200 1,200

Source: RBI and CARE Research

However, as per the report on currency and finance released by RBI in H1FY09, PSBs will need Rs.3,70,000 crore in capital for expansion over next 5 years. However, the ability of the government to fund such huge capital requirements is suspect. This is because the GoI has to ensure the adequate funds for social and infrastructure project and also faces constraints in raising funds placed by Fiscal Responsibility and Budgetary Management (FRBM) Act in rasing of funds. ¾ Floor on GOI holding will limit fund raising option As per the regulatory requirement, government holding in PSBs should remain at or above 51%. Expansion by banks in which government’s holding is close to the mandatory 51% level will require fund infusion from government. This will limit their option of raising funds to meet expansion needs and could hinder their growth in coming years.

Table 12.4 – Government holding in PSBs No Name 1 United Bank Of India 2 Central Bank Of India 3 Indian Bank 4 Bank Of Maharashtra 5 Canara Bank 6 Syndicate Bank 7 Bank Of India 8 UCO Bank 9 Indian Overseas Bank 10 State Bank of India Source: Capital Line

107

Mar'09 100 80.2 80 76.8 73.2 66.5 64.5 63.6 61.2 59.4

No 11 12 13 14 15 16 17 18 19 20

Name Punjab National Bank Corporation Bank Union Bank Of India Allahabad Bank Vijaya Bank Bank Of Baroda IDBI Bank Andhra Bank Dena Bank Oriental Bank Of Commerce

Mar'09 57.8 57.2 55.4 55.2 53.9 53.8 52.7 51.6 51.2 51.1

PSBs which are close to the required lower level of government stake and concentrated presence in particular region will see its merger with other PSB as an important option if it wants to sustain the growth seen in past.

REPORT ON INDIAN BANKING SECTOR

¾ Increasing NPAs will put further pressure on CAR Banks’ NPAs are rising after H1FY09 as economic growth has moderated. CARE Research believes that NPAs will be higher for small size banks in percentage terms. This will put further pressure on capital adequacy ratio of the bank.

108

Chapter 13 FY09 Result Analysis Public Sector Banks (PSBs) ..beat the slowdown: NII grew by 25.3% and Net profit by 29.0% Table 13.1 – Profit and Loss account for PSBs

REPORT ON INDIAN BANKING SECTOR

Particulars Interest Earned Interest Expended Net Interest income Other income Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit Source: Capital Line

Profit and loss account FY08 FY09 % chg 191,486 246,543 28.8 134,891 175,766 30.3 56,595 70,777 25.1 29,799 38,397 28.9 24,909 30,162 21.1 16,371 19,154 17.0 11,916 15,944 33.8 33,198 43,913 32.3 9,377 13,222 41.0 23,821 30,691 28.8

We have analysed results of 16 out 20 nationalised banks, State bank of India and its 6 subsidiaries which have already declared their results on or before 15th May 2009. Interest income for the PSBs grew at 28.8% in FY09. As against this, interest expended grew at a higher rate of 30.3% in FY09. Lending rates were aggressively cut by PSBs ahead of cut in deposit rates which resulted in lower growth in net interest Income (grew by 25.3%). Other income jumped 28.8% for the FY09 mainly due to higher treasury gains booked by the banks in the H2FY09. Staff cost and other operating cost grew at a slower rate 21.1% and 17.2% respectively. Provisions jumped by 33.1% due to higher delinquencies expected by banks and provisions for restructuring. Net profit for the PSBs grew at a healthy rate of 29% in FY09.

109

Private Sector Banks NII grew by 29.5%, however Net Profit grew by 15% due to high provisioning and lower growth in other income Table 13.2 – Profit and Loss account for Private Sector Banks

REPORT ON INDIAN BANKING SECTOR

Particulars Interest Earned Interest Expended Net Interest income Other income Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit Source: Capital Line

Profit and loss account FY08 FY09 % chg 57,963 71,357 23.1 39,701 47,715 20.2 18,262 23,642 29.5 14,741 15,955 8.2 5,530 7,047 27.4 11,511 12,080 4.9 5,468 7,300 33.5 10,494 13,170 25.5 2,580 4,029 56.1 7,914 9,140 15.5

We have analysed results of 10 out 22 Private sector banks (constitute more 80% of total business of private sector banks) which has already declared its result on or before 15th may 2009. Net interest Income for Private sector banks grew by 29.5% in FY09. In contrast to PSBs, interest income grew at a higher rate than interest expenditure. Private sector banks have not cut their lending rate as aggressively as their Public sector counter-parts. However deposit rates have come down in line with PSBs. Significantly lower growth in fee based income (constitutes around 20% of other income as compared to 12-14% for Nationalised banks) lower SLR portfolio as compared to PSBs resulted in lower growth in other income (8.2%). Higher provisioning for bad loans and taxes resulted in mere 15% growth in net profit.

CASA ratio declined for 11 out of 13 major Banks Share of low cost CASA deposits slipped for the major banks in FY09. CASA proportion of FY08 was higher as to large amount of funds were mopped up in initially public offers and kept in demand deposits by the corporates at the end of FY08. However the IPO market virtually dried up in FY09. Moreover, Sluggish economy had put pressure on the growth in demand deposits from corporates in H2FY09.

110

REPORT ON INDIAN BANKING SECTOR

Table 13.3 – CASA Ratio of various banks in FY08 and FY09 No Bank 1 Axis Bank 2 Bank of Baroda 3 Bank of India 4 Canara bank 5 Central Bank of India 6 Corporation Bank 7 HDFC Bank 8 ICICI Bank 9 IDBI Bank 10 Punjab and Sind Bank 11 State Bank of India 12 Syndicate Bank 13 Union bank Source: Company Results, Capital Line

FY08 45.68 31.22 36.00 32.30 36.10 35.00 54.50 26.10 16.60 36.34 43.00 30.90 34.90

FY09 43.15 34.87 31.00 30.70 33.40 25.44 44.40 28.70 14.80 31.35 39.30 27.10 30.00

Change (253)bps 365bps (500)bps (160)bps (270)bps (966)bps (1010)bps 260bps (180)bps (499)bps (370)bps (380)bps (490)bps

Restructured Assets around 3 to 5% of total loan book On the overall all basis, restructured asset constituted around 3 to 5% of total loan book. Significant variation was observed among individual banks in restructuring of loans. PSBs showed a higher % of loan restructured as compared to private sector banks.

Table 13.4 – Restructured Assets in Rs cr and in % of total Advances No Bank 1 Indian Overseas Bank 2 Corporation Bank 3 Syndicate Bank 4 Bank of India 5 State Bank of India 6 IDBI Bank 7 Union bank 8 Dena Bank 9 ICICI Bank 10 Axis Bank 11 Bank of Baroda 12 Canara bank 13 Yes Bank 14 HDFC Bank Source: Company Results, Capital Line

111

Rs Cr 7,900 2,324 3,800 6,400 16,500 3,130 2,960 610 4,584 1,626 2,659 2,075 40 102

% of total loan book 10.00 4.80 4.60 4.50 3.04 3.00 3.00 2.10 2.10 1.99 1.80 1.50 0.40 0.10

Chapter 14 Outlook on Indian Banking Industry Business Business of the banks can be divided into two categories i.e. Deposits and Advances. CARE Research has projected the growth in Advances and growth in Deposits for the banking sector as a whole as also for various banking groups defined earlier.

14.1 Outlook on Advances

The Indian Banking industry has seen a tremendous growth in credit offtake in the last five years (CAGR in advances for all SCBs was 27.4% from FY03 to FY08). The industry recorded credit growth of 33.3% in FY05, which was highest in the last 2-and-half decades. Excellent performance of high credit growth in excess of 30%, witnessed for three consecutive years (from FY05 to FY07), which is the best in banking industry so far, is difficult to repeat. The Indian economy is witnessing moderation in growth which will lead to slowing of credit offtake. Moreover, the rate of growth of credit offtake will be subjected to a high base effect, due to the rapid growth in the past. We expect the credit offtake to slow down in the next two years.

Slowdown in Indian industry expected to hit credit offtake Fresh credit demand is expected to be hit by slower economic growth due to both recession in developed economies and sluggish domestic demand.

Fig 14.1 – Industrial production y-o-y growth 14 12 10 Percent

8 6 4 2 0

FY08 Source: RBI and CARE Research

112

FY09

Mar

Feb

Jan

Dec

Nov

Oct

Sep

Aug

Jul

Jun

May

-2 Apr

REPORT ON INDIAN BANKING SECTOR

Banks entering into new credit cycle, hyper-growth phase is behind us

Table 14.1 – Sector-wise and Use-based growth in industrial production (%)

REPORT ON INDIAN BANKING SECTOR

Sectoral General Mining Manufacturing Electricity Use-based Basic goods Capital goods Intermediate goods Consumer goods (a) consumer durables (b) consumer non durables Source: RBI and CARE Research

April - February FY08

FY09

8.8 5.2 9.3 6.6

2.8 2.4 2.8 2.4

7.3 17.7 9.3 6.6 (1.0) 9.3

2.7 8.8 (2.7) 4.9 4.1 5.1

Industrial credit formed 38.8% of the overall credit in FY08 and increased at a CAGR of 26.6% from FY05 to FY08. The slowdown in the Indian industry is evident from the above table. The primary indicator of industrial growth, the Index of Industrial Production (IIP) grew only by 2.8% from April 2008 to February 2009 as compared to growth of 8.8% in same period of the last year. A detailed analysis of the IIP reveals that growth in capital goods dipped from 17.7% to 8.8% in the same period. Capital goods and basic goods sectors are the indicators of future performance of the economy. Sluggishness in these indicates poor economic growth going forward.

Global economic downturn to hurt export-oriented industries Advanced economies have seen their growth rates decline sharply. Many countries of the world have seen severe contraction in economic activity and some of them have already slipped into recession. Export-oriented sectors like textile (11% of industrial credit), gems & jewellery (3% of industrial credit), auto ancillary and IT/ITES have been badly affected due to the recession and lower growth in developed economies. Deceleration in domestic consumption coupled with overcapacity in some sectors has led to production cuts being announced by Corporate India. Cascading effect of the slowdown in one sector of the economy is being felt in the other sectors too. Episodes of large inventory build-up, production cuts and temporary closure in some sectors such as automobiles at the beginning of the second half of FY09 indicate a period of stress on account of lack of demand. Cancellation and delay of expansion plans will also put pressure on incremental credit demand.

113

REPORT ON INDIAN BANKING SECTOR

Table 14.2 – GDP growth rate across the countries Country World Advanced Economies Euro area Japan Korea UK USA OECD Countries Emerging Economies Argentina Brazil China India Indonesia Malaysia Thailand Source: IMF projection

114

2007

2008 5.0 2.6 2.6 2.4 5.0 3.0 2.0 2.6 8.0 8.7 5.7 13.0 9.0 6.3 6.3 4.8

3.2 0.8 0.9 (0.7) 4.1 0.7 1.1 1.2 6.1 6.5 5.8 9.0 7.1 6.1 5.8 4.7

2009P (0.5) 3.0) (3.2) (5.8) 3.5 (2.8) (2.6) (0.4) 2.0 3.6 1.8 6.7 5.3 5.5 4.8 4.5

Methodology for projections Bank credit growth comes from the expansion of economic activity. We believe that future growth in economy is the best indicator to project growth in bank credit. This has been validated with a detailed analysis of the past data spanning 25 years. We have analysed boom and bear phases of the Indian economy over the years and have found a considerable level of correlation between GDP growth and bank credit growth. As depicted in the chart, changes in GDP growth have either immediate or near term (within next one to one-and-half year) impact on bank credit growth.

40.0

10.0

35.0

8.0

30.0

6.0

25.0

4.0

20.0

2.0

15.0

-

10.0 FY08

FY06

FY04

FY02

FY00

FY98

FY96

FY94

FY92

FY90

FY88

FY86

FY84

FY82

FY80

(2.0)

Percent

12.0

Percent

REPORT ON INDIAN BANKING SECTOR

Fig 14.2 – GDP growth and Bank credit growth moves in tandem

5.0

(4.0)

-

(6.0)

(5.0) GDP growth (at factor cost)

Bank Credit growth

Source: RBI and CARE Research

Our analysis shows low correlation between the GDP growth and credit growth on a point-topoint basis. However, if we correlate the average GDP and credit growth of various upward and downward phases of the economy, it gives a better correlation than just a single year. Depicted below are the average GDP growth rates and the average bank credit growth rates over different economic phases.

115

Table 14.3 – GDP growth and bank credit growth for block of years Year

Description

FY04 to

Period of rapid expansion in economic activity. GDP growth

FY08

driven by domestic consumption and positive global factors

FY1999

Global downturn affected the industrial output, weak agriculture

to

growth (Average 1.6% in the period), the busting of IT bubble

FY2003

affected fastest-growing export service sector, stock market crisis

Average growth (%) in GDP

Bank Credit

8.8

27.5

5.4

17.9

6.5

18

4.4

8.0

REPORT ON INDIAN BANKING SECTOR

of 2001 and financial scam aggregated the problem FY95 to

Structural changes within the economy, asian currency crisis and

FY98

growing importance of service sector

FY91 to

Post liberalisation resulted in higher competition & reduced

FY94

demand for domestic goods and high inflation.

Source: IMF projection

CAGR of GDP over the past 25 years ended March 31, 2008 was 6.2%. CAGR of credit over the same period was 18%, giving a multiplier of 2.9x between the two. However, for the last 10 years, the multiplier between the bank credit and GDP growth is 3.2x. Also, if we compare the average growth rates in a block of years of boom and recessionary periods, the multiplier ranges between 2.5x to 3.5x times (baring the period of FY91 to FY94). The relationship between GDP growth and bank credit growth over the last 10 years will give better picture because: ¾ The financial reforms have been effected in the past 10 years ¾ Banking penetration has increased mainly in the past 10 years. Bank credit as a percentage of GDP increased from 17.1% in FY1981 to only 21.2% in FY1998 and then galloped to 50.1% in FY2008. Also, various domestic financial institutions have been converted/merged into banks in 2004 enabling banks to provide long-term finance to the infrastructure sector (infrastructure accounts for around 9% of the bank credit)

116

Fig 14.3 – Bank credit as a percentage to GDP over the years 55 50 45 Percent

40 35 30 25 20 FY08

FY06

FY04

FY02

FY00

FY98

FY96

FY94

FY92

FY90

FY88

FY86

FY84

FY82

Source: RBI and CARE Research

¾ A structural change with the share of service sector rising in the GDP has happened over the years. Contribution of agriculture in GDP has been declining continuously. Agriculture contributed 17.8% to total GDP in FY08 as against 26.0% in FY1998 and 37.9% in FY1981. High contributing agriculture sector in earlier years was unorganised and dependant upon the private money lenders for credit needs. Thus, growth/decline in GDP contributed by agriculture did not result in change in bank credit. Increasing contribution of industry and services sector, which are more organised and better regulated and depend largely on bank credit, has happened over the past 10 years.

Fig 14.4 – Share of various sectors in GDP over the years 90 80

Industry + Service

70 60 Percent

REPORT ON INDIAN BANKING SECTOR

FY80

15

50 40

Agriculture & allied activities

30 20 10 0

FY80 FY82 FY84 FY86 FY88 FY90 FY92 FY94 FY96 FY98 FY00 FY02 FY04 FY06 FY08

Source: RBI and CARE Research

117

Advances to grow at CAGR of 17% to 19% over next 2 years (FY09 to FY11) CARE’s projected GDP growth for FY09 is 6.5% and growth in credit offtake was at 17.3% for FY09 (2.7x of GDP growth). FY09 was the exceptional year particularly last 2 quarters were largly impacted by global factors. Domestic and global factors have shown some improvement in last couple of months, there by negating the fear of severe recession in a globe. CARE projects a GDP growth of 5.8% and 6.2% in FY10 and FY11, respectively. We believe that growth in bank credit will be around 2.9x to 3.1x times to GDP growth in FY10 and FY11, respectively. Therefore, we expect the bank credit to grow at a CAGR of 17% to 19% over FY09 to FY11.

REPORT ON INDIAN BANKING SECTOR

Apart from the normal relationship-based projections for bank credit, we believe that bank credit growth has upside due to the following factors. ¾ Infrastructure sector to drive incremental growth in credit offtake. Going forward, CARE Research feels that the growth in banks credit offtake would be fueled by growth in lending to the infrastructure sector on the back of high spending on infrastructure by the government. The Central government has granted approval to the projects worth Rs.70,000 crores during August 2008 to January 2009. Also projects worth Rs.67,700 crores have been given final approval under public-private partnership mode. Share of infrastructure credit has increased from merely 1% of total credit in FY1998 to 9% of total credit in FY2008. Bank credit to Infrastructure sector has grown at a CAGR of 58.8% from FY03 to FY08 as against the total bank credit which grew at CAGR of 27.4% during the same period. The growth was also aided by conversion of domestic financial institutions into banking companies as also banks starting to provide long-term finance as against their traditional domain of working capital finance. ¾ Government’s all corner efforts to support growth through easy availability of credit. Government through PSBs (who controlled 72.6% of total credit in FY08), has made easy availability of bank credit possible to the sectors which are hit due to economic slowdown viz real estate, textiles etc. The efforts includes interest subvention scheme for export-oriented sectors, low interest rate on housing loans and vehicle loans (SBI home loan available at 8% and auto 10% for first year), restructuring of bad loans and setting up of the India Infrastructure Finance Company Ltd (IIFCL) with fund size of Rs30,000 crores. ¾ Policy actions were more prompt and swifter this time than earlier slowdowns. Policy action by the RBI to bring back economy on earlier growth track was more prompt and swifter this time as compared to the crisis of FY91, FY99-FY01. RBI has acted proactively by effecting the necessary cuts in policy rates on a timely basis. The translation of a cut in key policy rates into cheaper credit availability will support the credit growth going forward.

118

Fig 14.5 – Sharp and prompt cut in CRR than earlier slowdowns 16 14

Percent

12 10 8 6 4

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

Mar-04

Mar-03

Mar-02

Mar-01

Mar-00

Mar-99

Mar-98

Mar-97

Mar-96

Mar-95

Mar-94

Mar-93

Mar-92

Mar-91

REPORT ON INDIAN BANKING SECTOR

2

Source: RBI and CARE Research

Mix of the credit will change in favour of infrastructure and industrial credit Incremental credit growth for banks will mainly come from robust infrastructure spending by the government and consequent demand for credit for executing infrastructure projects such as power, roads, ports and tele-communications. Share of infrastructure in total outstanding credit as on March 31, 2008 was 9.0%, which will increase to 12.0% by the end of FY11. The overall demand for funds from industry will either decline or remain at the same level as slower economic growth delays capex cycles. However, lack of funds from non-banking channels would mean higher lending opportunities for banks. Thus incremental offtake from industry will also remain high for banks. We project share of industrial credit excluding infrastructure to increase from 29.8% at the end of FY08 to 32.5% at the end of FY11. Retail credit growth will be lowest among all. CARE Research believes that there will be flat to declining growth for personal loans and credit card outstandings. We also project moderate growth in home loans due to adverse real estate market. Share of retail loan in overall loans was at 22.5% in FY08. However, retail loans will contribute only 18% of total credit in FY11.

119

REPORT ON INDIAN BANKING SECTOR

Fig 14.6 Projected sector-wise break-up of bank credit from FY09 to FY11

Source: RBI and CARE Research

Banks group-wise projection Table 14.4 – Projected credit growth for various banking group (%) Bank Group SBI and Associates Nationalised banks Private sector banks Foreign banks SCBs (excluding RRBs) Source: RBI and CARE Research (* FY09 numbers are provisional)

FY09P* 22.0 19.5 10.9 4.0 17.3%

FY10E 19-21 16-18 12-14 6-8 15-17

FY11E 21-23 19-21 17-19 13-15 19-21

Table 14.5 – Projected credit growth for various banking group (Rs cr) Amount (Rs in crores) FY08 593,723 SBI and Associates 1,203,782 Nationalised banks 518,402 Private sector banks 161,133 Foreign banks 2,477,040 SCBs (excluding RRBs) Source: RBI and CARE Research (* FY09 numbers are provisional)

120

FY09P* 724,342 1,438,519 574,908 167,578 2,905,348

FY10E 869,210 1,683,068 643,897 179,309 3,375,484

FY11E 1,060,437 2,028,097 759,798 200,826 4,049,158

Rapid credit growth for PSBs Government is pushing the cheap credit through state-owned banks to combat slowing economy. Various state-owned banks have cut the loan rates to lowest level for retail segment. Adding to this, PSBs are traditional lenders to the corporates where credit offtake will not see as big dent as expected in retail credit. Infrastructure lending is expected to be robust which will support the high credit offtake for these banks. CARE Research expects relatively higher credit offtake growth for PSBs as compared to private sector banks. Private and foreign banks credit growth to slow down…

REPORT ON INDIAN BANKING SECTOR

Private sector and foreign banks have burned their fingers by aggressively expanding their retail credit portfolio. Retail credit constitute majority of loan assets for private and foreign banks (around 50 to 60%). Housing loan constituting 44.3% of retail credit of private sector banks is not expected to grow at a high rates due to slack in real estate market. Credit card and personal loan accounts which accounted for 40% of total retail credit are proving to be highly risky in the economic downturn and thus banks have become cautious on such credits. In our view, some of the private sector and foreign banks will focus more on restructuring their balance sheets and the loan portfolios which are presently highly skewed towards retail credit. We may see the balance sheet size of some players remaining stagnant or marginally declining in FY10. CARE Research believes that credit growth for these banking groups will see some improvement in FY11 when economic conditions improve.

Table 14.6 – ..thus changing share in total credit in favour of PSBs Share in total credit (%) FY08 24.0 SBI and Associates 48.6 Nationalised Banks 20.9 Private sector banks 6.5 Foreign banks 100.0 SCBs (excluding RRBs) Source: RBI and CARE Research (* FY09 numbers are provisional)

FY09P* 24.9 49.5 19.8 5.8 100.0

FY10E 25.8 49.9 19.1 5.3 100.0

FY11E 26.2 50.1 18.8 5.0 100.0

CARE Research believes that lower growth for private and foreign banks coupled with higher credit offtake for PSBs will change the mix in favour of PSBs. SBI and Associates are likely to increase their share in total bank credit from 24% in FY08 to 26.2% in FY11E. Similarly, nationalised bank’s share in total bank credit is expected to increase by 150 bps from 48.6% to 50.1% of the total bank credit. Private and foreign banks are expected to lose their market share from 20.9% in FY08 to 18.8 in FY11E and from 6.5% in FY08 to 5.0% in FY11E respectively.

121

14.2 Outlook on Deposits High deposit growth in past The deposits grew by 24.6% in FY07, which is highest in the banking industry so far followed by 23.1% growth in FY08. Deposits growth up to January 2009 was also decent at 21.9%.

Variation in deposit growth is lower than credit growth We have analysed credit and deposit growth from FY1980 till FY2008. Data reveals that standard deviation of credit growth is far higher than standard deviation of deposit growth.

Credit Mean SD Source: CARE Research

Deposits 17.7 3.2

17.9 7.4

Difference 0.2 4.2

There is not much difference between the average growth in deposit (17.7%) and average growth in credit (17.9%). But the fluctuation in standalone yearly growth in credit captured by standard deviation is higher at 7.4% as compared to fluctuation in yearly growth in deposits at 3.2%. This leads us to the conclusion that growth in credit fluctuates more than growth in deposits. Hence going forward, using the same logic, contraction in deposit growth will be lower than contraction in credit growth.

y-o-y growth rate in credit Source: RBI and CARE Research

122

Average Credit growth

FY08

FY06

FY04

FY02

FY00

FY98

FY96

FY94

FY92

FY90

FY88

FY86

FY84

FY82

40 35 30 25 20 15 10 5 0 -5

FY80

Fig 14.7 –Average growth and y-o-y growth in credit for SCBs from FY1980 to FY2008

Percent

REPORT ON INDIAN BANKING SECTOR

Table 14.7 – Average growth and standard deviation in deposit and credit growth from FY1980 to FY2008 (in %)

Fig 14.8 –Average growth and y-o-y growth in deposit for SCBs from FY1980 to FY2008 30

Percent

25 20 15 10 5 FY08

FY06

FY04

FY02

FY00

FY98

FY96

FY94

FY92

FY90

FY88

FY86

FY84

FY82

y-o-y growth rate in deposits

Average Deposit growth

Source: RBI and CARE Research

Deposit growth will be equal to or more than credit growth Banks have since FY2000 seen the wide mismatch with credit growth surpassing deposit growth. This was manageable for banks as they had large SLR portfolio which was liquidated over the period of FY2000 to FY2008 to support the credit offtake. Currently, the SLR investments for the banks is close to minimum statutory requirement of 24%, any increase in credit has to be necessarily accompanied by increase in deposits of the banks. Hence, deposit growth will be greater than or equal to credit growth in the next two years.

Fig 14.9 –Difference between credit and deposit growth over the years 25

Higher negative spread for 9 years indicates equal or more credit growth compared to deposit growth

20 15 10 5

-10 -15 -20

Source: RBI and CARE Research

123

FY08

FY06

FY04

FY02

FY00

FY98

FY96

FY94

FY92

FY90

FY88

FY86

FY84

-5

FY82

0 FY80

Percent

REPORT ON INDIAN BANKING SECTOR

FY80

0

Deposits will show moderate growth as compared to past As deposit growth has shown some degree of correlation with GDP growth of the nation we expect the deposit growth rate to moderate with a lowering of the GDP growth in the next two years. However, apart from GDP growth, deposit growth remains a function of various factors like increase in household savings, risk aversion amongst investors in economic downturn etc. Generally, the saving by the households in an economic downturn is diverted more towards safer saving instruments like bank deposits due to increased risk aversion among investors. Moreover, there is an observed tendency among the Indians unlike their western counterparts to curtail the consumption in downturn rather than curtailing the savings.

Keeping in mind our projection of credit growth of 17% to 19% CAGR from FY09 to FY11, we expect the deposit growth rate to hover around 18% to 20% in FY10 and FY11. Deposit growth rate will be higher than credit growth rate for FY10. However with a pick up in credit growth to 20% to 22% in FY11, deposit growth is expected to remain at 19% to 20%.

Share of Current account deposits to decrease We believe that incremental current account deposits will be lower in the period of slowdown. Current deposits are kept by corporates and sluggish business coupled with shortage of funds compels them to curtail the idle fund kept by them in the banking system. Our view on this regard is well supported by the past data.

Fig 14.10 –Share of demand deposits in incremental total deposits for SCBs over the years 50 40

Percent

low economic growth and low contribution of demand deposits

30 20 10

FY08

FY07

FY06

FY05

FY04

FY03

FY02

FY01

FY00

FY99

FY98

FY97

FY96

FY95

FY94

FY93

FY92

FY91

REPORT ON INDIAN BANKING SECTOR

Deposits expected to grow by 18% to 20% in FY10 and FY11

Source: RBI and CARE Research

Contribution of the demand deposits went up from an average of 7.8% in FY01 to FY03 to an average of 15.8% in FY03 to FY06 in the incremental deposits. With slower economic growth, the demand deposits will contribute only 7-8% as seen in FY1992-93, FY1997-98 and FY2001-03.

124

Current trend supports our conclusion Our argument is well supported by recent data. Total deposit mobilised in the current financial year (till February 2009) is Rs.489,034 crores as against which there was outflow in demand deposits of Rs.75,943 crores. Similar trend in earlier periods suggests that incremental demand deposits were higher in economic boom period as in FY06 to FY08. Mobilisation from demand deposits was lower in economic downward period of FY01 and FY02.

REPORT ON INDIAN BANKING SECTOR

Table 14.8 –Trend in incremental total and incremental demand deposits for FY09 (Rs cr) Period Incremental deposits Apr-08 4,434 May-08 50,607 Jun-08 23,780 Jul-08 28,061 Aug-08 83,015 Sep-08 52,491 Oct-08 49,799 Nov-08 53,805 Dec-08 26,421 Jan-09 99,449 Feb-09 17,172 Total 489,034 Average 44,458 Source: RBI and CARE Research

Incremental demand deposits (62,761) (2,360) 2,532 (13,956) 21,482 29,652 (34,762) (9,535) 2,987 5,910 (15,132) (75,943) (6,904)

Table 14.9 – Trend in incremental total and incremental demand deposits over the years (Rs cr) Incremental Monthly Average Monthly Incremental demand Incremental Average Incremental Year deposits deposits deposits demand deposits FY01 154,927 10,347 12,911 862 FY02 147,466 13,385 12,289 1,115 FY03 152,924 11,470 12,744 956 FY04 219,907 38,602 18,326 3,217 FY05 262,029 31,386 21,836 2,616 FY06 327,122 58,417 27,260 4,868 FY07 532,299 59,053 44,358 4,921 FY08 623,074 90,057 51,923 7,505 Source: RBI and CARE Research

125

Share of saving account deposits to increase Saving deposits mobilisation may not be as bad as demand deposits as alternative investments like equity are less lucrative in economic downturn and cautious approach is adopted by general public.

Fig 14.11 –Share of saving deposits in incremental total deposits for SCBs over the years 60 High share during slower economic growth

50

30 20 10

FY08

FY07

FY06

FY05

FY04

FY03

FY02

FY01

FY00

FY99

FY98

FY97

FY96

FY95

FY94

FY93

FY92

FY91

REPORT ON INDIAN BANKING SECTOR

Percent

40

low share during high growth phase

Source: RBI and CARE Research

Banks group-wise projection Flight of deposits to continue in favour of PSBs Global financial crisis have put the expansion plan of foreign banks in India on a hold. Risk perception for private sector banks among the investors have increased. Fear of losing money has made the investor to direct his deposits to PSBs. This has resulted into high deposit growth for PSBs as compared to private sector and foreign banks. Provisional figures released by RBI for deposit growth up to March 2009 support our view.

Table 14.10 – Deposit growth for various bank groups (in %) y-o-y growth (%) Particulars

FY08

FY09*

Public sector banks (PSBs)

22.9

24.1

Private sector banks

19.9

8.0

Foreign banks

29.1

7.8

SCBs (including RRBs)

22.4

19.8

Source: RBI and CARE Research(* FY09 numbers are provisional)

126

The ill effect of global crisis and slowdown in domestic economy were felt more in urban areas as compared to rural and semi-urban areas. Wide branch network of PSBs makes them less vulnerable to the impending crisis which has impacted more the urban population as compared to their rural counterparts. Due to this, PSBs will be in a better position to get incremental deposits.

Table 14.11 – Projected deposit growth rate for various banking group (%) Bank Group SBI and Associates Nationalised banks Private sector banks Foreign banks SCBs (excluding RRBs) Source: RBI and CARE Research (* FY09 numbers are provisional)

FY09P*

FY10E

26-28 22-24 8-10 7-9 19-21

22-24 19-21 12-14 7-9 18-20

FY11E 23-25 21-23 14-16 8-10 19-20

REPORT ON INDIAN BANKING SECTOR

Table 14.12 – Projected deposit growth for various banking group (Rs cr) Amount (Rs in crores) FY08 773,875 SBI and Associates 1,606,995 Nationalised banks 675,073 Private sector banks 191,114 Foreign banks 3,247,057 SCBs (excluding RRBs) Source: RBI and CARE Research (* FY09 numbers are provisional)

FY09P* 982,821 1,976,604 732,455 206,403 3,898,282

FY10E 1,208,870 2,371,925 827,674 222,915 4,631,383

FY11E 1,498,998 2,893,748 951,825 242,977 5,587,549

Table 14.13 – ..thus changing the share in total deposits in favour of PSBs Share in total credit (%) FY08 23.8 SBI and Associates 49.5 Nationalised Banks 20.8 Private sector banks 5.9 Foreign banks 100.0 SCBs (excluding RRBs) Source: RBI and CARE Research (* FY09 numbers are provisional)

FY09P* 25.2 50.7 18.8 5.3 100.0

FY10E 26.1 51.2 17.9 4.8 100.0

FY11E 26.8 51.8 17.0 4.3 100.0

We believe that lower growth for private and foreign banks coupled with higher deposit growth for PSBs will change the mix in favour of PSBs. We project the SBI and associates to increase the share in total bank deposits from 23.8% in FY08 to 26.8% in FY11E. Similarly, nationalised banks’ share in total bank deposits is expected to increase by 230 bps from 49.5% to 51.8% of the total bank deposits. Private and foreign banks are expected to lose market share in total deposit respectively from 20.8% & 5.9% in FY08 to 17.0% & 4.3% in FY11E.

127

14.3 Outlook on Treasury profits: It’s different this time In the period FY02 to FY05, bank profit on sale or revaluation of investments constituted around 7-10% of their total income.

REPORT ON INDIAN BANKING SECTOR

Table 14.14 – Profit on sale/revaluation of investments for SCBs Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: RBI and CARE Research

Profit/revaluation of investments 2,977 3,164 9,334 14,254 19,279 8,397 1,899 (2,395) 8,901

Total income 50,273 56,967 61,979 66,324 68,540 76,314 88,574 111,769 143,597

Percent 5.9 5.6 15.1 21.5 28.1 11.0 2.1 NM 6.2

However we do not expect the treasury gains of FY02-FY05 period repeated in the years to come. Infact, bank profits in Q3FY09 were influenced by the high treasury gains. The magnitude and period of continuance of such treasury gains will be different this time. Our belief is based on the following arguments. ¾ Sharp fall in G-sec yield this time as compared to longer period of falling G-sec

yield earlier. Price of the bond has inverse relationship with interest rate. The interest rate and G-sec yield fell gradually over a period of almost 3-and-half years from January 2001 to May 2004. Benchmark 10-year G-sec yield declined from 10.8 in January 2001 to 5.1 in May 2004. Fall in interest rate increased the price of the bonds in bank’s SLR portfolio, translating into gains from revaluation of investments. However, fall in G-sec yield was much faster this time. G-sec yield declined from 9.5% in July 2008 to 5.1% in January 2008 i.e. in six months’ time.

128

Fig 14.12 –Trend in 10 year G-sec yield over the years 11.0 10.0

bond yield bottomed out over a period of 3.5 yrs

Percent

9.0 8.0 7.0

Bond yield bottomed out in less than 6 months

6.0 5.0

Source: RBI and CARE Research

Mar-09

Nov-08

Jul-08

Mar-08

Nov-07

Jul-07

Mar-07

Nov-06

Jul-06

Mar-06

Nov-05

Jul-05

Mar-05

Nov-04

Jul-04

Mar-04

Nov-03

Jul-03

Mar-03

Nov-02

Jul-02

Mar-02

Nov-01

Jul-01

Mar-01

REPORT ON INDIAN BANKING SECTOR

4.0

Yield on 10-year G-sec

¾ Lesser investment in SLR portfolio as compared to earlier period. In earlier cycle of falling G-sec yield, banks increased their investments in SLR securities. As on January 2001, the banks had 32.3% of NDTL in SLR securities, which has increased to 40.6% in May 2004. Mandatory SLR investment requirement during this period was 25%. The bottoming of the bond yield from 10.5% to 5.1% in the same period and high investment in SLR portfolio brought in treasury profit to the banks. However, banks were closer to the minimum level of SLR investments, when G-sec yield began to fall in the month of July 2008 (26%, as compared to requirement of 25%). In November 2008, the SLR investment was at 24.5% as compared to the requirement of 24%.

129

Fig 14.13 –Trend in SLR Investment of SCBs 42 40 38 36

Close to minimum requirement level (24%) of SLR portfolio, at the time of following G-sec yield.

Percent

34 32 30

High SLR portfolio during the period of falling G-sec yield, boosted the profit on sales/revaluation of investments

28 26

Raising SLR investment in the scenario of increasing yield

22

Mar-09

Sep-08

Mar-08

SLR requirement

Sep-07

Mar-07

Sep-06

Mar-06

Sep-05

Mar-05

Sep-04

Mar-04

SLR Investments

Sep-03

Mar-03

Sep-02

Mar-02

Sep-01

20 Mar-01

REPORT ON INDIAN BANKING SECTOR

24

Source: RBI and CARE Research

¾ Banks booked gained in Q3FY09 Banks have booked the gain on treasury in Q3FY09 due to fall in bond yield. However, comparatively low investment in SLR securities has restricted the gains on sale/revaluation of investment as compared with earlier period. Banks have also booked a losses in H1FY09 when G-sec went up from 7.9% to 9.5% which lowerd the overall profit from treasury gains in FY09. ¾ Bond yields to remain firm We believe that bond yield has bottomed out at 5.1%. Post January 2009, the G-sec yield has been heading northwards due to higher borrowing by GOI. The Government’s revenue is estimated to remain sluggish due to slower economic growth both in the global and domestic markets, whereas the expenditure is expected to increase for boosting the economy. Hence the higher government borrowing programme to fund the higher deficit in the next two years will keep the G-sec yield firm and range-bound between 6.0-7.0% in the next two years. ¾ SLR investments by banks to remain range-bound Of late, banks are increasing their investment in SLR securities and at the same time bond yields are picking up. This will not give in any gain, but may result in losses if bond yield continues to rise upwards. We believe that the lack of investment avenues in the backdrop of slower credit offtake may force the banks to park their excess funds in SLR securities. However, the SLR investments as a percentage will remain range-bound between 24-28%.

130

14.4 Outlook on Fee Income

REPORT ON INDIAN BANKING SECTOR

Fee income such as sale of third-party products like mutual fund units and insurance, investment banking services, card income, depository services and brokerage constitute higher proportion in other income for foreign and private sector banks as compared to PSBs. Core fee income is 810% of total income for PSBs as compared to 15-18% for private and foreign banks. Since last few years, increase in economic activity and robust primary and secondary markets have helped the banks to garner larger increase in their fee-based incomes. However current weakness being witnessed in the domestic primary and secondary market will hinder the growth of income from such services. Fee income for private sector and foreign banks has increased at a CAGR of 34.6% and 31%, respectively, between FY03 and FY08. The proportion is higher for private and foreign banks because of the expertise developed by them to provide such services and advance technologies adopted by them which gave them edge over the PSBs. Margins on such services are also higher as cost associated with the same chiefly includes labour.

Table 14.15 – Trend in Fee income growth and projected growth rate Banks

FY04

FY05

FY06

FY07

FY08

FY09E

FY10E

FY11E

SBI and associates

13.0

18.9

21.1

14.0

7.6

10.0

10.0

12.0

Nationalised banks

11.1

29.5

19.9

24.5

21.0

15.0

18.0

18.0

Private sector banks

20.4

39.4

44.8

33.8

35.9

12.0

15.0

18.0

Foreign banks

20.6

43.9

31.7

30.3

29.6

10.0

12.0

15.0

All SCBs

14.7

30.0

27.6

24.9

23.1

13.0

15.0

17.0

Source: RBI and CARE Research

131

14.5 Outlook on Net Interest Margin (NIM) We believe that NIM of banks will remain under pressure in FY10 and we expect some recovery in FY11.

Movement in interest rate to squeeze the NIM in near future Fig 14.14 –Benchmark Prime Lending Rate (BPLR - maximum) over the years 15.0

220 bps drop in BPLR

14.5 14.0 Percent

13.0 12.5 12.0 11.5 11.0 10.5 Jul-08

Nov-08

Mar-09

Jul-08

Nov-08

Mar-09

Mar-08

Nov-07

Jul-07

Mar-07

Nov-06

Jul-06

Mar-06

Nov-05

Jul-05

Mar-05

Nov-04

Jul-04

Mar-04

Nov-03

Jul-03

Mar-03

Nov-02

Jul-02

Mar-02

Nov-01

Jul-01

Mar-01

10.0

Source: RBI and CARE Research

Fig 14.15 – Deposit rate of for more than 1 year maturity over the years 11.0

150 bps drop in deposits rates

10.0 9.0 Percent

8.0 7.0 6.0

Source: RBI and CARE Research

132

Mar-08

Nov-07

Jul-07

Mar-07

Nov-06

Jul-06

Mar-06

Nov-05

Jul-05

Mar-05

Nov-04

Jul-04

Mar-04

Nov-03

Jul-03

Mar-03

Nov-02

Jul-02

Mar-02

Nov-01

Jul-01

5.0 Mar-01

REPORT ON INDIAN BANKING SECTOR

13.5

PLR fall has been steeper than the deposit rates Improvement in liquidity in the system driven by cut in policy rates and other measures resulted in cut in PLRs by the banks across the sector. Currently slower growth affecting incremental credit demand has led banks to reduce loan yields ahead of deposit rates. As seen in the graphs above, maximum benchmark prime lending rate have fallen by 220bps from its peak, against which the cut in the deposits rate was 150 bps, a shortfall of 70 bps.

Table 14.16 – Cut in BPLR and deposit rates by various banks Bank

PLR

Reduction

Deposits

Reduction

Mismatch in

(%)

in PLR

rates (%)

in Depo

reduction

rates (bps)

(bps)

(bps) SBI

REPORT ON INDIAN BANKING SECTOR

Canara Bank Punjab National Bank Allahabad Bank

12.0

200

8.5-9.0

25-100

100

12.75

125

8.0-9.0

50

75

12.0

175

8.25-8.5

25-100

75

12.25

200

8.25-9.25

100

100

Source: RBI and CARE Research

Lagged effect of deposit rate cut to trim the NIM at least in FY10 Substantial portion of bank deposits is mobilised at fixed interest rates with an asymmetric contractual relationship. During the upturn of the interest rate cycle, depositors have the flexibility to prematurely terminate the existing deposits and re-deposit the funds at higher interest rates. However, in the downturn of the interest rate cycle, banks have to necessarily carry these deposits at higher rates of interest till their maturity. Banks have mobilised fixed deposits especially in 1 to 3 years of maturity at around 10-10.5% during August 2008 to December 2008. Effect of cut in rates will be applicable for additional deposits. However cut in lending rates have immediate impact on interest receivables. These high interest carrying deposits will have negative impact on NIMs.

High share of longer maturity bulk deposits will pain more Banks which had relied on bulk deposits from HNI and corporates to aggressively fund growing demand for credit without increasing their low-cost deposit base and going for branch expansion. Longer maturity of bulk deposits will make these banks to pay higher rates on deposits and thus affecting their margins.

Period of high spread between PLR and deposits rates are gone As shown in the graph below, spread between the Benchmark prime lending rate and deposits rate of more than one year maturity touched its historic low of 3.0% in November 2008. However it recovered from that level in last 2 to 3 months to the level of 3.5%. During the period of FY03 to FY06, the spread was in the range of around 4.5% to 5.5%.

133

Fig 14.16 –Spread between BPLR - maximum and deposits rate for more than 1 year maturity 6.0 5.5 5.0

Percent

4.5 4.0 3.5 3.0 around its lowest level since last 6.5 years

2.5 2.0 1.5

Feb-09

Aug-08

Feb-08

Aug-07

Feb-07

Aug-06

Feb-06

Aug-05

Feb-05

Aug-04

Feb-04

Aug-03

Feb-03

Aug-02

Feb-02

Aug-01

Feb-01

Source: RBI and CARE Research

NIMs has positive correlation with the spread Fig 14.17 –Net Interest Margin (NIM) for SCBs over the years 3.20 3.10 3.00 2.90 Percent

REPORT ON INDIAN BANKING SECTOR

1.0

2.80 2.70 2.60 2.50 2.40 2.30 FY00

FY01

Source: RBI and CARE Research

134

FY02

FY03

FY04

FY05

FY06

FY07

FY08

We do not expect the period of FY03 to FY06 will repeat in next 2 to 3 years. Higher spread during these periods was mainly due to the following factors which we don’t expect to repeat in the current cycle. ¾ Lower deposits rates prevailed during FY03 to FY06. Deposits rates touched the low of 5.5% in January 2004. Deposits rates remained in the range of 5.5% to 7.0%.

REPORT ON INDIAN BANKING SECTOR

¾ Credit offtake started picking up from FY03 onwards. Good credit offtake during this period never made banks to aggressively lower their lending rates. However situation is different in the current slowdown. Banks have started resorting to sharp lending rate cuts even ahead of deposits rate cuts, both due to pressure from government and also due to slow incremental credit demand. ¾ Banks were not hungry for more deposits. Banks during these periods had largely built up SLR portfolio. Incremental credit demand during FY03 to FY06 was easily manageable by just liquidating or reducing the further investment in SLR securities. However, currently SLR portfolio is close to the minimum required level. Banks have to keep deposit rate attractive in order to mobilise deposits for incremental credit growth. ¾ The government is in favor of lower lending rate. Pressure on PSBs to lower rates and increasing sub-PLR lending in order to keep the growth momentum intact will have negative impact on the spread.

Table 14.17 –Speeding up of sub-PLR lending by PSBs at a lower interest rate to following sectors Sector Housing

Comment ¾ SBI offering loans at 8% for first 1 year ¾ Canara Bank offering loan at 8.5% for 1st year, 9.25% to 9.75% for next 3 years and then BPLR – 200 bps. ¾ Banks can lend up to 85% of the property amount as against 80% earlier.

Automobile

¾ Loan at 10% for 1st year from SBI

Exports

¾ Subsidised rate for export credit and extended payment period for sectors like textile, gems and jewellery

NBFC

¾ Loans up to Rs.3,000 crores to revive the NBFC sector

Source: RBI and CARE Research

Small saving interest rate to act as a floor for deposit rates Unlike in the earlier cycle, banks do not have a large built-up SLR portfolio which can be liquidated to fund the growth. Banks need to have at least equivalent or higher deposit growth to support the credit growth. We believe that administered small saving rates has little scope of reduction due to political pressure. Bringing down the interest rate on bank deposits below the level of rate offered by small saving instruments will divert the household savings to such instruments.

135

We believe that banks are left with little choice and will not lower the rates below the small saving interest rates. Although there is a marginal scope for reducing the deposit rates of around 50 bps. Given such a situation, further reduction in lending rates will put pressure on NIMs.

Fig 14.18 –Movements in interest rate on small saving instruments and bank deposits 10.0

offered higher rate to garner large deposits

Percent

9.0 8.0 7.0 6.0 5.0

Interest rate on small saving instruments Source: RBI and CARE Research

Mar'09

Jan'09

Oct'08

Jun'08

FY08

FY07

FY06

FY05

FY04

FY03

FY02

4.0 FY01

REPORT ON INDIAN BANKING SECTOR

Spread reduced to 100 bps in Mar'09

lower interest rate didn't bother much due to high SLR portfolio

Maximum Interest on Fixed deposits

Administered Saving deposits rate have little scope of reduction Banks in India are free to decide their lending and deposit rates other than deposits rate on saving accounts and NRI deposits. Currently interest rate on saving account is 3.5%. During the period of high credit growth, the spread between saving deposit rate (3.5%) and lending rate was higher, giving the banks better margin. With further cut in lending rates, the spread between the same to reduce In recent changes stipulated by RBI, Interest on saving deposits will be calculated on the basis of daily balance with effect from April 2010. Currently it is calculated on the basis of lowest balance kept on any day from 10th of the month to the end of the month. This will have significant impact on the margin of the bank as interest outgo on savuings account deposits will be higher.

136

Fig 14.19 –Trend in BPLR and saving deposit rate 14

Percent

12 10

At its lowest level since last 2 years.

8 6 4

Mar-09

Jan-09 Feb-09

Nov-08 Dec-08

Sep-08 Oct-08

Jul-08 Aug-08

May-08 Jun-08

Apr-08

Mar-08

Jan-08 Feb-08

Nov-07 Dec-07

Sep-07 Oct-07

Jul-07 Aug-07

May-07 Jun-07

BPLR (maximum)

Saving deposit intererst rate

Source: RBI and CARE Research

Fig 14.20 –Trend in the spread between BPLR and saving deposit rate 11.5

Spread increased due to increase in lending rate and vice versa post Oct'08

11.0 10.5 Percent

10.0 9.5 9.0 8.5 Feb-09 Mar-09

Dec-08 Jan-09

Sep-08 Oct-08 Nov-08

Jul-08 Aug-08

May-08 Jun-08

Mar-08 Apr-08

Jan-08 Feb-08

Nov-07 Dec-07

Aug-07 Sep-07 Oct-07

Jun-07 Jul-07

8.0 Apr-07 May-07

REPORT ON INDIAN BANKING SECTOR

Apr-07

2

spread between BPLR (maximum) and Saving deposit interest rate Source: RBI and CARE Research

Cut in SLR, CRR and repo to provide some breather CRR, repo and SLR have been cut by 400 bps, 400 bps and 100 bps, respectively, from their peak. CRR is the statutory minimum cash kept with RBI and does not earn any interest. Repo is rate charged by RBI for short-term funding. Cut in these policy rates decreases the cost of the fund for the banks, which in turn is positive for protecting the margins for the banks.

137

Fig 14.21 –Trend Repo and CRR for FY09 10 9 Percent

8 7 6 5

REPORT ON INDIAN BANKING SECTOR

Repo

Apr-09

Mar-09

Feb-09

Jan-09

Dec-08

Nov-08

Oct-08

Sep-08

Aug-08

Jul-08

Jun-08

May-08

Apr-08

4

CRR

Source: RBI and CARE Research

Pressure on NIM for private and foreign banks will be lower Pressure on the NIM for private and foreign banks will be lower due to following reasons ¾ BPLRs of major PSBs have come down by 150-175 basis points. Major private sector banks have reduced their BPLRs by 50 basis points, while major foreign banks are yet to do so. However reduction in deposits rates for private and foreign banks is in line with the industry. For example, reduction in PLR for banks like HDFC and ICICI was around 100 bps as compared to these, deposits rates have come down in the range of 150-200 bps across the maturity. ¾ Benefits of broad policy measures like reduction in CRR, repo and SLR are available to all the banks. As against this, these banks are shying away from low-cost lending like interest subvention scheme and lowering of interest rate on housing loan to boost demand. ¾ Lower margin lending due to pressure from government as done by PSBs to boost the slowing economy will be lower as government exercises lesser degree of control on these banks. ¾ Various measures have been taken by these banks to reduce the cost of the funds. Banks like ICICI and HDFC have increased the floor account balance limit for new saving accounts customers from Rs.5,000 to Rs.10,000. This move will increase the Current and Saving Accounts Ratio (CASA) ratio and in turn will lower the cost of funds.

FY11 will be a better year for NIMs We expect the economy to perform better in FY11 as compared to FY10 and credit offtake will also be higher in the later year. We believe that spread between the lending and deposit rates to stabilise in FY11. We believe that the lagging effect will not be present in FY11 as most of the rate cuts on deposits and lending front will be already done with by the end of FY10.

138

14.6 Outlook on Non-Performing Assets (NPAs) We believe that gross NPA to gross advances will increase from 2.3% in FY08 to 4.25-4.50% by the end of FY11 and Net NPA to Net advances will increase from current 1% to 2.7-3.0% by the end of FY11. We don’t rule out presence of high NPAs in the banking systems which are suppressed under the shadow of restructuring. Slippages in corporate advances (industry + service) will be lower in percentage terms as compared to retail advances. However corporate advances constitute higher proportion (64.6% of total loan book as on March 31, 2009) in total advances. Since gross NPAs for corporate advances will be higher in magnitude, it will drive the NPAs for the industry upward.

REPORT ON INDIAN BANKING SECTOR

NPA levels for private sector and foreign banks will increase more rapidly as compared to PSBs due to high proportion of retail portfolio and higher restructuring drive undertaken by PSBs which will defer booking of NPAs.

Table 14.18 – Projection for NPAs for various bank groups Bank group

Gross NPA to Gross advances

Net NPA to Net advances

FY08

FY08

FY09E

FY10E

FY11E

FY09E

FY10E

FY11E

Public Sector Banks

2.2

3.0

3.5

4.2

1.0

1.5

2.0

2.5

Old Pvt. sector banks

2.3

2.9

3.8

4.4

0.7

1.3

1.9

2.5

New Pvt. sector banks

2.5

3.3

4.0

4.6

1.3

2.0

2.7

3.3

Foreign banks

1.8

3.0

4.0

4.7

0.8

1.8

2.5

3.5

All SCBs

2.3

3.0

3.7

4.3

1.0

1.8

2.2

2.8

Source: RBI and CARE Research

Gross NPAs to Gross Advances to be lower than earlier cycle… We believe that gross NPA in terms of percentages will be significantly lower in current asset cycle as compared to earlier cycles. This is because lower proportion of lending to stressed sectors, comparatively lower corporate leverage, better risk management and recovery mechanisms by banks and improved debt restructuring programmes.

Reason for lower NPAs from corporate credit in current asset quality cycle Closer look into the factors which contributed to the higher slippages in corporate loan book in earlier cycles signals lower slippages in current cycles.

139

1. Industrial slowdown effects will be lower due to lower exposure to stressed sectors Industrial credit mix has changed drastically since FY99 in favor of low-risk sectors as compared to cyclical and cyclical-dependent sectors.

REPORT ON INDIAN BANKING SECTOR

Table 14.19 – Sector-wise exposure of industrial credit Sectors All Engineering Chemicals and Chemical Products Textiles Basic Metals and Metal Products Leather and Leather Products Food Processing Mining and Quarrying (including Coal) Paper and Paper Products Rubber, Plastic and their Products Beverage and Tobacco Cement and Cement Products Glass and Glass Ware Wood and Wood Products Gems and Jewellery Vehicles, Vehicle Parts and Transport Equipment Petroleum, Coal Products and Nuclear Fuels Construction Infrastructure Source: RBI and CARE Research

FY1999 12.0 11.1 13.0 13.5 1.4 6.5 1.4 1.6 1.1 0.6 1.5 2.3 1.7 3.1 1.4 3.3

FY2008 6.0 7.4 11.0 12.0 0.7 5.8 1.2 1.6 1.2 0.6 1.6 0.3 0.4 2.9 3.3 4.8 3.2 23.2

Up/(Down) (6.0) (3.7) (2.0) (1.5) (0.8) (0.7) (0.2) (0.1) 0.1 0.1 0.1 0.3 0.4 0.6 1.6 1.7 1.8 19.9

2. Increased credit to the resilient Infrastructure sector Lending to infrastructure-related sectors like power, telecom, roads and ports accounted for 23.2% of industry credit as on March 31, 2008 as compared to 3.3% of the total credit as on March 31, 1999. Power has lower risk due to annuity nature of business and being a highly regulated sector. From lenders’ perspective, the viability of most infrastructure projects is very high, given the significant shortage of infrastructure in India. Moreover, the GOI is keen on infrastructure development and has demonstrated support to the sector by recently increasing the concession period in case of some road projects and Build, Operate & Transfer (BOT) power projects by increasing the viability gap funding. 3. Dependence of Indian corporates on borrowed funds has reduced Indian corporates are relying on lesser-borrowed funds for their expansion plans. As seen in the table below, dependence on debt fund has reduced to 33.0% during the period FY02 to FY06 as compared to 58.8% during the period of FY86 to FY91 and 48.1% in FY93 to FY97. Lesser leverage by Indian corporates suggests better debt-servicing power.

140

Table 14.20 – Dependence of Indian corporates on borrowed funds

REPORT ON INDIAN BANKING SECTOR

Equity Internal accruals Raised (Equity) Debt (a+b) a) Borrowings (i+ii+iii+iv) i) Debentures ii) Banks iii) FI iv) Others b) Trade dues and current liabilities Source: RBI and CARE Research

FY86 to FY91 41.2 34.1 7.1 58.8 36.2 10.3 12.7 8.4 4.8 22.6

FY93 to FY97 51.9 31.3 20.6 48.1 33.3 5.2 10.7 8.3 9.1 14.8

FY98 to FY01 56.0 43.1 12.9 44.0 28.6 6.1 9.4 9.8 3.3 15.4

FY02 to FY06 67.0 56.1 10.9 33.0 13.8 (2.90) 21.5 (5.10) 0.3 19.2

4. Overhang component will not be present this time Analysis of the past decade indicates two prime contributors to high gross NPA: ¾ Overhang component in the form of old and stickier assets sitting in doubtful assets for a long time (due to longer recovery cycles); and ¾ Change in business cycles. For example the mid 1990s post-liberalisation crisis, which exposed operational inefficiencies, or the late-1990s crisis due to a slowdown instigated by the Asian crisis resulted in high level of NPAs. The problem of earlier cycles was that high NPAs were identified much later when the operational inefficiencies is set in and also recovery mechanisms were poor. Indian banks continued to accumulate NPAs from each downturn, resulting in gross NPA ratio of >15%. This has reduced off late by improving the provisioning and writes-off of loans and also due to better recovery mechanisms. Current cycle has no backlog NPAs of the earlier down cycle. The period between FY04 to mid of FY09 was the best for the Indian economy. Banks could recover some of their bad assets and lower NPAs of the current cycle have actually reduced the NPAs level to minimum. 5. Lower share of small-scale industries in total industrial credit The share of small-scale industrial credit has fallen from 28.9% of the total industrial credit in FY1990 to 16.6% in FY2006, rising marginally to 17.9% in FY08.

141

Fig 14.22 –Share of small scale credit in industrial credit over the years 30

Percent

28 26 24 22 20 18 16

Higher overall slippages due to high share of small scale credit

14 12

FY08

FY07

FY06

FY05

FY04

FY03

FY02

FY01

FY00

FY99

FY98

FY97

FY96

FY95

FY94

FY93

FY92

FY91

FY90

REPORT ON INDIAN BANKING SECTOR

10

Source: RBI and CARE Research

Small-scale industrial credit to see higher slippages CARE Research believes that within the industry as a group, small-scale enterprises are worst hit followed by the medium-scale enterprises. Large-scale players are better placed to face the slowdown due to their scale of operation, better negotiating power both on demand as well as supply side and higher access to alternative sources of funds. Auto ancillaries, small and medium scale suppliers of raw materials to large companies, textile whole sellers and retailers, small exporters of gems, jewellery and textiles products, tour operators and transporters are some of the worst hit business segments during a slowdown. Small-scale industrial loans will see higher slippages but contribution to total industrial slippages will be lower as they constitute only 17.9% of the total industrial credit and 6.9% of the overall credit.

Agriculture loan book looks stable Agriculture and food credit constituted 14.2% of the total bank credit as on March 31, 2008. An interesting characteristic of the current recession has been that consumption downturn has affected urban areas far more than rural areas. If we take Consumer Price Index for Agricultural Labourers and Rural labourers) (CPI-AL and CPI-RL) as an indicator for the demand for consumption basket for rural labour force; this ratio has actually risen quarter on quarter as compared to the overall decline in inflation rates. This indicates that rural consumption remains strong. Agriculture loan waiver scheme announced by the government has to some extent sanitised the agriculture loan books of the banks. We do not expect higher incremental slippages from agriculture loan book.

142

Retail portfolio to see increased slippages In FY09 the retail portfolio of banks has started showing some slippages. This is expected to continue in FY10 as well due to weak employment (income) scenario, declining prices of underlying assets coupled with banks’ limited ability in recovering personal loans. In our view, banks which built most of their retail books in the past one-two years should see greater slippages. Some of the private and foreign banks have seen the exponential growth in loan book by aggressively lending to sensitive sectors, personal loans and credit card loans and may see higher slippages.

Table 14.21 – Break-up of bank Retail credit for SCBs and expected slippages

REPORT ON INDIAN BANKING SECTOR

Type of loans

Advances

% of total

Approximate gross NPAs

(Rs cr)

loan book

over FY09 to FY11

Housing loans

2,52,932

10.2

1.5 to 3%

Credit card receivables

27,437

1.1

8 to 10%

Auto loans

87,998

3.6

4 to 6%

2,02,681

8.2

10 to 12%

Other personal loans Source: RBI and CARE Research

IT /ITES and financial services industries are key employers in metros and were major drivers of retail credit. Labor-heavy industries like textiles and gems & jewellery have also laid off people and we expect this to be an industry-wide phenomenon which could lead to higher retail delinquencies. Housing loans to bleed least in retail segment The last two years witnessed the development in housing markets such as increased competition among banks to tap borrowers, steady rise in property prices, an urge to leverage on falling interest rates, both among borrowers and lenders and strong growth in personal wealth; these led banks to easing their lending standards. Most of the mortgage loans disbursed during FY02-FY05 was at a Loan To Value (LTV) ratio of 70-75%. The LTV ratio steadily increased to above 80% by FY07-08. Further, banks have given longer duration loans, moving steadily from 15 years to over 20 years (select banks have 30 years loans too) and loans with a higher installment to income ratio. In the present uncertain environment with salary and job cuts, the property prices have also eased. In some tier 1 and tier 2 cities, the property prices have corrected by around 30% which translates into a loan value above the value of the house. Thus banks have been caught between lower assets values and lower ability of borrowers to pay the dues. However falling interest rate can provide some breather to the borrowers and increase their ability to service the loan partially. Interest rates have fallen since they peaked in October 2008. Banks have reduced the interest rate on housing loan by 150 to 200 bps. Borrowers also have the option to switch over to home loans provided by the PSBs at a relatively lower rate.

143

Reducing the Equated Monthly Installment (EMI) and increasing the tenure is one of the options to curtail delinquencies. We believe that slippages in housing loan will be around 1.5 to 3% of total outstanding. Auto loans: two-wheeler loans to be hit more than car loans We believe that slippages in auto loan will be around 4 to 6% of total outstanding. Two-wheeler loans are more or less like a personal loan and will be impacted more than car loan. Capacity to repay for households which have bought cars as a matter of comfort or luxury is fairly comfortable.

REPORT ON INDIAN BANKING SECTOR

Credit card and other personal loans: unsafe of all We believe that the worst hit will be personal loan category as it is riskiest asset class in retail credit followed by credit card receivables. Both of these types of loans are mostly unsecured. During the boom period, banks have aggressively provided personal loans as the yield on the same is the highest. CARE Research estimates that slippages in personal loan category will be highest of all, at around 10-12% of total outstanding followed by credit card receivables at around 8 to 10% of total outstanding.

CV loans and Commercial real estate to see high slippages in services We believe that commercial vehicle loans are likely to have more slippages due to lower cargo movements emanating from sluggish economic growth and slower industrial output. Moreover, around 95% of sales of CV are on finance and around 80% of the truck owners in India are single-truck owners. Such borrowers have inherent lower capacity to pay and the only source of servicing the loan on vehicle is income from transportation. Downturn in real estate is being felt more on commercial side as compared to residential side. Loans to commercial real estate will see higher slippages.

144

14.6.1

Restructuring of loans: breather for FY10 but may spoil the

party in FY11 The spillover effects of the global downturn have started affecting the Indian economy particularly from September 2008 onwards, creating stress for the otherwise viable units/activities. The basic objective of the RBI in restructuring is to preserve economic value of units, not ever greening of problem accounts. This can be achieved by banks and the borrowers only by careful assessment of the viability, quick detection of weaknesses in accounts and a timebound implementation of restructuring packages.

REPORT ON INDIAN BANKING SECTOR

RBI came out with the revised guidelines of restructuring of loans on August 27, 2008 and circulars to the guidelines thereafter. Following are the salient features of the guidelines. Guidelines issued on August 27, 2008 and circulars issued thereafter ¾ This guideline supersedes the earlier guideline issued in June 2007. ¾ As per the earlier guidelines, the accounts classified as 'standard assets' should be immediately re-classified as 'sub-standard assets' upon restructuring. However, the current guideline provides some relaxation in the same. As a special regulatory feature, the guideline provides retention of the asset classification of the restructured account in the pre-restructuring asset classification category. This is applicable for the loans which are restructured by the banks within 120 days of receipt of application (120 days for corporate debt restructuring). ¾ Banks are required to make the provision equal to difference between the present value of the loan asset restructured and present value of the asset before restructuring. 1. Present value of asset before restructuring The present value of future cash flows (principal and interest) based on the rate charged in original agreement, discounted at a rate which is the sum of current BPLR as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring. 2. Present value of restructured Asset The present value of future cash flows’ (principal and interest) based on rate charged as per the restructuring package, discounted at a rate which is the sum of current BPLR as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring. Full provision (100%) is required to be made on the difference between 1 and 2 above. Thus, difference could arise due to either change in interest rate or change in tenure of loan. ¾ A bank may find it difficult to ensure computation of diminution in the fair value of advances extended by small/rural branches, therefore as an alternative to the methodology prescribed above for computing the amount of diminution in the fair value, banks will have the option of notionally computing the amount of diminution in the fair value and providing at five per cent of the total exposure, in respect of all restructured accounts where the total loan outstanding is less than rupees one crore. 145

REPORT ON INDIAN BANKING SECTOR

Implication: ¾ This will enable banks to restructure the standard account without classifying it into the sub-standard category. ¾ Sub-standard asset attracts the provision of 10% of amount outstanding. However, if restructuring happens within the stipulated time, it will still be classified as standard asset only. ¾ Guidelines require 100% of the difference between the present value of loan asset before restructuring and present value of loan after restructuring to be charged as provision. ¾ As per various banks and our quick calculation shows that provisioning required to be made in this regard can come close to around 5% of the loan amount. ¾ Thus, in our view, the current guidelines may provide relief of up to 5% of loan asset restructured. ¾ Restructuring is not applicable to following categories of assets 1. Consumer and personal advances 2. Advances classified as Capital market exposures 3. Advances classified as commercial real estate exposures ¾ The extended period of loan account after restructuring should be less than 10 years, other than for infrastructure loans. ¾ Any loan which is eligible for restructuring should have a residual maturity of less than 10 years. This rule is not applicable for housing loans. This is because ceiling of 10 years would make many of the housing loans ineligible for special regulatory treatment, since housing loans are normally granted with much longer repayment period. ¾ Commercial real estate was put out of the preview of restructuring guidelines. Due to difficulties faced by the real estate sector, the circular dated on December 8, 2008 extends exceptions/special treatment to the commercial real estate exposures which are restructured up to June 30, 2009. ¾ The special regulatory treatment is restricted only to the cases where the restructuring under consideration is not a 'repeated restructuring'. However, in the face of the current economic downturn, there are likely to be instances of even viable units facing temporary cash flow problems. To address this issue, circular dated on December 8, 2008 allowed repeated restructuring. ¾ Special regulatory treatment was allowed even where full security cover for WCTL is not available, subject to the condition that provisions are made against the unsecured portion of the WCTL @ 20% for standard asset.

146

PSBs leading the race in restructuring PSBs are restructuring a number of accounts particularly under small and medium enterprises and retail loans. This may result in lower NPAs and provisioning for these banks in FY09 and at least in the first half of the FY10.

Breather for FY09 and FY10

REPORT ON INDIAN BANKING SECTOR

RBI by allowing longer period to restructure the bad loans, second restructuring and also restructuring of unsecured portion of loans has put the breaks on piling up of the provisioning and NPA levels of the banking sector. However, this may give temporary breather as banks could save provisioning to the maximum extent of 5% on the loan asset restructured. This will keep the book provisioning for FY09 and FY10 under a check at least for banks going for restructuring aggressively.

May postpone provisioning to FY11…. We believe that RBI’s intention is to give temporary breather to the banking sector as also to the industries suffering due to global slowdown and weakening domestic economy. One argument against such restructuring exercise is that it is just the fictitious drop in NPA levels or postponement of a particular period NPAs to another period. However, accounts getting restructured by the banks may also include accounts which are incapable of revival post recovery. Also if current crisis of global and domestic slowdown deepens then, the spillover restructuring loans will eventually turn bad and thus increase the NPAs and provisioning requirement further.

147

14.7 Outlook on Profitability of banks Interest earned Lower Interest on advances Lower Interest on investments Interest on balance with RBI/others Interest Expended

REPORT ON INDIAN BANKING SECTOR

Interest on deposits Interest on RBI/bank borrowings NII

Lower Lower Lower (but higher than Interest on Advances) Lower Lower Lower

Other Income Lower

of which, non-core income Lower of which, core income Operating expenses of which, staff cost Operating profit

Higher Higher Lower Higher

provisions and contingencies Lower Net Profit

148

¾ Slower growth in advances ¾ Reduction in lending rates ¾ Lower bond yields as compared to FY08 will decrease the interest earned ¾ Lower due to decreased in reverse repo and inter bank rates ¾ Will be lower but not as much as interest on advances ¾ Lagging effect to be present at least in FY10 ¾ Lower due to decrease in repo and inter-bank rates Lower due to lower non-core and core income growth ¾ Most of treasury gains booked in FY09. No more treasury gain in FY10 and FY11 due to rising bond yield as compared to levels seen in January 2009. ¾ Dent in economic activity to give sluggish growth ¾ Higher for PSBs due to wage revision ¾ Higher due to provisioning for restructuring ¾ Flat to marginally positive growth for FY10 ¾ Moderated growth (8to 10%) for FY11

Chapter 15 Bank’s Ranking We have ranked banks operating in India on the base of certain predefined quantitative and qualitative parameters as elaborated later. We have used the data published by RBI on individual banks in its various publications, mainly from “statistical tables relating to banks in India”. Although unlikely but there might be some discrepancy in the data published by individual banks and data released by RBI. However to ensure consistency, we have used only the data released by RBI. Data on individual banks for any financial year are released by RBI in the month of November or December of the next financial year. Due to this, we have done ranking of banks based on the financial information for March 2008.

REPORT ON INDIAN BANKING SECTOR

Fig 15.1 – Ranking Parameters Ranking Parameters

Qualitative Parameters (10%)

Business per branch (33.3%)

Business per employee (33.3%)

Quantitative Parameters (90%)

Profit per employee (33.3%)

Size (45%)

Profitability (25%)

Quality (15%)

Growth (15%)

¾No. of branches ¾Total business ¾Total profit (Equal weights)

¾NIM ¾ROA ¾ROE ¾CASA ¾Core spread (Equal weights)

¾CAR ¾CAR Tier 1 ¾Gross NPA ¾% of unsecured loan ¾Net NPA (Equal weights)

¾Advances growth ¾Deposit growth ¾Net profit growth (Equal weights)

Source: CARE Research (weights are mentioned in % below each parameters)

149

We have given higher weight to size because it has overwhelming impact on other parameters. In order to eliminate year specific happening/impact on parameters (baring the parameters of size for which data of FY08 is considered), we have considered 3 year weighted average of parameters (3 year CAGR for the parameter of growth) During FY09, State Bank of Saurashtra merged with its parent bank SBI and Centurion Bank of Punjab merged with HDFC Bank. Although these banks were in existence at the end of FY08, we have excluded them for our analysis.

REPORT ON INDIAN BANKING SECTOR

CARE Research believes that banks with a very low size banks may outscore medium to large size banks on many parameters of ranking only due to low base effect and not due to its core efficiency. Therefore we have excluded banks with less than five branches in our ranking. Thus, we have excluded 17 out of 27 foreign banks and one private bank from our Ranking analysis. 1. Abu Dhabi Commercial Bank 2. DBS Bank 3. Antwerp Diamond Bank 4. JP Morgan Chase Bank 5. Arab Bangladesh Bank 6. Krung Thai Bank 7. Bank Of Bahrain & Kuwait 8. Mashreq Bank 9. Bank Of Ceylon 10. Mizuho Corporate Bank 11. Bank Of Tokyo-Mitsubishi-UFI 12. Oman International Bank 13. Shinhan Bank 14. Societe Generale 15. Sonali Bank 16. State Bank of Mauritius 17. SBI Commercial & International Bank Thus, total number of banks included in our analysis is calculated as follows.

Table 15.1 – Calculation of no. of banks included in Ranking analysis Particulars

No.

Total number of banks operating in India as on March 31, 2008

78

Less: Banks merged during FY09

(2)

Less: Banks with less than five branches as on March 31, 2008 Total number of banks included for our analysis

(18) 58

Source: CARE Research

The Rank of individual banks have no baring on the ratings of those banks. This ranking exercise is based on parameters presented in figure 15.1. While rating an entity emphasis is placed on a more exhaustive set of parameters and also the economic environment.

150

Overall Ranking of banks on various parameters

151

Profitability

Quality

Growth

Total Quantitative

Quantitative Rank

Qualitative Rank

Total

Final Rank

HDFC Bank Axis Bank Indian Overseas Bank Indian Bank Bank Of India ICICI Bank Bank Of Baroda Punjab National Bank Corporation Bank Andhra Bank Allahabad Bank Union Bank Of India State Bank Of India State Bank Of Hyderabad Syndicate Bank Canara Bank Citi Bank Federal Bank IDBI Bank Punjab & Sind Bank Deutsche Bank Kotak Mahindra Bank State Bank Of Patiala Central Bank Of India Standard Chartered Bank Karur Vysya Bank HSBC State Bank Of Mysore Bank Of America Jammu & Kashmir Bank State Bank Of Bikaner & Jaipur Oriental Bank Of Commerce Nainital Bank Yes Bank City Union Bank South Indian Bank ABN AMRO Bank Vijaya Bank United Bank Of India State Bank Of Travancore Dena Bank Barclays Bank Tamilnad Mercantile Bank

Size

REPORT ON INDIAN BANKING SECTOR

Bank

Ranking Based on

12 15 10 13 3 6 4 2 16 17 11 7 1 18 9 4 25 31 18 29 38 38 21 8 28 40 40 32 49 33 30 20 56 46 47 36 42 22 23 25 27 57 45

3 14 10 8 20 50 43 13 31 15 20 23 26 37 30 45 1 18 58 9 7 22 54 48 2 19 4 17 6 32 27 53 5 36 11 42 11 48 46 35 34 25 16

11 13 17 4 41 24 21 28 8 9 31 37 47 16 52 25 48 5 18 27 34 22 20 58 51 7 40 33 12 15 29 30 3 10 23 19 36 45 46 42 54 2 14

5 4 18 24 14 10 17 52 25 46 30 45 48 25 12 56 13 21 19 7 2 3 34 23 41 32 27 20 28 50 39 47 9 1 14 21 30 38 33 54 29 11 50

37 52 49 47 59 73 65 61 74 75 75 82 81 88 86 89 93 90 103 89 108 111 115 107 116 116 127 112 126 126 122 126 123 127 127 128 134 133 132 135 135 140 138

1 4 3 2 5 8 7 6 9 10 11 13 12 15 14 16 19 18 20 16 22 23 25 21 27 26 33 24 30 32 28 31 29 35 33 36 39 38 37 41 40 45 44

15 13 31 41 26 12 25 40 17 29 35 22 36 27 38 22 2 21 9 49 4 33 19 55 11 24 8 45 1 18 48 15 52 14 43 42 7 37 53 32 47 10 34

2 5 6 6 7 8 9 9 10 12 13 14 14 16 16 17 17 18 19 19 20 24 24 24 25 26 31 26 27 31 30 29 31 33 34 37 36 38 39 40 41 42 43

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 31 27 28 32 30 29 33 34 35 37 36 38 39 40 41 42 45

152

Profitability

Quality

Growth

Total Quantitative

Quantitative Rank

Qualitative Rank

Total

Final Rank

Bank Of Maharashtra Calyon Bank UCO Bank BNP Paribas Bank Of Nova Scotia State Bank Of Indore Bank Of Rajasthan Karnataka Bank ING Vysya Bank Indusind Bank Ratnakar Bank Catholic Syrian Bank Lakshmi Vilas Bank Development Credit Bank Dhanalakshmi Bank

Size

REPORT ON INDIAN BANKING SECTOR

Bank

Ranking Based on

24 54 14 53 55 34 43 35 36 44 58 48 50 51 52

33 27 55 23 52 44 38 39 50 56 27 41 57 47 39

56 6 55 32 1 39 35 43 38 50 26 53 44 49 57

42 35 53 7 6 40 14 54 35 58 43 49 37 57 44

136 150 137 151 153 150 148 159 156 197 177 191 194 203 198

42 47 43 49 50 47 46 52 51 56 53 54 55 58 57

50 5 44 6 2 30 50 28 39 20 57 58 54 46 56

43 43 43 45 45 45 46 50 50 52 53 54 55 57 57

43 43 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking Based on Size of the Bank

Bank State Bank Of India Punjab National Bank Bank Of India Bank Of Baroda Canara Bank ICICI Bank Union Bank Of India Central Bank Of India Syndicate Bank Indian Overseas Bank Allahabad Bank HDFC Bank Indian Bank UCO Bank Axis Bank Corporation Bank Andhra Bank IDBI Bank State Bank Of Hyderabad Oriental Bank Of Commerce State Bank Of Patiala Vijaya Bank United Bank Of India Bank Of Maharashtra State Bank Of Travancore Citi Bank Dena Bank Standard Chartered Bank Punjab & Sind Bank State Bank Of Bikaner & Jaipur Federal Bank State Bank Of Mysore Jammu & Kashmir Bank State Bank Of Indore Karnataka Bank ING Vysya Bank South Indian Bank Kotak Mahindra Bank Deutsche Bank Karur Vysya Bank HSBC ABN AMRO Bank Bank Of Rajasthan Indusind Bank Tamilnad Mercantile Bank Yes Bank

153

No. of Branches 1 2 5 4 6 17 7 3 8 10 9 25 12 11 28 21 16 30 20 15 24 18 13 14 26 51 19 46 23 22 29 27 32 33 35 36 31 44 53 38 50 52 34 41 40 49

Ranking based on Total Business Net profit 1 1 3 3 4 4 6 9 5 8 2 2 8 10 7 20 10 15 13 11 16 14 9 7 17 13 14 22 12 12 18 16 22 18 11 17 19 19 15 30 20 21 23 27 24 32 26 31 28 23 21 5 30 29 27 6 34 25 29 34 33 26 31 33 32 28 35 39 40 38 37 42 41 43 38 36 42 23 44 40 25 47 36 37 45 48 39 51 47 45 43 41

Total Ranks 3 8 13 19 19 21 25 30 33 34 39 41 42 47 52 55 56 58 58 60 65 68 69 71 77 77 78 79 82 85 88 91 92 107 113 115 115 118 118 122 122 125 127 131 132 133

Final Rank 1 2 3 4 4 6 7 8 9 10 11 12 13 14 15 16 17 18 18 20 21 22 23 24 25 25 27 28 29 30 31 32 33 34 35 36 36 38 38 40 40 42 43 44 45 46

REPORT ON INDIAN BANKING SECTOR

Bank City Union Bank Catholic Syrian Bank Bank Of America Lakshmi Vilas Bank Development Credit Bank Dhanalakshmi Bank BNP Paribas Calyon Bank Bank Of Nova Scotia Nainital Bank Barclays Bank Ratnakar Bank

154

No. of Branches 43 37 56 39 45 42 54 55 56 47 56 48

Ranking based on Total Business Net profit 48 49 51 53 53 35 50 56 49 52 55 54 54 44 56 46 52 50 57 55 46 58 58 57

Total Ranks 140 141 144 145 146 151 152 157 158 159 160 163

Final Rank 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based on No. of branches as on 31st March 2008 Banks FY04 FY05 FY06 FY07 State Bank Of India 9,071 9,185 9,241 9,632 Punjab National Bank 4,102 4,128 4,142 4,168 Central Bank Of India 3,220 3,247 3,250 3,320 Bank Of Baroda 2,777 2,775 2,776 2,812 Bank Of India 2,666 2,670 2,678 2,760 Canara Bank 2,585 2,631 2,644 2,686 Union Bank Of India 2,109 2,139 2,169 2,286 Syndicate Bank 1,869 1,905 1,974 2,231 Allahabad Bank 2,012 2,027 2,027 2,140 Indian Overseas Bank 1,543 1,583 1,586 1,777 UCO Bank 1,805 1,798 1,815 1,923 Indian Bank 1,415 1,417 1,435 1,478 United Bank Of India 1,336 1,345 1,350 1,361 Bank Of Maharashtra 1,291 1,330 1,336 1,386 Oriental Bank Of Commerce 1,050 1,168 1,184 1,334 Andhra Bank 1,133 1,162 1,164 1,230 ICICI Bank 418 515 563 716 Vijaya Bank 918 968 979 1,039 Dena Bank 1,091 1,072 1,064 1,071 State Bank Of Hyderabad 919 943 959 990 Corporation Bank 706 799 824 923 State Bank Of Bikaner & Jaipur 823 833 836 876 Punjab & Sind Bank 783 787 786 860 State Bank Of Patiala 747 754 762 792 HDFC Bank 295 446 515 666 State Bank Of Travancore 679 681 703 718 State Bank Of Mysore 624 640 646 658 Axis Bank 184 250 348 501 Federal Bank 446 471 482 552 IDBI Bank 93 37 173 442 South Indian Bank 415 439 440 484 Jammu & Kashmir Bank 428 442 450 461 State Bank Of Indore 448 456 453 468 Bank Of Rajasthan 356 388 402 458 Karnataka Bank 384 398 412 428 ING Vysya Bank 386 381 387 413 Catholic Syrian Bank 311 314 325 345 Karur Vysya Bank 234 257 263 289 Lakshmi Vilas Bank 239 239 240 250 Tamilnad Mercantile Bank 182 183 184 194 Indusind Bank 62 127 146 185 Dhanalakshmi Bank 171 182 185 189 City Union Bank 131 137 142 164 Kotak Mahindra Bank 41 54 78 110 Development Credit Bank 66 89 91 93 Standard Chartered Bank 71 85 87 82 Nainital Bank 61 69 81 82 Ratnakar Bank 72 75 78 80 Yes Bank 3 6 41 HSBC 36 39 42 47 Citi Bank 25 35 39 40 ABN AMRO Bank 16 19 23 28 Deutsche Bank 5 5 8 8 BNP Paribas 6 9 9 9 Calyon Bank 1 4 6 6 Bank Of America 2 5 5 5 Bank Of Nova Scotia 3 5 5 5 Barclays Bank 1 1 1 3

155

FY08 10,369 4,275 3,433 2,931 2,805 2,787 2,410 2,281 2,233 1,951 1,946 1,576 1,436 1,415 1,376 1,275 1,268 1,112 1,098 1,025 1,006 895 871 840 743 725 684 643 618 509 508 498 488 478 453 421 363 296 253 217 195 189 183 182 104 91 89 81 61 47 40 28 11 9 6 5 5 5

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 56 56

REPORT ON INDIAN BANKING SECTOR

Ranking based on Total Business as on 31st March 2008 Banks FY04 FY05 FY06 FY07 State Bank Of India 476,552 569,422 641,847 772,858 ICICI Bank 130,204 191,224 311,246 426,376 Punjab National Bank 135,141 163,580 194,312 236,456 Bank Of India 116,859 134,350 159,106 204,818 Canara Bank 133,983 157,217 196,229 240,887 Bank Of Baroda 108,568 124,734 153,574 208,537 Central Bank Of India 78,713 88,029 103,966 134,572 Union Bank Of India 79,985 101,936 127,474 147,567 HDFC Bank 48,153 61,921 90,858 115,243 Syndicate Bank 63,232 73,024 90,091 130,304 IDBI Bank NA 60,516 78,740 105,825 Axis Bank 30,317 47,315 62,428 95,662 Indian Overseas Bank 61,777 69,446 85,286 115,801 UCO Bank 59,871 77,126 91,921 111,849 Oriental Bank Of Commerce 55,354 73,150 83,775 108,134 Allahabad Bank 46,818 61,913 77,647 100,834 Indian Bank 44,570 53,189 63,290 76,149 Corporation Bank 37,081 45,780 56,839 72,307 State Bank Of Hyderabad 36,072 44,529 54,888 69,612 State Bank Of Patiala 35,560 41,855 55,958 67,953 Citi Bank 35,724 39,595 52,367 70,736 Andhra Bank 35,826 45,068 56,023 69,343 Vijaya Bank 32,060 39,954 44,373 61,828 United Bank Of India 30,722 36,738 44,772 59,323 HSBC 25,898 29,633 41,767 57,966 Bank Of Maharashtra 38,177 41,906 43,376 56,839 Standard Chartered Bank 36,101 42,493 52,537 64,278 State Bank Of Travancore 30,854 38,981 44,863 55,770 State Bank Of Bikaner & Jaipur 24,239 31,075 37,589 49,007 Dena Bank 27,761 32,205 37,854 45,993 State Bank Of Mysore 17,390 22,366 28,123 38,488 Jammu & Kashmir Bank 27,946 33,162 37,968 42,274 Federal Bank 21,177 24,015 29,615 36,484 Punjab & Sind Bank 19,672 20,493 26,032 31,056 State Bank Of Indore 16,825 22,848 28,537 35,328 ABN AMRO Bank 12,553 16,862 26,937 34,386 ING Vysya Bank 17,525 21,650 23,567 27,395 Kotak Mahindra Bank 6,556 8,317 12,914 21,924 Indusind Bank 18,501 22,114 24,317 28,729 Karnataka Bank 14,075 17,124 21,035 23,590 South Indian Bank 12,477 13,858 15,949 20,158 Deutsche Bank 4,631 6,098 6,962 11,923 Yes Bank NA 1,424 5,317 14,510 Karur Vysya Bank 9,935 11,292 13,132 16,381 Bank Of Rajasthan 9,838 11,016 12,956 16,520 Barclays Bank 92 77 365 1,183 Tamilnad Mercantile Bank 6,518 7,453 8,329 10,067 City Union Bank 4,394 5,108 6,067 8,029 Development Credit Bank 6,914 6,051 4,991 7,074 Lakshmi Vilas Bank 5,335 5,814 7,289 8,633 Catholic Syrian Bank 5,779 6,310 6,984 7,761 Bank Of Nova Scotia 3,713 3,655 4,795 4,952 Bank Of America 5,035 5,212 5,475 5,634 BNP Paribas 3,052 3,392 3,701 4,440 Dhanalakshmi Bank 3,294 3,749 4,127 4,927 Calyon Bank NA 1,980 1,384 1,778 Nainital Bank 994 1,296 1,729 2,276 Ratnakar Bank 1,061 1,208 1,365 1,407

156

FY08 954,172 470,047 285,959 263,488 261,310 258,735 183,317 178,207 164,196 159,222 155,211 147,287 144,749 134,991 132,423 121,337 100,885 94,610 85,957 84,971 84,502 83,675 79,641 74,829 72,565 71,044 70,308 63,491 59,184 56,967 48,490 47,476 44,818 43,175 42,923 39,293 35,148 31,976 31,833 27,858 25,610 22,715 22,703 21,972 21,283 14,537 13,002 10,962 10,144 9,477 8,631 8,529 7,643 7,008 5,710 2,947 2,785 1,687

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based on Net profit for the year ended on 31st March 2008 Banks FY04 FY05 FY06 FY07 FY08 State Bank Of India 3,681 4,305 4,407 4,541 6,729 ICICI Bank 1,637 2,005 2,540 3,110 4,158 Punjab National Bank 1,109 1,410 1,439 1,540 2,049 Bank Of India 1,008 340 701 1,123 2,009 Citi Bank 572 600 706 900 1,804 Standard Chartered Bank 596 602 905 1,364 1,706 HDFC Bank 510 666 871 1,141 1,590 Canara Bank 1,338 1,110 1,343 1,421 1,565 Bank Of Baroda 967 666 827 1,027 1,436 Union Bank Of India 712 719 675 845 1,387 Indian Overseas Bank NA 651 783 1,008 1,202 Axis Bank 278 335 485 659 1,071 Indian Bank 513 408 504 760 1,009 Allahabad Bank 463 542 706 750 975 Syndicate Bank 434 403 536 716 848 Corporation Bank 504 402 444 536 735 IDBI Bank 406 307 561 630 729 Andhra Bank 464 520 485 538 576 State Bank Of Hyderabad 381 251 427 506 557 Central Bank Of India 618 357 257 498 550 State Bank Of Patiala 430 287 303 367 414 UCO Bank 435 346 197 316 412 State Bank Of Travancore 245 247 259 326 386 Deutsche Bank 273 77 126 218 386 Punjab & Sind Bank 9 (71) 108 219 382 Federal Bank 136 90 225 293 368 Vijaya Bank 411 381 127 331 361 Jammu & Kashmir Bank 406 115 177 274 360 Dena Bank 230 61 73 202 360 Oriental Bank Of Commerce 686 726 557 581 353 Bank Of Maharashtra 305 177 51 272 328 United Bank Of India 315 300 205 267 319 State Bank Of Mysore 176 206 217 249 319 State Bank Of Bikaner & Jaipur 302 206 145 306 315 Bank Of America 64 80 145 196 305 Kotak Mahindra Bank 79 85 118 141 294 ABN AMRO Bank 195 195 242 385 281 Karnataka Bank 133 147 176 177 242 State Bank Of Indore 226 133 139 190 234 Karur Vysya Bank 161 105 135 160 208 Yes Bank NA (4) 55 94 200 ING Vysya Bank 59 (38) 9 89 157 South Indian Bank 84 9 51 104 152 BNP Paribas (13) 15 19 64 131 Tamilnad Mercantile Bank 81 82 101 106 127 Calyon Bank NA (16) 76 90 127 HSBC 394 337 515 846 119 Bank Of Rajasthan 69 35 15 111 115 City Union Bank 57 46 56 72 102 Bank Of Nova Scotia 18 (12) 32 76 101 Indusind Bank 262 210 37 68 75 Development Credit Bank 17 (163) (85) 7 38 Catholic Syrian Bank 56 11 6 19 37 Dhanalakshmi Bank 17 (22) 10 16 28 Nainital Bank 12 11 12 18 27 Lakshmi Vilas Bank 41 3 22 18 25 Ratnakar Bank 8 (9) 1 3 17 Barclays Bank 72 63 122 91 6

157

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 23 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking Based on Profitability Banks Citi Bank Standard Chartered Bank HDFC Bank HSBC Nainital Bank Bank Of America Deutsche Bank Indian Bank Punjab & Sind Bank Indian Overseas Bank City Union Bank ABN AMRO Bank Punjab National Bank Axis Bank Andhra Bank Tamilnad Mercantile Bank State Bank Of Mysore Federal Bank Karur Vysya Bank Allahabad Bank Bank Of India Kotak Mahindra Bank Union Bank Of India BNP Paribas Barclays Bank State Bank Of India Ratnakar Bank State Bank Of Bikaner & Jaipur Calyon Bank Syndicate Bank Corporation Bank Jammu & Kashmir Bank Bank Of Maharashtra Dena Bank State Bank Of Travancore Yes Bank State Bank Of Hyderabad Bank Of Rajasthan Dhanalakshmi Bank Karnataka Bank Catholic Syrian Bank South Indian Bank Bank Of Baroda State Bank Of Indore Canara Bank United Bank Of India Development Credit Bank

158

NIM 1 7 4 3 8 6 11 15 14 17 12 5 16 36 23 9 27 20 19 37 39 2 28 13 18 26 10 22 29 42 32 35 24 33 31 45 46 47 25 38 21 30 34 50 49 44 41

ROA 2 5 17 6 14 4 15 13 24 18 10 33 29 23 21 9 27 16 8 18 32 28 30 12 3 36 46 43 1 37 22 35 50 44 38 7 31 40 51 20 55 41 42 39 34 48 58

ROE Rank 11 3 16 31 23 43 46 9 14 1 5 30 24 13 15 32 2 17 18 10 8 47 12 49 56 28 57 19 39 6 26 37 36 29 4 25 7 21 40 22 50 38 41 20 27 45 58

CASA Rank 4 7 3 6 5 2 1 27 12 22 50 16 9 10 25 44 29 47 45 20 23 46 26 17 58 8 18 21 54 30 24 19 11 13 38 56 33 32 39 51 40 48 28 34 31 14 42

Core spread Rank 5 7 6 3 8 15 2 15 17 25 11 4 23 20 24 19 34 21 38 45 28 9 39 44 1 41 10 36 18 30 42 22 32 35 52 31 48 27 13 37 14 26 43 47 55 46 12

Total ranks 23 29 46 49 58 70 75 79 81 83 88 88 101 102 108 113 119 121 128 130 130 132 135 135 136 139 141 141 141 145 146 148 153 154 163 164 165 167 168 168 180 183 188 190 196 197 211

Final Rank 1 2 3 4 5 6 7 8 9 10 11 11 13 14 15 16 17 18 19 20 20 22 23 23 25 26 27 27 27 30 31 32 33 34 35 36 37 38 39 39 41 42 43 44 45 46 47

REPORT ON INDIAN BANKING SECTOR

Banks Central Bank Of India Vijaya Bank ICICI Bank ING Vysya Bank Bank Of Nova Scotia Oriental Bank Of Commerce State Bank Of Patiala UCO Bank Indusind Bank Lakshmi Vilas Bank IDBI Bank

159

NIM 43 48 55 40 56 51 54 53 57 52 58

ROA 53 47 26 52 11 25 45 54 57 56 49

ROE Rank 48 34 44 53 35 51 33 42 55 54 52

CASA Rank 15 35 49 36 57 37 43 41 55 52 53

Core spread Rank 54 49 40 33 58 57 51 56 29 50 53

Total ranks 213 213 214 214 217 221 226 246 253 264 265

Final Rank 48 48 50 50 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based Weighted Average Net Interest Margin as on 31st March 2008 Banks FY04 FY05 FY06 FY07 FY08 Weight Avg Citi Bank 4.94 4.58 5.20 4.81 4.86 4.91 Kotak Mahindra Bank 2.93 3.66 4.55 4.35 5.08 4.76 HSBC 2.99 3.69 4.20 4.96 4.53 4.59 HDFC Bank 3.68 3.79 4.08 4.50 4.66 4.50 ABN AMRO Bank 4.49 4.41 3.68 4.44 4.85 4.49 Bank Of America 2.34 2.44 3.50 4.06 4.86 4.35 Standard Chartered Bank 4.56 3.87 4.49 4.56 4.15 4.34 Nainital Bank 4.08 3.89 4.37 4.47 4.02 4.23 Tamilnad Mercantile Bank 4.40 4.32 4.20 4.49 3.45 3.91 Ratnakar Bank 2.86 3.18 3.25 3.49 4.17 3.78 Deutsche Bank 1.01 0.88 2.07 3.39 4.28 3.57 City Union Bank 3.31 3.31 3.67 3.53 3.22 3.40 BNP Paribas 2.74 2.88 3.30 3.29 3.49 3.39 Punjab & Sind Bank 3.34 3.73 3.63 3.74 3.08 3.39 Indian Bank 3.00 3.14 3.30 3.61 3.15 3.32 Punjab National Bank 3.84 3.51 3.44 3.58 3.06 3.29 Indian Overseas Bank 3.62 3.78 3.75 3.62 2.91 3.29 Barclays Bank 2.17 1.97 2.67 2.66 3.74 3.20 Karur Vysya Bank 4.47 3.42 3.35 3.46 2.87 3.14 Federal Bank 3.09 3.15 3.20 3.20 3.01 3.11 Catholic Syrian Bank 2.99 3.34 3.19 3.27 2.91 3.07 State Bank Of Bikaner & Jaipur 3.74 3.98 3.90 3.45 2.48 3.06 Andhra Bank 3.52 3.58 3.19 3.21 2.73 2.97 Bank Of Maharashtra 2.70 2.71 3.03 3.12 2.82 2.95 Dhanalakshmi Bank 3.05 2.87 3.02 3.07 2.80 2.93 State Bank Of India 2.85 3.21 3.27 3.03 2.64 2.88 State Bank Of Mysore 3.62 3.63 3.41 3.09 2.54 2.88 Union Bank Of India 3.17 3.16 2.94 2.91 2.72 2.82 Calyon Bank NA 1.49 1.34 2.81 3.39 2.81 South Indian Bank 2.37 2.74 3.06 3.00 2.56 2.79 State Bank Of Travancore 3.18 3.39 3.15 3.25 2.33 2.77 Corporation Bank 3.48 3.58 3.30 2.96 2.42 2.76 Dena Bank 2.80 2.97 2.86 2.95 2.55 2.73 Bank Of Baroda 3.18 3.31 3.05 2.95 2.42 2.71 Jammu & Kashmir Bank 3.26 2.61 2.61 2.79 2.64 2.68 Axis Bank NA NA 2.47 2.55 2.83 2.67 Allahabad Bank 3.46 3.42 3.14 2.85 2.36 2.66 Karnataka Bank 2.15 2.74 2.66 2.69 2.64 2.66 Bank Of India 2.73 2.49 2.54 2.71 2.64 2.64 ING Vysya Bank 1.97 2.49 2.99 3.01 2.22 2.61 Development Credit Bank 1.95 1.39 1.79 2.66 2.90 2.61 Syndicate Bank 3.50 3.41 3.32 2.86 2.11 2.58 Central Bank Of India 3.52 3.60 3.32 2.95 2.05 2.57 United Bank Of India 3.12 3.33 3.27 3.12 1.87 2.53 Yes Bank NA 1.42 3.24 2.24 2.40 2.52 State Bank Of Hyderabad 2.96 2.94 2.90 3.02 2.01 2.49 Bank Of Rajasthan 2.60 2.42 2.35 2.90 2.25 2.47 Vijaya Bank 3.88 3.70 3.20 2.90 1.88 2.45 Canara Bank 2.95 3.01 2.95 2.70 2.04 2.42 State Bank Of Indore 3.71 3.35 2.88 2.58 2.13 2.42 Oriental Bank Of Commerce 3.88 3.21 2.84 2.55 2.04 2.35 Lakshmi Vilas Bank 2.38 2.71 2.35 2.42 2.01 2.20 UCO Bank 3.04 2.86 2.69 2.48 1.81 2.19 State Bank Of Patiala 3.41 3.34 2.74 2.50 1.67 2.13 ICICI Bank 1.62 1.94 2.25 2.23 1.96 2.10 Bank Of Nova Scotia 1.61 1.59 1.54 2.09 1.69 1.78 Indusind Bank 2.54 2.71 1.90 1.41 1.54 1.57 IDBI Bank NA 0.23 0.45 0.68 0.56 0.57

160

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based Weighted Average Return on Asset as on 31st March 2008 Banks FY04 FY05 FY06 FY07 FY08 Weight Avg Calyon Bank NA -0.80 4.30 4.60 4.20 4.34 Citi Bank 3.55 2.84 3.07 2.79 4.33 3.62 Barclays Bank 5.20 3.29 9.64 4.45 0.10 3.31 Bank Of America 1.26 1.46 2.41 3.10 3.76 3.29 Standard Chartered Bank 1.74 1.97 2.49 3.06 3.13 2.98 HSBC 0.91 1.27 1.58 1.82 1.82 1.77 Yes Bank NA -0.29 2.13 1.44 1.54 1.63 Karur Vysya Bank 2.43 1.45 1.65 1.53 1.63 1.60 Tamilnad Mercantile Bank 1.59 1.52 1.67 1.57 1.58 1.60 City Union Bank 1.86 1.33 1.46 1.57 1.60 1.56 Bank Of Nova Scotia 0.64 -0.35 0.83 1.73 1.73 1.55 BNP Paribas -0.44 0.50 0.55 1.41 1.97 1.52 Indian Bank 1.21 1.08 1.16 1.46 1.64 1.49 Nainital Bank 1.58 1.25 1.06 1.26 1.67 1.43 Deutsche Bank 3.17 0.72 1.04 1.23 1.56 1.36 Federal Bank 0.90 0.62 1.28 1.38 1.34 1.34 HDFC Bank 1.45 1.47 1.38 1.33 1.32 1.34 Allahabad Bank 1.34 1.33 1.42 1.26 1.32 1.32 Indian Overseas Bank 1.08 1.28 1.32 1.36 1.30 1.32 Karnataka Bank 1.34 1.27 1.28 1.15 1.37 1.29 Andhra Bank 1.72 1.59 1.38 1.31 1.16 1.25 Corporation Bank 1.96 1.12 1.24 1.17 1.29 1.24 Axis Bank NA NA 1.18 1.10 1.24 1.19 Punjab & Sind Bank 0.06 -0.45 0.64 1.01 1.49 1.18 Oriental Bank Of Commerce 1.70 2.01 1.39 1.21 1.02 1.15 ICICI Bank 1.31 1.48 1.30 1.09 1.12 1.15 State Bank Of Mysore 1.28 1.25 1.23 1.10 1.08 1.12 Kotak Mahindra Bank 2.40 1.56 1.39 0.94 1.10 1.11 Punjab National Bank 1.08 1.17 1.09 1.03 1.15 1.10 Union Bank Of India 1.22 1.10 0.84 0.92 1.26 1.07 State Bank Of Hyderabad 1.25 0.79 1.13 1.14 1.00 1.07 Bank Of India 1.25 0.38 0.68 0.88 1.25 1.03 ABN AMRO Bank 1.84 1.27 1.03 1.37 0.78 1.01 Canara Bank 1.34 1.01 1.13 0.98 0.92 0.98 Jammu & Kashmir Bank 1.92 0.47 0.67 0.96 1.09 0.97 State Bank Of India 0.94 0.99 0.89 0.84 1.01 0.94 Syndicate Bank 1.67 0.82 0.91 0.91 0.88 0.90 State Bank Of Travancore 1.02 0.86 0.86 0.86 0.89 0.88 State Bank Of Indore 1.73 0.92 0.76 0.87 0.88 0.85 Bank Of Rajasthan 0.82 0.38 0.19 1.16 0.91 0.84 South Indian Bank 1.00 0.09 0.53 0.76 1.01 0.84 Bank Of Baroda 1.20 0.75 0.79 0.72 0.89 0.82 State Bank Of Bikaner & Jaipur 1.49 0.88 0.53 0.89 0.87 0.81 Dena Bank 1.11 0.26 0.29 0.71 1.06 0.80 State Bank Of Patiala 1.60 0.91 0.73 0.77 0.83 0.79 Ratnakar Bank 1.12 -1.17 0.07 0.31 1.31 0.76 Vijaya Bank 1.91 1.43 0.45 0.92 0.75 0.74 United Bank Of India 1.25 1.04 0.66 0.73 0.68 0.69 IDBI Bank NA 0.78 0.68 0.67 0.67 0.67 Bank Of Maharashtra 0.95 0.54 0.16 0.76 0.75 0.64 Dhanalakshmi Bank 0.71 -0.83 0.33 0.52 0.76 0.60 ING Vysya Bank 0.45 -0.25 0.05 0.52 0.74 0.54 Central Bank Of India 0.98 0.53 0.37 0.62 0.54 0.53 UCO Bank 1.13 0.73 0.34 0.47 0.52 0.47 Catholic Syrian Bank 1.31 0.24 0.13 0.37 0.64 0.46 Lakshmi Vilas Bank 1.19 0.08 0.53 0.33 0.41 0.41 Indusind Bank 1.74 1.50 0.22 0.34 0.34 0.32 Development Credit Bank 0.37 -3.38 -2.01 0.71 0.60 0.11

161

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 18 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based Weighted Average Return on Equity as on 31st March 2008 Banks FY04 FY05 FY06 FY07 FY08 Weight Avg Indian Overseas Bank 28.96 27.98 27.23 28.14 27.18 27.48 State Bank Of Mysore 34.83 30.82 25.62 24.00 25.31 24.98 Standard Chartered Bank 21.56 20.16 23.21 26.33 24.08 24.58 State Bank Of Travancore 29.68 24.05 21.02 22.26 23.28 22.52 City Union Bank 31.03 20.88 21.40 22.03 21.82 21.80 Syndicate Bank 24.92 19.64 21.32 22.18 21.42 21.63 State Bank Of Hyderabad 26.99 15.03 22.01 21.72 21.28 21.56 Bank Of India 26.71 8.03 14.85 20.65 24.38 21.36 Indian Bank 7.61 7.12 11.97 24.00 22.29 20.74 Allahabad Bank 34.04 27.93 23.67 18.49 20.05 20.31 Citi Bank 23.70 19.98 18.43 16.44 22.62 19.93 Union Bank Of India 25.19 21.46 16.52 17.34 22.13 19.57 Axis Bank NA NA 18.28 20.96 17.60 18.74 Punjab & Sind Bank 1.92 -15.67 13.03 16.63 21.86 18.53 Andhra Bank 36.10 31.62 20.52 17.78 17.97 18.42 HDFC Bank 20.61 18.45 17.74 19.46 17.74 18.26 Federal Bank 23.14 13.13 22.82 21.27 13.56 17.73 Karur Vysya Bank 25.35 14.30 16.58 16.54 18.49 17.52 State Bank Of Bikaner & Jaipur 29.39 16.81 10.73 19.99 18.71 17.50 State Bank Of Indore 32.94 15.73 14.48 17.31 18.77 17.47 Bank Of Rajasthan 22.46 10.30 4.28 27.29 16.62 17.35 Karnataka Bank 20.78 17.56 16.85 15.07 18.47 17.13 Nainital Bank 19.62 15.83 12.90 14.95 20.07 17.10 Punjab National Bank 24.52 21.41 16.41 15.55 18.01 16.95 Yes Bank NA -1.73 14.01 13.88 19.00 16.47 Corporation Bank 19.62 13.81 13.82 15.02 18.39 16.47 Canara Bank 28.47 19.53 20.29 16.25 15.01 16.44 State Bank Of India 19.67 19.43 17.04 15.41 16.75 16.41 Dena Bank 22.45 5.65 5.98 14.22 21.82 16.37 ABN AMRO Bank 18.66 15.63 16.47 21.63 12.93 16.25 HSBC 8.33 11.17 13.30 16.38 16.31 15.73 Tamilnad Mercantile Bank 18.47 15.90 16.65 14.94 15.67 15.65 State Bank Of Patiala 27.39 15.21 14.17 15.52 15.92 15.45 Vijaya Bank 38.32 26.02 7.79 18.58 16.59 15.43 Bank Of Nova Scotia 6.86 -4.47 11.30 16.65 15.39 14.95 Bank Of Maharashtra 25.21 11.90 3.26 16.41 18.64 14.90 Jammu & Kashmir Bank 28.66 7.06 10.21 14.42 16.79 14.76 South Indian Bank 23.56 2.05 9.29 15.26 16.09 14.48 Calyon Bank NA -7.08 14.56 11.98 15.54 14.28 Dhanalakshmi Bank 13.74 -17.41 7.66 11.46 17.81 13.88 Bank Of Baroda 20.32 12.58 12.28 12.45 14.58 13.48 UCO Bank 29.14 17.86 8.68 12.34 14.75 12.81 Bank Of America 9.60 7.53 9.58 11.64 14.57 12.69 ICICI Bank 20.93 18.86 14.33 13.17 11.63 12.63 United Bank Of India 16.07 15.33 10.81 12.60 12.57 12.23 Deutsche Bank 31.04 7.18 9.90 13.42 12.39 12.20 Kotak Mahindra Bank 13.00 12.46 14.58 11.19 11.19 11.87 Central Bank Of India 22.90 11.46 7.68 13.77 11.31 11.32 BNP Paribas -4.42 4.28 4.60 10.24 13.35 10.67 Catholic Syrian Bank 33.83 5.28 2.89 8.57 13.68 9.99 Oriental Bank Of Commerce 28.67 24.19 13.11 10.78 6.21 8.96 IDBI Bank NA 5.18 9.12 8.59 8.52 8.66 ING Vysya Bank 8.12 -4.80 0.97 8.38 11.89 8.65 Lakshmi Vilas Bank 19.61 1.46 8.63 5.12 6.21 6.37 Indusind Bank 37.37 25.79 4.34 7.10 6.24 6.12 Barclays Bank 19.43 11.33 11.75 6.57 0.20 4.42 Ratnakar Bank 17.87 -19.14 1.19 2.38 6.51 4.21 Development Credit Bank 6.47 -63.79 -46.90 2.95 7.86 -4.57

162

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based on Weighted CASA as on 31st March 2008 Banks FY04 FY05 FY06 FY07 FY08 Deutsche Bank 59.1 58.0 74.9 74.4 69.5 Bank Of America 50.2 57.6 78.6 63.9 64.7 HDFC Bank 54.7 60.6 55.4 57.7 54.5 Citi Bank 46.2 56.0 58.7 48.4 49.4 Nainital Bank 51.2 49.4 54.0 49.1 45.3 HSBC 46.2 50.7 53.8 43.5 46.1 Standard Chartered Bank 44.8 46.2 49.9 42.7 47.5 State Bank Of India 40.8 41.3 47.6 48.5 43.0 Punjab National Bank 45.9 46.3 49.0 46.2 43.0 Axis Bank 38.1 38.0 40.0 39.9 45.7 Bank Of Maharashtra 31.8 33.0 42.8 43.2 42.2 Punjab & Sind Bank 41.5 46.3 52.1 45.7 36.3 Dena Bank 41.5 42.0 43.6 44.5 39.2 United Bank Of India 44.8 46.6 46.4 42.0 38.6 Central Bank Of India 43.3 43.6 46.8 42.1 36.1 ABN AMRO Bank 56.3 58.0 43.4 37.7 39.7 BNP Paribas 28.5 36.0 30.7 29.4 47.2 Ratnakar Bank 26.2 28.5 38.3 37.8 38.3 Jammu & Kashmir Bank 30.3 32.0 34.2 37.0 39.2 Allahabad Bank 41.9 38.7 39.3 38.0 36.0 State Bank Of Bikaner & Jaipur 45.5 43.1 42.1 35.0 35.3 Indian Overseas Bank 34.4 38.9 39.9 34.9 33.5 Bank Of India 33.7 34.5 35.0 32.2 36.0 Corporation Bank 34.0 34.6 34.3 34.1 35.0 Andhra Bank 37.3 36.1 36.3 34.5 33.6 Union Bank Of India 35.8 32.7 32.4 34.5 34.9 Indian Bank 33.5 34.9 34.8 35.4 32.3 Bank Of Baroda 36.4 36.5 37.9 33.2 31.2 State Bank Of Mysore 36.2 35.7 35.5 32.0 31.9 Syndicate Bank 33.9 37.1 38.2 30.6 30.9 Canara Bank 33.8 33.8 33.3 31.5 31.5 Bank Of Rajasthan 29.8 32.7 36.7 31.8 29.6 State Bank Of Hyderabad 34.4 32.6 34.3 31.4 30.6 State Bank Of Indore 34.4 30.8 30.8 29.2 31.7 Vijaya Bank 30.8 32.6 35.3 30.8 27.3 ING Vysya Bank 24.9 24.2 27.0 28.9 31.5 Oriental Bank Of Commerce 28.6 28.3 32.6 30.3 27.9 State Bank Of Travancore 31.7 29.6 30.4 28.3 29.3 Dhanalakshmi Bank 24.9 26.9 28.9 28.4 29.2 Catholic Syrian Bank 26.3 27.6 28.9 28.8 27.8 UCO Bank 32.4 29.2 29.6 29.2 25.7 Development Credit Bank 18.8 22.7 32.1 28.3 24.3 State Bank Of Patiala 34.4 31.6 29.6 27.2 25.9 Tamilnad Mercantile Bank 25.2 26.4 28.4 27.9 24.9 Karur Vysya Bank 22.9 24.4 26.9 27.7 25.6 Kotak Mahindra Bank 59.4 12.5 19.0 27.2 28.4 Federal Bank 23.1 24.5 25.0 25.2 25.1 South Indian Bank 21.0 24.8 26.4 23.9 24.1 ICICI Bank 23.0 24.3 22.7 21.8 26.1 City Union Bank 20.5 21.9 22.9 24.3 20.9 Karnataka Bank 20.3 21.6 20.9 23.4 22.1 Lakshmi Vilas Bank 25.7 25.6 23.1 22.0 21.7 IDBI Bank NA 38.3 29.5 25.4 16.6 Calyon Bank NA 19.2 48.0 23.0 24.8 Indusind Bank 11.2 10.7 12.9 14.9 15.7 Yes Bank NA 1.4 10.7 5.8 8.5 Bank Of Nova Scotia 6.8 9.6 5.5 7.2 5.8 Barclays Bank 9.1 14.1 2.0 0.8 5.2

163

Weight Avg 72.0 67.2 55.6 51.0 48.2 46.9 46.5 45.6 45.1 42.8 42.6 42.3 41.7 41.2 40.1 39.8 38.5 38.2 37.5 37.3 36.5 35.2 34.7 34.6 34.4 34.3 33.8 33.2 32.6 32.3 31.9 31.7 31.6 30.8 30.0 29.8 29.6 29.2 28.9 28.3 27.5 27.1 27.0 26.5 26.5 26.2 25.1 24.5 24.1 22.3 22.3 22.1 21.8 19.3 14.9 8.1 6.2 3.3

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based on Weighted Average Core Spread as on 31st March 2008 Banks FY04 FY05 FY06 FY07 FY08 Weight Avg Barclays Bank 3.64 19.71 14.60 21.49 6.05 12.39 Deutsche Bank 3.53 3.91 4.60 7.58 8.12 7.25 HSBC 4.95 5.27 5.83 7.07 7.77 7.17 ABN AMRO Bank 6.34 5.81 5.89 7.40 7.42 7.11 Citi Bank 5.77 6.21 6.71 6.18 7.01 6.70 HDFC Bank 3.59 4.36 5.53 6.23 7.44 6.70 Standard Chartered Bank 6.70 5.97 5.92 5.99 6.27 6.12 Nainital Bank 6.25 6.47 6.10 6.07 6.09 6.09 Kotak Mahindra Bank 8.84 6.77 5.35 5.68 6.57 6.06 Ratnakar Bank 5.46 5.10 5.36 5.83 5.50 5.57 City Union Bank 4.52 4.39 5.15 4.94 5.19 5.11 Development Credit Bank 2.93 3.18 3.71 4.48 5.91 5.04 Dhanalakshmi Bank 4.48 4.61 4.66 5.25 5.03 5.02 Catholic Syrian Bank 4.04 4.50 4.59 4.88 5.12 4.94 Indian Bank 3.64 3.88 4.12 4.85 4.66 4.61 Bank Of America 1.49 2.41 3.88 4.16 5.17 4.61 Punjab & Sind Bank 4.38 5.16 4.50 4.88 4.12 4.42 Calyon Bank 0.00 5.30 -2.50 6.84 5.72 4.41 Tamilnad Mercantile Bank 4.86 4.72 4.32 4.92 4.04 4.36 Axis Bank 4.35 3.78 3.74 4.11 4.72 4.34 Federal Bank 4.34 4.77 4.09 4.40 4.39 4.33 Jammu & Kashmir Bank 4.24 3.81 3.93 4.08 4.59 4.31 Punjab National Bank 4.06 3.53 3.77 4.60 4.26 4.26 Andhra Bank 4.46 4.52 4.38 4.42 4.12 4.26 Indian Overseas Bank 4.54 4.55 4.16 4.68 4.03 4.25 South Indian Bank 3.02 3.95 4.56 4.29 3.93 4.16 Bank Of Rajasthan 3.62 4.95 3.34 4.82 3.87 4.05 Bank Of India 2.92 2.96 3.53 4.21 4.11 4.02 Indusind Bank 5.97 5.26 3.60 3.75 4.30 4.00 Syndicate Bank 4.19 4.12 4.54 3.99 3.50 3.86 Yes Bank 0.00 1.70 3.83 3.80 3.89 3.85 Bank Of Maharashtra 2.48 2.80 3.07 3.73 4.21 3.84 ING Vysya Bank 2.94 3.60 3.78 3.68 3.91 3.82 State Bank Of Mysore 4.01 3.96 3.99 3.82 3.74 3.81 Dena Bank 3.01 3.27 3.34 3.92 3.87 3.78 State Bank Of Bikaner & Jaipur 1.72 2.23 2.77 4.17 3.91 3.76 Karnataka Bank 2.70 3.30 3.43 3.37 4.12 3.76 Karur Vysya Bank 3.76 3.79 3.91 3.87 3.55 3.72 Union Bank Of India 3.27 3.49 3.40 3.69 3.76 3.67 ICICI Bank 5.33 4.89 4.18 3.52 3.51 3.65 State Bank Of India 3.03 3.19 3.17 3.61 3.77 3.60 Corporation Bank 2.34 3.48 3.47 3.79 3.41 3.54 Bank Of Baroda 3.07 3.14 3.29 3.71 3.49 3.52 BNP Paribas 2.49 1.20 3.05 3.48 3.71 3.51 Allahabad Bank 4.08 4.33 3.97 3.64 3.23 3.50 United Bank Of India 2.93 3.70 3.85 3.95 3.02 3.47 State Bank Of Indore 2.82 3.35 3.47 3.32 3.52 3.45 State Bank Of Hyderabad 3.18 3.88 4.09 3.67 2.97 3.40 Vijaya Bank 4.75 4.44 3.93 3.50 2.89 3.28 Lakshmi Vilas Bank 3.16 3.27 2.94 3.43 3.31 3.27 State Bank Of Patiala 3.12 3.26 3.44 3.47 3.08 3.27 State Bank Of Travancore 2.96 3.00 2.90 3.41 3.32 3.26 IDBI Bank NA 2.47 4.54 3.35 2.47 3.15 Central Bank Of India 4.32 4.32 3.47 3.42 2.71 3.08 Canara Bank 3.47 3.25 3.33 3.12 2.89 3.05 UCO Bank 3.66 3.35 3.08 3.01 3.01 3.02 Oriental Bank Of Commerce 3.54 3.36 3.11 2.72 2.90 2.89 Bank Of Nova Scotia -0.56 -0.60 -0.12 0.86 0.20 0.33

164

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 15 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

Ranking Based on Quality

REPORT ON INDIAN BANKING SECTOR

Ranking of Banks based on

Banks Bank Of Nova Scotia Barclays Bank Nainital Bank Indian Bank Federal Bank Calyon Bank Karur Vysya Bank Corporation Bank Andhra Bank Yes Bank HDFC Bank Bank Of America Axis Bank Tamilnad Mercantile Bank Jammu & Kashmir Bank State Bank Of Hyderabad Indian Overseas Bank IDBI Bank South Indian Bank State Bank Of Patiala Bank Of Baroda Kotak Mahindra Bank City Union Bank ICICI Bank Canara Bank Ratnakar Bank Punjab & Sind Bank Punjab National Bank State Bank Of Bikaner & Jaipur Oriental Bank Of Commerce Allahabad Bank BNP Paribas State Bank Of Mysore Deutsche Bank Bank Of Rajasthan ABN AMRO Bank Union Bank Of India ING Vysya Bank State Bank Of Indore HSBC

165

CAR

6 4 17 16 41 3 37 19 11 2 12 1 8 52 36 10 25 20 43 15 32 29 33 35 14 58 38 46

8 9 1 12 14 4 11 13 7 5 15 1 23 34 38 10 21 42 29 27 20 49 44 45 35 50 30 22

Unsecu red Adv 16 20 6 12 10 43 17 17 12 51 23 81 13 11 12 21 6 8 10 16 15 27 6 14 19 18 5 15

41

21

36

13

136

29

18 34 38 50 23 53 42 40 49 46 17

47 34 13 26 5 24 7 39 9 18 22

26 32 1 18 6 16 17 25 33 37 19

11 12 44 8 54 9 28 19 9 11 51

138 139 142 144 144 147 151 152 155 156 160

30 31 32 33 34 35 36 37 38 39 40

2 3 18 12 4 11 10 21 37 8 15 7 24 5 13 30 22 14 17 20 19 6 26 9 16 1 32 23

CAR 1 3 2 12 10 5 16 6 13 20 24 25 7 32 4 8 36 35 28 15 37 30 9 11 19 43 1 27 26

25 36 27 46 42 56 45 57 29 55 44 51

Gross NPA

Net NPA

Total 35 38 54 62 74 77 81 83 87 90 90 97 100 106 107 107 109 112 114 115 116 120 120 122 127 128 132 132

Final Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

REPORT ON INDIAN BANKING SECTOR

Banks Bank Of India State Bank Of Travancore Karnataka Bank Lakshmi Vilas Bank Vijaya Bank United Bank Of India State Bank Of India Citi Bank Development Credit Bank Indusind Bank Standard Chartered Bank Syndicate Bank Catholic Syrian Bank Dena Bank UCO Bank Bank Of Maharashtra Dhanalakshmi Bank Central Bank Of India

166

CAR 40 34 39 31 47 33 28 41 35 38 54 43 52 48 50 49 58 53

Ranking of Banks based on Gross Net NPA NPA CAR 1 45 28 28 44 27 39 14 53 40 22 50 51 48 23 24 39 48 47 31 45 54 29 30 41 21 57 53 47 40 58 33 31 46 51 42 31 52 55 56 55 51 52 58 44 57 57 49 43 54 54 48 56 56 55

Unsecu red Adv 19 17 15 8 23 7 23 42 19 9 28 25 3 13 11 25 11 13

Total 160 161 161 162 165 174 181 183 185 192 192 192 218 219 220 223 225 233

Final Rank 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based on Weighted Average Capital Adequacy Ratio Banks FY04 FY05 FY06 FY07 FY08 Weight Avg Ratnakar Bank 16.65 12.03 10.77 34.34 49.15 37.03 Bank Of Nova Scotia 13.78 15.27 13.71 23.26 20.15 19.80 Barclays Bank 37.16 20.85 22.92 13.68 21.11 19.24 Federal Bank 11.48 11.27 13.75 13.43 22.46 18.01 Tamilnad Mercantile Bank 21.07 19.74 18.33 16.77 15.35 16.37 Kotak Mahindra Bank 15.25 12.80 11.27 13.46 18.65 15.62 Bank Of America 22.92 30.07 23.40 13.33 12.14 14.75 Yes Bank NE 18.81 16.40 13.60 13.60 14.16 ICICI Bank 10.36 11.78 13.35 11.69 14.92 13.64 Karur Vysya Bank 17.11 16.07 14.79 14.51 12.58 13.60 Calyon Bank NE 14.40 19.80 15.10 9.70 13.34 Indian Bank 12.82 14.14 13.19 14.14 12.86 13.31 Jammu & Kashmir Bank 16.88 15.15 13.52 13.24 12.80 13.08 IDBI Bank NE 15.51 14.80 13.73 11.95 13.05 HDFC Bank 11.66 12.16 11.41 13.08 13.60 13.01 Canara Bank 12.66 12.78 11.22 13.50 13.25 12.92 South Indian Bank 11.32 9.89 13.02 11.08 13.80 12.83 Nainital Bank 18.54 14.85 13.88 12.89 12.32 12.80 Bank Of Baroda 13.91 12.61 13.65 11.80 12.91 12.73 State Bank Of Patiala 13.56 14.21 13.67 12.38 12.50 12.70 Corporation Bank 20.12 16.23 13.92 12.76 12.09 12.66 Indian Overseas Bank 12.49 14.20 13.04 13.27 11.96 12.57 Punjab National Bank 13.10 14.78 11.95 12.29 12.96 12.56 Axis Bank 11.21 12.66 11.08 11.57 13.73 12.55 State Bank Of Bikaner & Jaipur 12.93 12.60 12.08 12.89 12.51 12.54 City Union Bank 13.36 12.18 12.33 12.58 12.48 12.48 Allahabad Bank 12.52 12.53 13.37 12.52 12.04 12.45 State Bank Of India 13.53 12.45 11.88 12.34 12.64 12.40 Union Bank Of India 12.32 12.09 11.41 12.80 12.51 12.38 State Bank Of Hyderabad 14.29 11.74 12.08 12.51 12.35 12.34 Lakshmi Vilas Bank 13.79 11.32 10.79 12.43 12.73 12.25 Punjab & Sind Bank 11.06 9.46 12.83 12.88 11.57 12.22 United Bank Of India 17.04 18.16 13.12 12.02 11.88 12.17 State Bank Of Travancore 11.36 11.05 11.15 11.68 12.68 12.07 Development Credit Bank 14.26 9.88 9.66 11.34 13.38 12.02 Oriental Bank Of Commerce 14.47 9.21 11.04 12.51 12.12 12.02 Andhra Bank 13.71 12.11 14.00 11.33 11.61 12.00 Indusind Bank 12.75 11.62 10.54 12.54 11.91 11.83 Karnataka Bank 13.03 14.16 11.78 11.03 12.17 11.75 Bank Of India 13.01 11.52 10.75 11.58 12.04 11.64 Citi Bank 11.11 10.78 11.33 11.06 12.00 11.58 State Bank Of Mysore 11.53 12.08 11.37 11.47 11.73 11.58 Syndicate Bank 11.49 10.70 11.73 11.74 11.22 11.48 State Bank Of Indore 12.39 11.61 11.40 11.77 11.29 11.46 Bank Of Rajasthan 11.18 12.75 10.60 11.32 11.87 11.45 BNP Paribas 21.70 9.41 11.61 10.76 11.79 11.45 Vijaya Bank 14.11 12.92 11.94 11.21 11.22 11.36 Dena Bank 9.48 11.91 10.62 11.52 11.09 11.13 Bank Of Maharashtra 11.88 12.68 11.27 12.06 10.26 11.00 UCO Bank 11.88 11.26 11.12 11.56 10.09 10.74 HSBC 14.54 14.03 10.61 11.06 10.59 10.74 Catholic Syrian Bank 11.23 11.35 11.26 9.58 10.87 10.56 Central Bank Of India 12.43 12.15 11.03 10.40 10.42 10.54 Standard Chartered Bank 10.87 10.46 9.93 10.44 10.59 10.41 ING Vysya Bank 11.05 9.09 10.67 10.56 10.20 10.40 Deutsche Bank 14.42 16.22 12.74 10.62 13.58 9.98 ABN AMRO Bank 13.48 10.55 10.44 11.34 12.92 9.86 Dhanalakshmi Bank 13.56 10.16 9.75 9.77 9.21 9.49

167

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based on Weighted Average Capital Adequacy Ratio Tier 1 Banks FY04 FY05 FY06 FY07 FY08 Weight Avg Ratnakar Bank 13.54 10.06 9.71 33.39 48.29 36.10 Barclays Bank 34.85 19.88 22.15 13.68 20.81 18.94 Bank Of Nova Scotia 13.11 14.36 13.19 22.57 14.72 16.77 Tamilnad Mercantile Bank 17.36 16.22 17.60 16.12 14.70 15.71 Federal Bank 6.26 6.42 9.72 8.94 19.09 14.17 Karur Vysya Bank 15.10 14.36 13.29 14.04 12.11 12.93 Bank Of America 15.68 23.39 17.67 11.75 10.93 12.52 Jammu & Kashmir Bank 12.98 12.48 13.09 12.60 12.14 12.47 Kotak Mahindra Bank 14.64 10.12 8.07 8.81 14.46 11.49 Indian Bank 7.66 7.60 10.29 12.28 11.41 11.45 City Union Bank 10.73 10.05 10.77 10.87 11.15 10.99 Nainital Bank 14.28 11.30 10.97 10.10 11.00 10.72 Corporation Bank 16.52 13.55 12.41 11.30 9.64 10.69 Karnataka Bank 10.45 12.15 11.38 10.46 10.36 10.59 South Indian Bank 5.80 5.68 8.38 8.84 12.08 10.37 Calyon Bank NA 10.00 14.70 11.50 7.80 10.29 HSBC 11.17 11.38 9.80 10.01 9.72 9.82 Oriental Bank Of Commerce 9.87 5.42 10.37 10.05 9.34 9.76 ICICI Bank 6.09 7.59 9.20 7.42 11.32 9.73 Andhra Bank 8.17 8.03 12.20 9.98 8.54 9.70 Development Credit Bank 8.89 5.85 5.96 8.44 11.82 9.63 Lakshmi Vilas Bank 8.49 5.67 6.94 9.93 10.53 9.63 Deutsche Bank 9.32 12.62 11.14 9.73 13.09 9.46 Yes Bank NA 18.64 13.70 8.20 8.50 9.45 HDFC Bank 8.03 9.60 8.55 8.57 10.30 9.43 Punjab National Bank 7.01 8.87 10.06 8.93 8.52 8.95 Punjab & Sind Bank 6.38 5.26 10.05 9.58 8.04 8.90 IDBI Bank NA 11.93 11.71 9.11 7.42 8.79 Citi Bank 8.79 8.60 10.77 10.12 11.24 8.66 Bank Of Baroda 8.47 8.21 10.98 8.74 7.63 8.63 State Bank Of India 8.34 8.04 9.36 8.01 8.48 8.52 Axis Bank 6.44 8.87 7.26 6.42 10.17 8.46 Standard Chartered Bank 7.11 7.10 8.21 8.93 8.21 8.43 Allahabad Bank 6.26 6.46 9.53 8.10 7.75 8.21 Indian Overseas Bank 6.74 7.10 8.54 8.20 7.86 8.10 State Bank Of Hyderabad 8.42 7.58 8.95 8.25 7.24 7.89 State Bank Of Patiala 9.87 11.05 9.96 8.36 6.74 7.87 BNP Paribas 13.42 6.10 7.78 7.38 8.07 7.81 United Bank Of India 15.04 14.15 10.01 7.72 6.74 7.69 Union Bank Of India 6.47 6.07 7.32 7.79 7.45 7.53 State Bank Of Bikaner & Jaipur 9.03 7.95 8.50 7.79 6.95 7.51 ABN AMRO Bank 11.49 7.89 7.18 7.33 7.24 7.26 Canara Bank 7.81 7.29 7.81 7.17 7.01 7.22 State Bank Of Travancore 6.23 6.17 7.24 7.55 6.94 7.18 Bank Of India 7.47 7.05 6.75 6.54 7.70 7.16 State Bank Of Indore 8.31 6.67 7.55 6.74 7.01 7.04 Indusind Bank 8.91 7.24 6.84 7.34 6.70 6.92 Vijaya Bank 8.37 7.59 9.26 7.07 5.73 6.84 ING Vysya Bank 6.14 5.20 7.14 6.38 6.82 6.75 State Bank Of Mysore 7.18 7.12 7.44 6.62 6.54 6.74 Syndicate Bank 6.75 6.10 7.40 6.24 6.62 6.66 Catholic Syrian Bank 6.95 7.49 7.03 5.70 7.01 6.62 Bank Of Rajasthan 8.35 7.84 6.90 6.62 6.10 6.42 Dhanalakshmi Bank 8.63 6.12 6.21 6.29 6.56 6.41 Dena Bank 5.19 6.63 5.96 6.06 6.75 6.39 Central Bank Of India 6.23 6.08 7.19 6.32 5.42 6.04 Bank Of Maharashtra 7.03 7.10 7.47 6.03 5.13 5.87 UCO Bank 6.08 5.75 6.09 5.78 5.05 5.48

168

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based on Weighted Average Ratio of Gross NPA to Gross Advances Banks FY04 FY05 FY06 FY07 FY08 Weight Avg Bank Of America 0.84 0.57 0.12 0.02 0.00 0.03 Yes Bank NA 0.00 0.00 0.00 0.10 0.05 Calyon Bank NA 4.34 1.00 0.30 0.10 0.34 Barclays Bank 7.75 0.00 0.00 0.00 0.80 0.40 Deutsche Bank 3.68 0.36 0.35 0.24 0.70 0.49 Bank Of Nova Scotia 11.48 4.66 2.81 0.61 0.00 0.74 ABN AMRO Bank 3.15 2.26 0.34 0.55 1.40 0.93 Axis Bank 2.88 1.98 1.67 1.11 0.80 1.07 ING Vysya Bank 2.65 2.14 1.77 1.05 0.80 1.07 State Bank Of Hyderabad 5.60 3.46 2.14 1.24 0.90 1.25 Andhra Bank 4.60 2.46 1.94 1.41 1.10 1.36 HDFC Bank 1.80 1.65 1.40 1.36 1.40 1.39 BNP Paribas 6.56 NA 2.17 1.63 1.00 1.42 Canara Bank 6.33 3.89 2.25 1.51 1.30 1.55 State Bank Of Patiala 3.71 4.13 2.41 1.80 1.40 1.72 Indian Bank 7.98 4.15 2.91 1.85 1.20 1.74 Nainital Bank 4.00 2.57 1.91 1.95 1.80 1.87 State Bank Of Indore 3.99 3.28 3.02 1.90 1.40 1.87 Corporation Bank 5.03 3.41 2.56 2.05 1.50 1.88 IDBI Bank NA 1.43 1.98 1.89 1.90 1.91 State Bank Of Bikaner & Jaipur 5.36 3.26 2.42 2.23 1.70 2.00 HSBC 4.20 3.16 1.86 1.69 2.30 2.03 Vijaya Bank 3.44 2.94 3.17 2.29 1.60 2.12 Bank Of Rajasthan 9.14 5.34 3.26 2.08 1.70 2.13 Indian Overseas Bank 7.40 5.28 3.43 2.34 1.60 2.19 State Bank Of Mysore 7.76 4.56 3.30 2.29 1.70 2.20 State Bank Of Travancore 5.63 4.29 3.18 2.16 2.00 2.28 Bank Of India 7.86 5.48 3.72 2.42 1.70 2.32 Kotak Mahindra Bank 0.94 0.73 0.63 2.57 2.90 2.35 Citi Bank 7.76 2.74 2.13 2.09 2.60 2.35 Standard Chartered Bank 2.91 2.73 2.80 2.62 2.10 2.40 Bank Of Baroda 10.52 7.30 3.90 2.47 1.80 2.42 City Union Bank 10.36 5.89 4.32 2.58 1.80 2.54 Allahabad Bank 8.66 5.80 3.94 2.61 2.00 2.57 ICICI Bank 4.70 2.98 1.51 2.08 3.30 2.58 Jammu & Kashmir Bank 3.04 2.72 2.51 2.89 2.50 2.62 Karur Vysya Bank 5.83 5.10 3.91 2.82 2.00 2.63 Punjab & Sind Bank 18.16 NA 9.61 2.43 0.07 2.69 Union Bank Of India 7.59 5.01 3.84 2.94 2.20 2.75 Indusind Bank 3.30 3.53 2.86 3.07 3.00 2.99 Federal Bank 7.44 7.29 4.62 2.95 2.40 3.01 Syndicate Bank 7.33 5.17 4.00 2.95 2.70 3.04 South Indian Bank 7.59 6.64 4.99 3.94 1.80 3.08 UCO Bank 6.93 4.96 3.27 3.17 3.00 3.10 State Bank Of India 7.75 5.96 3.88 2.92 3.00 3.15 Punjab National Bank 9.35 5.96 4.10 3.45 2.70 3.21 Oriental Bank Of Commerce 5.89 9.14 5.95 3.20 2.30 3.30 United Bank Of India 9.07 6.14 4.66 3.61 2.70 3.36 Bank Of Maharashtra 7.70 7.00 5.53 3.50 2.60 3.45 Lakshmi Vilas Bank 10.15 7.88 4.14 3.57 3.50 3.65 Dena Bank 14.82 9.67 6.44 4.08 2.40 3.71 Tamilnad Mercantile Bank 13.79 11.26 7.02 4.54 2.20 3.87 Karnataka Bank 11.93 7.58 5.13 3.95 3.40 3.91 Dhanalakshmi Bank 11.43 8.51 6.71 5.06 2.90 4.31 Catholic Syrian Bank 8.84 7.16 5.76 4.19 3.90 4.36 Central Bank Of India 12.55 9.01 6.85 4.81 3.20 4.41 Development Credit Bank 8.19 14.19 15.01 5.14 1.50 5.30 Ratnakar Bank 10.63 10.31 7.59 6.81 6.00 6.56

169

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based on Weighted Average Ratio of Net NPA to Net Advances Banks FY04 FY05 FY06 FY07 FY08 Weight Avg Nainital Bank 0.0 0.0 0.0 0.0 0.0 Bank Of America 0.0 0.0 0.0 0.0 0.0 BNP Paribas 0.0 0.0 0.0 0.0 0.0 Calyon Bank NE 0.3 0.2 0.0 0.0 0.0 Yes Bank NE 0.0 0.0 0.0 0.1 0.0 Deutsche Bank 0.0 0.0 0.0 0.0 0.2 0.1 Andhra Bank 0.9 0.3 0.2 0.2 0.2 0.2 Bank Of Nova Scotia 9.1 3.1 1.0 0.0 0.0 0.2 Barclays Bank 0.0 0.0 0.0 0.0 0.4 0.2 State Bank Of Hyderabad 0.7 0.6 0.4 0.2 0.2 0.2 Karur Vysya Bank 2.3 1.7 0.8 0.2 0.2 0.3 Indian Bank 2.7 1.4 0.8 0.4 0.2 0.4 Corporation Bank 1.8 1.1 0.6 0.5 0.3 0.4 Federal Bank 2.9 2.2 1.0 0.4 0.2 0.4 HDFC Bank 0.2 0.2 0.4 0.4 0.5 0.5 Bank Of Rajasthan 3.0 2.5 1.0 0.2 0.4 0.5 ABN AMRO Bank 0.9 0.4 0.1 0.1 0.9 0.5 State Bank Of Mysore 3.0 0.9 0.7 0.5 0.4 0.5 HSBC 0.7 0.5 0.6 0.4 0.6 0.5 Bank Of Baroda 3.0 1.5 0.9 0.6 0.5 0.6 Indian Overseas Bank 2.9 1.3 0.7 0.6 0.6 0.6 Punjab National Bank 1.0 0.2 0.3 0.8 0.6 0.6 Axis Bank 1.3 1.4 1.0 0.7 0.4 0.6 Vijaya Bank 0.9 0.6 0.9 0.6 0.6 0.6 Union Bank Of India 2.9 2.6 1.6 1.0 0.2 0.7 Oriental Bank Of Commerce 0.0 1.3 0.5 0.5 1.0 0.7 State Bank Of Patiala 0.0 1.2 1.0 0.8 0.6 0.7 Bank Of India 4.5 2.8 1.5 0.7 0.5 0.8 South Indian Bank 4.6 3.8 1.9 1.0 0.3 0.8 Punjab & Sind Bank 9.6 8.1 2.4 0.7 0.4 0.9 Syndicate Bank 2.6 1.6 0.9 0.8 1.0 0.9 Allahabad Bank 2.4 1.3 0.8 1.1 0.8 0.9 ING Vysya Bank 2.6 2.1 1.0 1.1 0.8 0.9 Tamilnad Mercantile Bank 5.0 3.0 2.2 1.0 0.4 0.9 Canara Bank 2.9 1.9 1.1 0.9 0.8 0.9 State Bank Of Bikaner & Jaipur 1.2 1.6 1.2 1.1 0.8 1.0 State Bank Of Indore 0.0 1.0 1.8 1.0 0.7 1.0 Jammu & Kashmir Bank 1.5 1.4 0.9 1.1 1.1 1.1 State Bank Of Travancore 1.4 1.8 1.5 1.1 0.9 1.1 Karnataka Bank 5.0 2.3 1.2 1.2 1.0 1.1 Citi Bank 1.4 1.0 1.0 1.0 1.2 1.1 IDBI Bank NE 1.7 1.0 1.1 1.3 1.2 Bank Of Maharashtra 2.5 2.2 2.0 1.2 0.9 1.2 City Union Bank 6.4 3.4 2.0 1.1 1.0 1.2 ICICI Bank 2.2 1.7 0.7 1.0 1.6 1.2 Standard Chartered Bank 0.5 1.1 1.6 1.4 1.0 1.3 United Bank Of India 3.8 2.4 2.0 1.5 1.1 1.4 Dhanalakshmi Bank 6.7 3.9 2.8 1.8 0.9 1.5 Kotak Mahindra Bank 0.2 0.4 0.2 2.0 1.8 1.5 Ratnakar Bank 5.6 5.5 2.6 1.9 1.0 1.6 Lakshmi Vilas Bank 5.4 5.0 1.9 1.6 1.6 1.6 Dena Bank 9.4 5.2 3.0 2.0 0.9 1.7 Development Credit Bank 4.9 6.3 4.5 1.6 0.7 1.7 State Bank Of India 3.5 2.7 1.9 1.6 1.8 1.7 Central Bank Of India 5.6 3.0 2.6 1.7 1.5 1.8 Catholic Syrian Bank 4.7 3.8 2.8 2.0 1.6 2.0 UCO Bank 3.7 2.9 2.1 2.1 2.0 2.1 Indusind Bank 2.7 2.7 2.1 2.5 2.3 2.3

170

Rank 1 1 1 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based on Weighted Average of the ratio Unsecured Adv to total Adv Banks FY04 FY05 FY06 FY07 FY08 Weight Avg City Union Bank 3.25 6.48 4.72 2.47 2.87 3.12 Catholic Syrian Bank 4.06 3.35 3.04 2.71 5.96 4.40 Tamilnad Mercantile Bank 4.81 10.92 6.07 7.27 5.07 5.93 Nainital Bank 3.78 6.38 7.10 5.41 6.31 6.20 Lakshmi Vilas Bank 9.29 8.25 8.95 6.34 8.37 7.88 Dhanalakshmi Bank 12.84 11.48 7.73 7.08 8.97 8.16 Indusind Bank 12.18 8.75 12.79 8.34 7.30 8.71 Karnataka Bank 8.92 15.31 11.70 7.43 8.62 8.88 Indian Overseas Bank 8.30 5.62 9.08 6.85 11.03 9.39 State Bank Of Patiala 12.72 16.44 15.17 9.69 8.58 10.23 Oriental Bank Of Commerce 16.13 11.37 12.35 10.76 9.55 10.47 Federal Bank 11.13 9.79 13.29 7.91 11.05 10.56 State Bank Of Indore 11.52 10.84 11.39 10.96 12.15 11.64 Karur Vysya Bank 14.33 16.54 12.23 9.04 13.64 11.98 South Indian Bank 14.04 10.18 11.69 9.47 14.06 12.21 Ratnakar Bank 18.16 17.60 16.05 11.61 11.36 12.38 IDBI Bank NA 8.17 15.55 11.38 11.81 12.43 State Bank Of Mysore 5.26 8.10 13.91 11.60 13.57 13.05 Allahabad Bank 13.97 12.41 11.60 8.46 16.90 13.31 Jammu & Kashmir Bank 7.99 11.56 12.16 13.99 13.39 13.32 United Bank Of India 11.87 7.13 7.10 13.67 16.39 13.71 Axis Bank 11.06 12.97 10.12 13.36 16.16 14.11 State Bank Of Travancore 13.33 16.74 14.02 12.88 15.43 14.38 Bank Of Rajasthan 6.83 9.03 11.44 15.87 14.71 14.40 Indian Bank 12.74 12.40 18.15 13.34 14.63 14.94 State Bank Of Bikaner & Jaipur 9.97 12.57 11.77 13.99 17.36 15.23 Punjab National Bank 10.03 15.08 14.91 14.62 16.82 15.78 ING Vysya Bank 9.58 8.71 12.62 14.01 20.24 16.85 UCO Bank 8.67 10.93 13.57 12.79 20.75 16.92 State Bank Of Hyderabad 13.06 21.46 19.88 20.30 17.08 18.61 Union Bank Of India 12.11 18.74 21.96 21.73 15.69 18.75 Andhra Bank 8.81 11.97 16.24 19.54 20.90 19.56 Bank Of India 18.07 19.00 17.53 17.42 23.07 20.27 Dena Bank 7.41 12.79 17.97 21.33 21.94 20.97 ICICI Bank 7.54 13.72 16.99 20.23 23.09 21.01 Punjab & Sind Bank 3.16 4.86 20.22 20.99 22.37 21.53 Corporation Bank 13.04 17.09 16.25 17.67 26.41 21.76 Canara Bank 13.89 18.75 25.75 21.50 21.91 22.55 Vijaya Bank 17.08 23.42 18.73 22.56 24.40 22.72 Bank Of Maharashtra 34.03 24.93 24.77 20.29 23.94 23.01 Central Bank Of India 3.74 12.64 18.06 19.34 28.01 23.42 Bank Of Baroda 12.07 15.19 19.39 22.47 26.26 23.75 State Bank Of India 16.85 22.94 23.24 24.39 26.94 25.44 Kotak Mahindra Bank 21.43 27.08 27.23 28.49 26.37 27.18 Syndicate Bank 26.02 25.39 26.84 28.79 28.32 28.16 HDFC Bank 13.25 23.40 30.84 28.92 29.97 29.83 Development Credit Bank 16.82 18.62 28.06 38.70 28.91 31.68 Bank Of Nova Scotia 15.06 16.12 29.85 35.80 45.54 39.48 Yes Bank NA 51.23 29.01 39.87 48.55 42.04 Standard Chartered Bank 31.42 27.78 40.67 39.15 44.66 42.21 HSBC 31.28 31.00 38.01 43.87 47.10 44.31 ABN AMRO Bank 16.56 28.14 34.03 34.90 58.24 46.40 Citi Bank 43.47 42.14 42.53 49.51 48.82 47.77 BNP Paribas 47.17 43.57 43.00 48.50 54.11 50.20 Calyon Bank NA 42.96 54.65 48.62 57.59 54.31 Deutsche Bank 37.91 54.48 70.82 75.49 69.72 71.67 Barclays Bank 19.14 20.25 13.86 93.25 89.15 75.32 Bank Of America 52.69 81.26 86.40 82.03 73.90 78.84

171

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

Ranking Based on Growth

REPORT ON INDIAN BANKING SECTOR

Ranking Based on 3 year CAGR in Banks Yes Bank Deutsche Bank Kotak Mahindra Bank Axis Bank HDFC Bank Bank Of Nova Scotia Punjab & Sind Bank BNP Paribas Nainital Bank ICICI Bank Barclays Bank Syndicate Bank Citi Bank Bank Of Rajasthan City Union Bank Bank Of India Bank Of Baroda Indian Overseas Bank IDBI Bank State Bank Of Mysore Federal Bank South Indian Bank Central Bank Of India Indian Bank Corporation Bank State Bank Of Hyderabad HSBC Bank Of America Dena Bank Allahabad Bank ABN AMRO Bank Karur Vysya Bank United Bank Of India State Bank Of Patiala ING Vysya Bank Calyon Bank Lakshmi Vilas Bank Vijaya Bank State Bank Of Bikaner & Jaipur State Bank Of Indore Standard Chartered Bank Bank Of Maharashtra Ratnakar Bank Dhanalakshmi Bank Union Bank Of India

172

Advance 2 5 3 4 11 21 6 26 7 12 1 16 30 10 23 35 13 15 47 17 29 43 9 27 31 22 18 58 37 20 33 36 14 19 53 8 51 25 32 39 50 24 57 54 46

Deposit 2 4 5 7 6 11 34 18 19 10 1 15 12 37 14 21 24 20 3 17 36 31 27 33 16 35 9 13 42 32 8 22 25 26 40 58 45 23 29 30 39 54 55 50 38

Net profit 6 12 15 18 24 10 7 3 23 31 58 30 20 17 27 8 28 35 25 42 13 4 44 22 36 26 57 14 9 37 48 32 52 47 2 29 5 54 45 38 21 34 1 11 33

Total 10 21 23 29 41 42 47 47 49 53 60 61 62 64 64 64 65 70 75 76 78 78 80 82 83 83 84 85 88 89 89 90 91 92 95 95 101 102 106 107 110 112 113 115 117

Final Rank 1 2 3 4 5 6 7 7 9 10 11 12 13 14 14 14 17 18 19 20 21 21 23 24 25 25 27 28 29 30 30 32 33 34 35 35 37 38 39 40 41 42 43 44 45

Ranking Based on 3 year CAGR in

REPORT ON INDIAN BANKING SECTOR

Banks Andhra Bank Oriental Bank Of Commerce State Bank Of India Catholic Syrian Bank Jammu & Kashmir Bank Tamilnad Mercantile Bank Punjab National Bank UCO Bank Karnataka Bank State Bank Of Travancore Canara Bank Development Credit Bank Indusind Bank

173

Advance 42 28 34 55 52 38 41 40 49 44 48 45 56

Deposit 28 41 52 56 57 47 44 43 48 51 46 49 53

Net profit 51 55 40 16 19 43 46 50 39 41 49 53 56

Total 121 124 126 127 128 128 131 133 136 136 143 147 165

Final Rank 46 47 48 49 50 50 52 53 54 54 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based on CAGR in total Advances from FY05 to FY08 Banks FY04 FY05 FY06 FY07 FY08 Barclays Bank 3 2 4 173 7,636 Yes Bank NA 761 2,407 6,290 9,430 Kotak Mahindra Bank 2,097 4,017 6,348 10,924 15,552 Axis Bank 9,363 15,603 22,314 36,876 59,661 Deutsche Bank 2,098 2,541 2,582 4,945 8,960 Punjab & Sind Bank 6,030 6,322 9,107 11,738 18,343 Nainital Bank 236 363 603 795 995 Calyon Bank NA 674 1,012 1,003 1,812 Central Bank Of India 22,804 27,277 37,483 51,795 72,997 Bank Of Rajasthan 2,432 2,896 4,065 5,704 7,434 HDFC Bank 17,745 25,566 35,061 46,945 63,427 ICICI Bank 62,096 91,405 146,163 195,866 225,616 Bank Of Baroda 35,601 43,400 59,912 83,621 106,701 United Bank Of India 7,963 11,390 15,522 22,156 27,858 Indian Overseas Bank 20,295 25,205 34,756 47,060 60,424 Syndicate Bank 20,647 26,729 36,466 51,670 64,051 State Bank Of Mysore 6,307 8,781 11,754 16,466 21,027 HSBC 9,628 12,621 16,812 23,142 29,944 State Bank Of Patiala 13,086 15,359 22,180 28,770 36,400 Allahabad Bank 15,342 21,151 29,148 41,290 49,720 Bank Of Nova Scotia 2,019 2,053 2,440 2,969 4,774 State Bank Of Hyderabad 11,814 15,600 20,863 28,109 35,849 City Union Bank 1,547 2,013 2,550 3,329 4,537 Bank Of Maharashtra 11,732 13,062 16,470 22,919 29,286 Vijaya Bank 11,045 14,336 16,664 24,224 31,689 BNP Paribas 1,315 1,719 1,854 2,342 3,772 Indian Bank 14,126 18,380 22,485 29,058 39,839 Oriental Bank Of Commerce 19,681 25,299 33,577 44,138 54,566 Federal Bank 7,701 8,823 11,736 14,899 18,905 Citi Bank 15,259 18,111 24,455 32,861 38,377 Corporation Bank 13,890 18,546 23,962 29,950 39,186 State Bank Of Bikaner & Jaipur 8,597 12,036 15,896 20,526 25,076 ABN AMRO Bank 6,697 9,836 15,073 18,388 20,381 State Bank Of India 157,934 202,374 261,801 337,336 416,768 Bank Of India 45,856 55,529 65,174 84,936 113,476 Karur Vysya Bank 4,023 4,620 5,555 7,040 9,422 Dena Bank 9,412 11,309 14,231 18,303 23,024 Tamilnad Mercantile Bank 2,114 2,626 3,126 4,047 5,331 State Bank Of Indore 6,406 9,041 11,876 15,351 18,224 UCO Bank 20,626 27,656 37,378 46,989 55,082 Punjab National Bank 47,225 60,413 74,627 96,597 119,502 Andhra Bank 12,885 17,517 22,100 27,889 34,238 South Indian Bank 4,197 5,365 6,370 7,919 10,454 State Bank Of Travancore 11,132 14,848 18,866 24,786 28,137 Development Credit Bank 2,440 2,156 1,867 2,659 4,069 Union Bank Of India 29,426 40,105 53,380 62,386 74,348 IDBI Bank NA 45,414 52,739 62,471 82,213 Canara Bank 47,639 60,421 79,426 98,506 107,238 Karnataka Bank 4,668 6,287 7,792 9,553 10,842 Standard Chartered Bank 16,152 19,970 24,077 30,104 33,352 Lakshmi Vilas Bank 2,039 2,318 2,953 3,613 3,859 Jammu & Kashmir Bank 9,285 11,517 14,483 17,080 18,883 ING Vysya Bank 7,047 9,081 10,232 11,976 14,650 Dhanalakshmi Bank 1,139 1,410 1,594 1,840 2,102 Catholic Syrian Bank 1,898 2,289 2,695 3,013 3,314 Indusind Bank 7,301 9,000 9,310 11,084 12,795 Ratnakar Bank 346 424 491 531 586 Bank Of America 3,059 3,219 3,369 2,916 3,452

174

3yr CAGR 1,366.7 131.4 57.0 56.4 52.2 42.6 39.9 39.0 38.8 36.9 35.4 35.1 35.0 34.7 33.8 33.8 33.8 33.4 33.3 33.0 32.5 32.0 31.1 30.9 30.3 29.9 29.4 29.2 28.9 28.4 28.3 27.7 27.5 27.2 26.9 26.8 26.7 26.6 26.3 25.8 25.5 25.0 24.9 23.7 23.6 22.8 21.9 21.1 19.9 18.6 18.5 17.9 17.3 14.2 13.1 12.4 11.4 2.4

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based on CAGR in total Deposits from FY05 to FY08 Banks FY04 FY05 FY06 FY07 FY08 Barclays Bank 90 75 361 1,010 6,902 Yes Bank NA 663 2,910 8,220 13,273 IDBI Bank NA 15,103 26,001 43,354 72,998 Deutsche Bank 2,533 3,558 4,380 6,978 13,755 Kotak Mahindra Bank 4,459 4,300 6,566 11,000 16,424 HDFC Bank 30,409 36,354 55,797 68,298 100,769 Axis Bank 20,954 31,712 40,114 58,786 87,626 ABN AMRO Bank 5,856 7,026 11,864 15,998 18,912 HSBC 16,270 17,013 24,955 34,825 42,620 ICICI Bank 68,109 99,819 165,083 230,510 244,431 Bank Of Nova Scotia 1,694 1,602 2,355 1,983 3,755 Citi Bank 20,465 21,484 27,912 37,875 46,125 Bank Of America 1,976 1,993 2,106 2,718 4,191 City Union Bank 2,847 3,095 3,518 4,699 6,425 Syndicate Bank 42,585 46,295 53,624 78,634 95,171 Corporation Bank 23,191 27,233 32,877 42,357 55,424 State Bank Of Mysore 11,084 13,585 16,369 22,022 27,462 BNP Paribas 1,737 1,674 1,847 2,098 3,236 Nainital Bank 759 933 1,125 1,481 1,790 Indian Overseas Bank 41,483 44,241 50,529 68,740 84,326 Bank Of India 71,003 78,821 93,932 119,882 150,012 Karur Vysya Bank 5,911 6,672 7,577 9,340 12,550 Vijaya Bank 21,015 25,618 27,709 37,604 47,952 Bank Of Baroda 72,967 81,333 93,662 124,916 152,034 United Bank Of India 22,758 25,348 29,250 37,167 46,971 State Bank Of Patiala 22,473 26,496 33,778 39,184 48,571 Central Bank Of India 55,909 60,752 66,483 82,776 110,320 Andhra Bank 22,941 27,551 33,922 41,454 49,437 State Bank Of Bikaner & Jaipur 15,642 19,038 21,694 28,480 34,108 State Bank Of Indore 10,419 13,807 16,661 19,976 24,699 South Indian Bank 8,280 8,492 9,579 12,239 15,156 Allahabad Bank 31,477 40,762 48,500 59,544 71,616 Indian Bank 30,444 34,808 40,806 47,091 61,046 Punjab & Sind Bank 13,642 14,171 16,925 19,319 24,831 State Bank Of Hyderabad 24,258 28,930 34,025 41,503 50,108 Federal Bank 13,477 15,193 17,879 21,584 25,913 Bank Of Rajasthan 7,406 8,120 8,891 10,816 13,849 Union Bank Of India 50,559 61,831 74,094 85,180 103,859 Standard Chartered Bank 19,949 22,522 28,460 34,174 36,957 ING Vysya Bank 10,478 12,569 13,335 15,419 20,498 Oriental Bank Of Commerce 35,674 47,850 50,197 63,996 77,857 Dena Bank 18,349 20,897 23,623 27,690 33,943 UCO Bank 39,244 49,470 54,544 64,860 79,909 Punjab National Bank 87,916 103,167 119,685 139,860 166,457 Lakshmi Vilas Bank 3,296 3,496 4,336 5,020 5,618 Canara Bank 86,345 96,796 116,803 142,381 154,072 Tamilnad Mercantile Bank 4,404 4,827 5,203 6,020 7,670 Karnataka Bank 9,407 10,837 13,243 14,037 17,016 Development Credit Bank 4,474 3,895 3,124 4,415 6,075 Dhanalakshmi Bank 2,156 2,339 2,533 3,088 3,608 State Bank Of Travancore 19,721 24,133 25,997 30,984 35,354 State Bank Of India 318,619 367,048 380,046 435,521 537,404 Indusind Bank 11,200 13,114 15,006 17,645 19,037 Bank Of Maharashtra 26,446 28,844 26,906 33,919 41,758 Ratnakar Bank 715 784 874 876 1,101 Catholic Syrian Bank 3,880 4,021 4,289 4,749 5,318 Jammu & Kashmir Bank 18,661 21,645 23,485 25,194 28,593 Calyon Bank NA 1,306 372 775 1,135

175

3yr CAGR 352.0 171.5 69.1 56.9 56.3 40.5 40.3 39.1 35.8 34.8 32.8 29.0 28.1 27.6 27.2 26.7 26.4 24.6 24.2 24.0 23.9 23.4 23.2 23.2 22.8 22.4 22.0 21.5 21.5 21.4 21.3 20.7 20.6 20.6 20.1 19.5 19.5 18.9 17.9 17.7 17.6 17.6 17.3 17.3 17.1 16.8 16.7 16.2 16.0 15.6 13.6 13.6 13.2 13.1 12.0 9.8 9.7 -4.6

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based on CAGR in Net Profit from FY05 to FY08 Banks FY04 FY05 FY06 FY07 FY08 Ratnakar Bank 845 -942 59 299 1,701 ING Vysya Bank 5,900 -3,818 907 8,892 15,693 BNP Paribas -1,309 1,478 1,909 6,361 13,072 South Indian Bank 8,432 870 5,093 10,412 15,162 Lakshmi Vilas Bank 4,105 335 2,247 1,757 2,527 Yes Bank NA -379 5,533 9,437 20,002 Punjab & Sind Bank 887 -7,107 10,831 21,852 38,236 Bank Of India 100,832 34,005 70,144 112,316 200,940 Dena Bank 23,048 6,100 7,299 20,155 35,979 Bank Of Nova Scotia 1,795 -1,177 3,166 7,584 10,127 Dhanalakshmi Bank 1,748 -2,160 952 1,614 2,846 Deutsche Bank 27,265 7,718 12,592 21,822 38,611 Federal Bank 13,629 9,010 22,521 29,275 36,805 Bank Of America 6,418 8,043 14,458 19,554 30,523 Kotak Mahindra Bank 7,874 8,490 11,824 14,139 29,393 Catholic Syrian Bank 5,648 1,066 612 1,908 3,656 Bank Of Rajasthan 6,903 3,503 1,524 11,057 11,520 Axis Bank 27,831 33,459 48,509 65,903 107,103 Jammu & Kashmir Bank 40,633 11,507 17,684 27,449 36,000 Citi Bank 57,163 60,002 70,554 90,000 180,426 Standard Chartered Bank 59,647 60,158 90,486 136,433 170,623 Indian Bank 51,275 40,846 50,449 75,978 100,874 Nainital Bank 1,222 1,134 1,218 1,776 2,714 HDFC Bank 50,950 66,556 87,078 114,145 159,018 IDBI Bank 40,573 30,725 56,088 63,030 72,946 State Bank Of Hyderabad 38,120 25,092 42,702 50,551 55,699 City Union Bank 5,703 4,632 5,636 7,181 10,173 Bank Of Baroda 96,701 66,594 82,698 102,650 143,552 Calyon Bank NA -1,581 7,618 8,978 12,670 Syndicate Bank 43,413 40,288 53,649 71,604 84,807 ICICI Bank 163,709 200,522 254,006 311,020 415,773 Karur Vysya Bank 16,105 10,533 13,535 16,002 20,833 Union Bank Of India 71,207 71,906 67,523 84,540 138,703 Bank Of Maharashtra 30,455 17,710 5,080 27,182 32,839 Indian Overseas Bank NA 65,136 78,335 100,844 120,234 Corporation Bank 50,413 40,219 44,446 53,614 73,499 Allahabad Bank 46,338 54,177 70,615 75,017 97,474 State Bank Of Indore 22,626 13,318 13,911 18,995 23,401 Karnataka Bank 13,318 14,715 17,601 17,703 24,174 State Bank Of India 368,098 430,453 440,668 454,130 672,912 State Bank Of Travancore 24,459 24,713 25,867 32,629 38,611 State Bank Of Mysore 17,637 20,624 21,670 24,920 31,885 Tamilnad Mercantile Bank 8,068 8,233 10,121 10,578 12,674 Central Bank Of India 61,809 35,740 25,741 49,802 55,016 State Bank Of Bikaner & Jaipur 30,150 20,567 14,504 30,581 31,500 Punjab National Bank 110,868 141,009 143,933 154,005 204,876 State Bank Of Patiala 43,036 28,707 30,311 36,655 41,373 ABN AMRO Bank 19,481 19,524 24,169 38,535 28,067 Canara Bank 133,803 110,953 134,323 142,081 156,501 UCO Bank 43,541 34,567 19,665 31,609 41,216 Andhra Bank 46,350 52,008 48,549 53,790 57,557 United Bank Of India 31,507 30,015 20,454 26,729 31,895 Development Credit Bank 1,734 -16,292 -8,528 735 3,833 Vijaya Bank 41,131 38,055 12,689 33,133 36,128 Oriental Bank Of Commerce 68,606 72,606 55,719 58,078 35,322 Indusind Bank 26,209 21,012 3,681 6,824 7,505 HSBC 39,378 33,690 51,496 84,560 11,923 Barclays Bank 7,187 6,250 12,194 9,108 615

176

3yr CAGR 436.9 316.0 161.7 159.3 96.1 90.1 87.9 80.8 80.7 78.8 72.9 71.0 59.9 56.0 51.3 50.8 48.7 47.4 46.3 44.3 41.6 35.2 33.8 33.7 33.4 30.4 30.0 29.2 29.0 28.2 27.5 25.5 24.5 22.9 22.7 22.3 21.6 20.7 18.0 16.1 16.0 15.6 15.5 15.5 15.3 13.3 13.0 12.9 12.1 6.0 3.4 2.0 0.0 -1.7 -21.4 -29.0 -51.9 -53.8

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based on Qualitative Factors

Banks Bank Of America Bank Of Nova Scotia Citi Bank Deutsche Bank Calyon Bank BNP Paribas ABN AMRO Bank HSBC IDBI Bank Barclays Bank Standard Chartered Bank ICICI Bank Axis Bank Yes Bank HDFC Bank Oriental Bank Of Commerce Corporation Bank Jammu & Kashmir Bank State Bank Of Patiala Indusind Bank Federal Bank Canara Bank Union Bank Of India Karur Vysya Bank Bank Of Baroda Bank Of India State Bank Of Hyderabad Karnataka Bank Andhra Bank State Bank Of Indore Indian Overseas Bank State Bank Of Travancore Kotak Mahindra Bank Tamilnad Mercantile Bank Allahabad Bank State Bank Of India Vijaya Bank Syndicate Bank ING Vysya Bank Punjab National Bank Indian Bank South Indian Bank City Union Bank UCO Bank

177

Busibranch Rank 4 7 1 2 13 9 3 5 12 6 8 10 14 11 15 21 23 18 20 17 31 19 32 34 28 26 30 41 40 27 33 25 16 44 46 22 36 37 29 39 43 48 45 35

Busiempl Rank 2 1 6 7 3 5 9 11 4 21 15 12 8 16 20 13 14 22 17 10 23 25 19 28 18 26 29 27 24 31 38 34 53 40 36 48 32 33 37 41 47 30 52 35

Profitempl Rank 3 4 5 7 2 6 12 9 11 1 8 10 13 14 15 16 17 23 33 46 20 32 25 18 35 31 29 21 27 36 24 38 30 19 22 40 44 43 49 37 28 41 26 54

Total ranks 9 12 12 16 18 20 24 25 27 28 31 32 35 41 50 50 54 63 70 73 74 76 76 80 81 83 88 89 91 94 95 97 99 103 104 110 112 113 115 117 118 119 123 124

Final Rank 1 2 2 4 5 6 7 8 9 10 11 12 13 14 15 15 17 18 19 20 21 22 22 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44

REPORT ON INDIAN BANKING SECTOR

Banks State Bank Of Mysore Development Credit Bank Dena Bank State Bank Of Bikaner & Jaipur Punjab & Sind Bank Bank Of Rajasthan Bank Of Maharashtra Nainital Bank United Bank Of India Lakshmi Vilas Bank Central Bank Of India Dhanalakshmi Bank Ratnakar Bank Catholic Syrian Bank

178

Busibranch Rank 38 24 47 42 52 53 51 55 49 54 50 56 58 57

Busiempl Rank 45 46 39 49 50 43 42 56 51 44 55 54 58 57

Profitempl Rank 42 58 45 48 39 47 50 34 52 56 55 53 51 57

Total ranks 125 128 131 139 141 143 143 145 152 154 160 163 167 171

Final Rank 45 46 47 48 49 50 50 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based on Weighted Average Business Per Branch Banks FY04 FY05 FY06 FY07 FY08 Citi Bank NA 1255.3 1242.7 1558.3 1940.5 Deutsche Bank NA 1072.9 1004.6 1180.3 1823.1 ABN AMRO Bank NA 840.4 1042.8 1202.4 1315.7 Bank Of America NA 1463.8 1068.7 1110.9 1327.7 HSBC NA 740.4 881.5 1120.6 1388.6 Barclays Bank NA 84.6 221.1 387.0 1965.0 Bank Of Nova Scotia NA 921.1 845.0 974.7 1348.1 Standard Chartered Bank NA 503.8 552.5 691.2 778.0 BNP Paribas NA 429.6 394.1 452.3 636.0 ICICI Bank NA 344.5 466.1 576.7 451.8 Yes Bank NA NA 749.1 421.9 364.8 IDBI Bank NA NA 663.1 300.1 274.5 Calyon Bank NA NA 336.4 263.5 393.8 Axis Bank NA 178.9 183.5 186.2 212.4 HDFC Bank NA 148.5 159.0 174.5 198.3 Kotak Mahindra Bank NA 156.6 160.8 185.3 184.6 Indusind Bank NA 214.9 170.1 160.3 159.4 Jammu & Kashmir Bank NA 70.2 79.7 88.1 93.6 Canara Bank NA 55.8 67.0 82.0 91.8 State Bank Of Patiala NA 51.6 64.5 79.7 93.7 Oriental Bank Of Commerce NA 57.9 66.7 76.2 88.8 State Bank Of India NA 57.3 65.7 75.0 86.3 Corporation Bank NA 55.1 63.2 73.9 86.5 Development Credit Bank NA 83.6 61.3 65.6 87.4 State Bank Of Travancore NA 51.3 60.6 70.8 82.6 Bank Of India NA 47.1 54.9 66.9 84.2 State Bank Of Indore NA 43.9 56.5 69.3 81.9 Bank Of Baroda NA 42.0 50.1 64.8 81.4 ING Vysya Bank NA 51.1 58.9 63.7 75.0 State Bank Of Hyderabad NA 43.3 52.3 63.9 77.2 Federal Bank NA 49.3 56.3 63.9 69.5 Union Bank Of India NA 42.8 53.3 61.7 69.4 Indian Overseas Bank NA 42.0 48.8 59.8 69.9 Karur Vysya Bank NA 43.2 47.0 53.5 65.6 UCO Bank NA 38.0 46.8 54.5 63.8 Vijaya Bank NA 38.2 43.3 52.6 65.8 Syndicate Bank NA 36.1 42.1 52.4 64.2 State Bank Of Mysore NA 31.5 39.3 51.1 64.8 Punjab National Bank NA 36.3 43.3 51.8 61.9 Andhra Bank NA 35.2 43.5 52.4 61.1 Karnataka Bank NA 39.9 47.1 53.1 58.4 State Bank Of Bikaner & Jaipur NA 33.4 41.1 50.6 61.1 Indian Bank NA 34.5 40.8 47.9 58.0 Tamilnad Mercantile Bank NA 38.3 43.0 48.7 56.1 City Union Bank NA 35.5 40.1 46.1 54.7 Allahabad Bank NA 26.9 34.4 42.8 50.8 Dena Bank NA 27.7 32.8 39.3 47.5 South Indian Bank NA 30.8 33.9 39.1 46.1 United Bank Of India NA 25.2 30.2 38.4 48.0 Central Bank Of India NA 25.8 29.6 36.3 47.1 Bank Of Maharashtra NA 30.6 32.0 36.8 45.7 Punjab & Sind Bank NA 25.6 29.6 34.7 42.9 Bank Of Rajasthan NA 28.0 30.3 34.3 40.4 Lakshmi Vilas Bank NA 23.3 27.4 32.5 36.0 Nainital Bank NA 17.6 20.2 24.6 29.6 Dhanalakshmi Bank NA 20.0 21.5 24.2 28.1 Catholic Syrian Bank NA 19.3 20.8 22.0 23.2 Ratnakar Bank NA 15.4 16.8 17.5 19.2

179

Weight Av 1686.3 1466.6 1227.1 1210.9 1206.8 1142.8 1135.4 596.3 532.5 492.2 458.8 359.9 343.2 198.7 183.3 180.1 161.8 89.2 83.9 83.7 80.6 78.8 78.1 75.6 74.7 73.1 73.0 70.1 68.4 68.2 65.2 63.9 62.6 58.2 57.6 57.3 56.2 55.6 55.1 54.9 54.6 53.9 51.5 51.3 49.2 45.1 42.1 41.6 41.5 40.3 40.3 37.8 36.5 33.2 26.2 25.6 22.3 18.2

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based on Weighted Average Business per Employee Banks FY04 FY05 FY06 FY07 FY08 Bank Of Nova Scotia 1,679 2085.2 2040.3 2311.1 3082.9 Bank Of America 1,748 1707.7 1924.8 1920.9 2483.5 Calyon Bank NA 946.0 1278.0 1629.0 2249.0 IDBI Bank NA 1349.6 1718.2 1387.2 1809.2 BNP Paribas 922 980.5 1206.1 1353.3 1950.0 Citi Bank 1,667 1359.5 1607.9 1360.5 1763.8 Deutsche Bank 1,099 1608.9 1016.8 1143.5 1616.7 Axis Bank NA NA 1020.0 1024.0 1117.0 ABN AMRO Bank 891 823.7 905.8 1011.9 1070.3 Indusind Bank 1,080 925.8 880.2 1039.8 1062.7 HSBC 821 852.5 975.7 979.7 1012.3 ICICI Bank 1,010 880.0 905.0 1027.0 1008.0 Oriental Bank Of Commerce 416 512.2 570.3 742.6 924.4 Corporation Bank 366 438.0 527.0 637.0 839.0 Standard Chartered Bank 780 786.4 837.3 924.2 826.7 Yes Bank NA 687.9 848.1 531.0 683.1 State Bank Of Patiala 305 361.2 493.0 599.5 759.8 Bank Of Baroda 253 316.0 396.0 555.0 710.0 Union Bank Of India 286 343.1 436.5 509.2 698.6 HDFC Bank 866 806.0 758.0 607.0 506.0 Barclays Bank 271 188.5 148.5 280.5 942.3 Jammu & Kashmir Bank 345 435.0 516.0 585.0 596.0 Federal Bank 327 366.0 431.0 544.0 640.0 Andhra Bank 277 346.3 426.8 536.1 626.5 Canara Bank 298 351.1 441.6 548.8 609.4 Bank Of India 267 320.0 381.0 498.0 652.0 Karnataka Bank 320 380.9 478.3 523.9 589.0 Karur Vysya Bank 330 387.0 439.0 489.0 604.0 State Bank Of Hyderabad 266 339.7 414.3 473.6 599.1 South Indian Bank 306 352.0 422.0 462.0 600.4 State Bank Of Indore 231 293.9 368.0 476.7 604.4 Vijaya Bank 249 310.5 369.3 455.2 612.7 Syndicate Bank 240 280.2 348.6 489.2 586.0 State Bank Of Travancore 272 346.3 381.2 506.1 558.7 UCO Bank 249 321.0 387.0 464.0 580.0 Allahabad Bank 215 282.0 336.0 456.0 604.0 ING Vysya Bank 324 394.9 426.0 486.1 547.3 Indian Overseas Bank 233 269.5 354.7 467.2 582.7 Dena Bank 274 313.0 364.0 458.0 559.0 Tamilnad Mercantile Bank 292 317.0 358.3 451.2 542.0 Punjab National Bank 228 276.9 330.9 407.4 504.5 Bank Of Maharashtra 269 294.7 306.2 404.9 515.7 Bank Of Rajasthan 200 231.2 291.4 400.5 518.9 Lakshmi Vilas Bank 276 296.0 371.0 430.0 453.0 State Bank Of Mysore 163 203.5 290.0 398.0 495.0 Development Credit Bank 480 402.0 390.0 391.0 454.0 Indian Bank 189 246.0 295.0 364.0 488.0 State Bank Of India 211 243.1 299.2 357.0 456.0 State Bank Of Bikaner & Jaipur 170 220.3 276.9 368.1 445.5 Punjab & Sind Bank 205 217.6 277.2 328.6 466.9 United Bank Of India 169 208.0 254.0 350.0 463.0 City Union Bank 287 325.8 339.7 350.1 420.6 Kotak Mahindra Bank 354 387.3 352.0 383.9 383.8 Dhanalakshmi Bank 249 292.7 311.7 360.9 409.1 Central Bank Of India 182 206.9 240.5 303.9 401.0 Nainital Bank 125 162.3 225.0 279.0 366.0 Catholic Syrian Bank 182 220.0 247.0 278.0 317.0 Ratnakar Bank 198 220.8 250.9 254.4 310.1

180

3yr CAGR 2642.8 2203.0 1868.8 1664.4 1622.2 1611.6 1354.8 1069.7 1019.9 1019.3 995.2 993.1 799.0 716.0 690.6 670.5 658.4 600.7 589.4 586.7 585.0 576.7 569.4 559.4 557.6 551.6 547.3 536.5 524.5 523.2 518.8 516.7 509.5 507.4 506.6 506.0 504.7 502.5 489.7 478.0 440.7 440.6 437.9 429.7 424.9 422.3 412.2 394.9 388.5 387.5 387.3 383.3 377.5 375.2 339.7 311.7 291.3 281.6

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

REPORT ON INDIAN BANKING SECTOR

Ranking based on CAGR in Net Profit from FY05 to FY08 Banks FY04 FY05 FY06 FY07 FY08 Barclays Bank 211 160.2 271.0 36.3 50.0 Calyon Bank NA -15.0 71.0 82.0 97.0 Bank Of America 24 29.5 51.8 69.1 102.1 Bank Of Nova Scotia 10 -6.3 16.5 39.1 49.9 Citi Bank 28 21.8 21.7 17.3 37.7 BNP Paribas -4 4.7 6.3 19.4 36.0 Deutsche Bank 65 20.3 18.6 21.0 27.5 Standard Chartered Bank 13 11.5 14.5 19.6 20.2 HSBC 6 9.7 12.1 14.3 16.7 ICICI Bank 12 11.0 10.0 9.0 10.0 IDBI Bank NA 6.9 12.5 8.4 8.9 ABN AMRO Bank 15 10.2 8.2 11.4 7.7 Axis Bank NA NA 8.7 7.6 8.4 Yes Bank NA -1.8 8.8 4.0 6.4 HDFC Bank 9 8.8 7.4 6.1 5.0 Oriental Bank Of Commerce 5 6.7 5.4 5.6 5.8 Corporation Bank 5 4.0 4.1 4.8 6.5 Karur Vysya Bank 6 3.8 4.7 4.9 5.8 Tamilnad Mercantile Bank 4 3.6 4.4 4.8 5.3 Federal Bank 2 1.4 3.5 4.4 5.3 Karnataka Bank 3 3.4 4.1 4.0 5.0 Allahabad Bank 2 2.9 3.7 4.0 4.9 Jammu & Kashmir Bank 6 2.0 3.0 4.0 5.0 Indian Overseas Bank 2 2.7 3.2 4.0 4.8 Union Bank Of India 3 2.8 2.7 3.3 5.4 City Union Bank 4 3.2 3.5 3.8 4.7 Andhra Bank 4 4.0 3.7 4.1 4.3 Indian Bank 2 1.9 2.4 3.6 4.9 State Bank Of Hyderabad 3 1.9 3.3 3.9 4.4 Kotak Mahindra Bank 10 5.4 4.2 3.1 3.8 Bank Of India 2 0.8 1.7 2.7 5.0 Canara Bank 3 2.5 3.0 3.2 3.7 State Bank Of Patiala 4 2.5 2.7 3.2 3.7 Nainital Bank 2 2.0 2.0 3.0 4.0 Bank Of Baroda 2 1.7 2.1 2.7 3.9 State Bank Of Indore 3 2.1 2.1 2.9 3.7 Punjab National Bank 2 2.4 2.5 2.7 3.7 State Bank Of Travancore 2 2.2 2.3 3.0 3.4 Punjab & Sind Bank 0 -0.7 1.1 2.3 4.2 State Bank Of India 2 2.1 2.2 2.4 3.7 South Indian Bank 2 0.2 1.4 2.7 3.6 State Bank Of Mysore 2 2.2 2.2 2.6 3.3 Syndicate Bank 2 1.5 2.1 2.8 3.2 Vijaya Bank 4 3.5 1.2 3.0 3.3 Dena Bank 2 0.6 0.7 2.0 3.6 Indusind Bank 15 10.1 1.6 2.6 2.6 Bank Of Rajasthan 2 0.9 0.4 2.8 2.9 State Bank Of Bikaner & Jaipur 6 1.7 1.2 2.6 2.7 ING Vysya Bank 1 -0.7 0.2 1.7 2.7 Bank Of Maharashtra 2 1.3 0.4 2.0 2.4 Ratnakar Bank 2 -1.7 0.1 0.5 3.1 United Bank Of India 2 1.7 1.2 1.6 2.0 Dhanalakshmi Bank 1 -1.7 0.7 1.2 2.0 UCO Bank 2 1.4 0.8 1.3 1.8 Central Bank Of India 2 0.9 0.7 1.4 1.6 Lakshmi Vilas Bank 2 0.2 1.2 0.9 1.2 Catholic Syrian Bank 2 0.4 0.2 0.7 1.3 Development Credit Bank 1 -11.0 -7.0 0.4 2.0

181

3yr CAGR 90.1 87.3 82.1 40.0 28.4 25.1 23.8 18.9 15.1 9.7 9.5 8.9 8.2 6.1 5.8 5.7 5.5 5.3 5.0 4.7 4.5 4.4 4.3 4.3 4.2 4.2 4.1 4.0 4.0 3.7 3.6 3.4 3.4 3.3 3.2 3.2 3.1 3.1 3.1 3.0 2.9 2.9 2.8 2.8 2.5 2.4 2.4 2.4 1.9 1.9 1.7 1.7 1.5 1.4 1.3 1.1 0.9 -0.3

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

Chapter 16 Major Players 16.1 Axis Bank Ltd Particulars Interest Earned Interest Expended Net Interest income

Profit and loss account for the year ended (Rs cr) FY05 FY06 FY07 FY08 FY09 1,924 2,889 4,560 7,005 10,835 1,193 1,811 2,993 4,420 7,149 731 1,078 1,567 2,585 3,686

REPORT ON INDIAN BANKING SECTOR

Growth (%)

47.5

45.3

65.0

42.6

730 240 574 263 731 246 484

1,010 381 833 366 996 337 659

1,795 670 1,485 580 1,646 575 1,071

2,897 998 1,861 940 2,785 970 1,815

44.7

36.1

62.5

69.5

416 177 405 62 504 169 335

Other income Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

Growth (%)

Profit and loss account for the period ended (Rs cr) FY08 FY09 Particulars Q1 Q2 Q3 Q4 Q1 Q2 Q3 Interest Earned 1,511 1,676 1,802 2,015 2,266 2,545 2,985 Interest Expended 1,090 1,088 1,055 1,187 1,456 1,632 2,055 Net Interest income 421 589 747 828 810 913 930

growth (q-o-q)

Q4 3,039 2,007 1,033

39.9

27.0

10.9

(2.2)

12.7

1.8

11.1

Other income (OI) Total Income (TI)

368 789

383 972

488 1,235

556 1,385

625 1,435

694 1,608

732 1,662

846 1,878

OI as a % of TI

46.7

39.4

39.5

40.2

43.5

43.2

44.1

45.0

Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

148 273 101 267 92 175

164 344 114 348 121 228

173 389 200 472 165 307

184 478 164 559 197 361

214 419 297 506 175 330

260 473 256 619 216 403

266 486 132 778 277 501

258 482 255 883 302 581

30.2

34.7

17.8

(8.6)

22.0

24.3

16.1

growth (q-o-q)

Particulars FY05 CASA Ratio 37.98 Gross NPA/Gross Adv. 1.98 Net NPA/Net Adv. 1.39 CRAR 12.66 Source: Capital Line, Company and CARE Research

182

Ratio Analysis (in %) FY06 FY07 FY08 39.98 39.86 45.68 1.67 1.11 0.80 0.98 0.72 0.42 11.08 11.57 13.73

FY09 43.15 0.96 0.35 13.69

Balance Sheet as on year ended (Rs cr) FY05 FY06 FY07 FY08 274 279 282 358 2,134 2,593 3,112 8,411 31,712 40,114 58,786 87,626

Particulars Capital Reserves & Surplus Deposits

y-o-y growth Borrowings Other liabilities and Prov Total Liabilities Cash and Bank Balances Advances

26.5

46.5

49.1

33.9

2,681 4,118 49,785 3,642 22,314

5,196 5,935 73,310 6,918 36,876

5,624 7,607 109,626 12,504 59,661

10,185 9,986 147,759 15,017 81,557

43.0

65.3

61.8

36.7

21,527 568 1,734 49,785

26,897 673 1,945 73,310

33,705 923 2,832 109,626

46,330 1,073 3,782 147,759

Share Holding Pattern (in %) as on Mar'05 Mar'06 Mar'07 Mar'08 44.5 43.7 43.1 42.5 2.7 7.0 6.8 7.6 45.7 42.2 42.0 39.8 6.2 5.6 5.6 4.7 1.0 1.5 2.5 5.4 100.0 100.0 100.0 100.0

Mar'09 42.4 8.2 35.9 6.0 7.5 100.0

1,781 1,898 37,800 4,503 15,603 15,048 518 2,127 37,800

Particulars Mar'04 Promoters 53.9 Domestic Institutions 4.7 Foreign Institutions 27.1 Indian Public 12.7 Others 1.7 Total 100.0 Source: Capital Line, Company and CARE Research

Fig NPAs of the bank over the quarters 1.2

1.01

1.0 Percent

0.8 0.6

0.95

0.92 0.80

0.59

0.4

0.91

0.96

0.90

0.72

0.55 0.42

0.36

0.47

0.43

0.39

0.35

Gross NPA/Gross Advances

Source : Capital Line and CARE Research

183

Net NPA/Net Advances

Q4'09

Q3'09

Q2'09

Q1'09

Q4'08

Q3'08

-

Q2'08

0.2 Q1'08

REPORT ON INDIAN BANKING SECTOR

y-o-y growth Investments Fixed Assets other Assets Total Liabilities

FY09 359 9,855 117,374

16.2 Bank of Baroda Ltd Particulars Interest Earned Interest Expended Net Interest income

Profit and loss account for the year ended (Rs cr) FY05 FY06 FY07 FY08 FY09 6,431 7,050 9,004 11,813 15,092 3,452 3,875 5,427 7,902 9,968 2,979 3,175 3,578 3,912 5,123

REPORT ON INDIAN BANKING SECTOR

Growth (%)

1,305 1,381 1,411 620 872 186 686

Other income Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

Growth (%)

6.6

12.7

9.3

31.0

1,127 1,524 1,471 415 892 65 827

1,382 1,644 1,236 425 1,654 628 1,026

2,051 1,804 1,172 780 2,207 772 1,436

2,663 2,348 1,133 962 3,343 1,116 2,227

20.6

24.1

39.9

55.1

Profit and loss account for the period ended (Rs cr) FY08 FY09 Particulars Q1 Q2 Q3 Q4 Q1 Q2 Q3 2,600 2,880 3,002 3,331 3,294 3,551 4,108 Interest Earned 1,696 1,898 2,005 2,303 2,237 2,417 2,646 Interest Expended 904 981 997 1,029 1,057 1,134 1,462 Net Interest income

growth (q-o-q) Other income (OI) Total Income (TI)

OI as a % of TI Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

growth (q-o-q)

8.5

1.6

3.1

2.8

7.3

28.9

0.6

424 1,329

454 1,436

618 1,615

555 1,583

513 1,570

476 1,610

916 2,377

854 2,324

31.9

31.6

38.3

35.0

32.7

29.6

38.5

36.7

450 234 141 503 172 331

537 262 98 539 212 327

396 287 157 775 274 501

521 348 325 390 113 276

463 247 280 580 209 371

463 301 242 604 208 395

667 295 350 1,065 356 708

635 385 210 1,095 342 753

(1.1)

53.1

(44.8)

34.2

6.6

79.2

6.3

Particulars FY05 36.45 CASA Ratio 7.30 Gross NPA/Gross Adv. 1.45 Net NPA/Net Adv. 12.61 CRAR Source: Capital Line, Company and CARE Research

184

Q4 4,139 2,668 1,471

Ratio Analysis (in %) FY06 FY07 FY08 37.94 33.18 31.22 3.90 2.47 1.80 0.87 0.60 0.47 13.65 11.80 12.91

FY09 34.87 1.27 0.31 14.05

Balance Sheet as on year ended (Rs cr) FY05 FY06 FY07 FY08 295 366 366 366 5,333 7,479 8,284 10,678 81,333 93,662 124,916 152,034

Particulars Capital Reserves & Surplus Deposits

y-o-y growth Borrowings Other liabilities and Prov. Total Liabilities Cash and Bank Balances Advances

1,641 6,062 94,664 9,254 43,400

Investments Fixed Assets other Assets Total Liabilities

37,074 861 4,074 94,664

33.4

21.7

4,802 7,084 113,393 13,455 59,912

1,143 8,438 143,146 18,280 83,621

3,927 12,594 179,600 22,299 106,701

38.0

39.6

27.6

35,114 921 3,991 113,393

34,944 1,089 5,213 143,146

43,870 2,427 4,302 179,600

Share Holding Pattern (in %) as on Mar'05 Mar'06 Mar'07 Mar'08 66.8 53.8 53.8 53.8 5.8 9.5 14.3 17.7 19.0 20.9 21.3 20.7 0.1 0.8 8.4 6.5 8.3 15.0 2.2 1.3 100.0 100.0 100.0 100.0

Particulars Mar'04 66.8 Promoters 5.7 Domestic Institutions 18.0 Foreign Institutions 0.8 Indian Public 8.7 Others 100.0 Total Source: Capital Line, Company and CARE Research

Mar'09 53.8 21.9 14.4 6.8 3.1 100.0

Fig NPAs of the bank over the quarters 2.78 2.11

1.86

1.84

2.0

1.62

1.50

1.5

Q3'08

Q2'08

Q1'08

-

0.47

Gross NPA/Gross Advances

Source : Capital Line and CARE Research

185

0.52

0.43

Q2'09

0.54

0.55

0.5

Q1'09

0.67

Q4'08

1.0

1.27

0.37

Net NPA/Net Advances

0.31 Q4'09

2.33

2.5

Q3'09

3.0

Percent

REPORT ON INDIAN BANKING SECTOR

y-o-y growth

15.2

16.3 Bank of India Particulars Interest Earned Interest Expended Net Interest income

Profit and loss account for the year ended (Rs cr) FY05 FY06 FY07 FY08 FY09 6,032 7,029 9,180 12,355 16,347 3,795 4,397 5,740 8,126 10,848 2,237 2,632 3,440 4,229 5,499

REPORT ON INDIAN BANKING SECTOR

Growth (%)

1,156 1,263 669 999 461 121 340

Other income Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

Growth (%)

17.7

30.7

22.9

30.0

1,184 1,328 787 786 916 214 701

1,563 1,614 994 862 1,533 410 1,123

2,117 1,657 988 1,008 2,693 684 2,009

3,052 1,937 1,157 1,774 3,683 675 3,007

106.3

60.1

78.9

49.7

Profit and loss account for the period ended (Rs cr) FY08 FY09 Particulars Q1 Q2 Q3 Q4 Q1 Q2 Q3 2,727 2,975 3,151 3,502 3,548 3,963 4,343 Interest Earned 1,780 1,989 2,072 2,285 2,368 2,600 2,822 Interest Expended 947 986 1,079 1,217 1,181 1,363 1,522 Net Interest income

growth (q-o-q) Other income (OI) Total Income (TI)

OI as a % of TI Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

growth (q-o-q)

4.1

9.5

12.7

(3.0)

15.4

11.6

(5.8)

381 1,328

528 1,514

554 1,634

653 1,870

566 1,747

650 2,013

1,051 2,572

785 2,219

28.7

34.9

33.9

34.9

32.4

32.3

40.8

35.4

413 237 199 479 163 315

380 294 299 541 115 425

450 212 231 740 228 512

414 244 287 926 169 757

460 215 349 723 161 562

482 316 287 928 165 763

518 293 272 1,490 617 872

478 333 385 1,023 213 810

34.9

20.4

47.9

(25.8)

35.8

14.3

(7.1)

Particulars FY05 34.55 CASA Ratio 5.48 Gross NPA/Gross Adv. 2.80 Net NPA/Net Adv. 11.52 CRAR Source: Capital Line, Company and CARE Research

186

Q4 4,493 3,060 1,433

Ratio Analysis (in %) FY06 FY07 FY08 35.02 32.22 36.00 3.72 2.42 1.68 1.49 0.74 0.52 10.75 11.58 12.04

FY09 31.00 1.71 0.44 12.04

Balance Sheet as on year ended (Rs cr) FY05 FY06 FY07 FY08 488 488 488 526 3,977 4,496 5,407 10,063 78,821 93,932 119,882 150,012

Particulars Capital Reserves & Surplus Deposits

19.2

27.6

25.1

26.5

5,894 7,476 112,286 11,446 65,174

6,621 9,449 141,847 17,406 85,116

7,172 11,087 178,861 17,717 113,476

9,487 12,811 225,502 21,761 142,909

17.4

30.6

33.3

25.9

31,782 810 3,075 112,286

35,493 789 3,044 141,847

41,803 2,426 3,438 178,861

52,607 2,532 5,692 225,502

Share Holding Pattern (in %) as on Particulars Mar'04 Mar'05 Mar'06 Mar'07 Mar'08 69.5 69.5 69.5 69.5 64.5 Promoters 4.0 4.3 4.7 5.6 10.3 Domestic Institutions 8.6 14.0 16.3 16.3 17.3 Foreign Institutions 7.8 6.6 Indian Public 17.9 12.2 9.6 1.0 1.3 Others 100.0 100.0 100.0 100.0 100.0 Total Source: Capital Line, Company and CARE Research

Mar'09 64.5 11.3 16.4 6.6 1.2 100.0

y-o-y growth

5,962 5,756 95,004 7,526 55,529

Borrowings Other liabilities and Prov Total Liabilities Cash and Bank Balances Advances

y-o-y growth

28,686 814 2,449 95,004

Investments Fixed Assets other Assets Total Liabilities

Fig NPAs of the bank over the quarters 2.5

2.29 2.07

1.90

2.0

1.68

1.64

1.71

1.63

1.53

1.5

0.62

0.52

Q4'08

Q3'08

Q1'08

-

Q2'08

0.5

Gross NPA/Gross Advances

Source : Capital Line and CARE Research

187

0.52

0.52

0.48

Net NPA/Net Advances

0.44

Q4'09

0.75

Q3'09

0.89

Q2'09

1.0

Q1'09

Percent

REPORT ON INDIAN BANKING SECTOR

FY09 526 12,969 189,708

16.4 Canara Bank Particulars Interest Earned Interest Expended Net Interest income

Profit and loss account for the year ended (Rs cr) FY05 FY06 FY07 FY08 FY09 7,572 8,712 11,365 14,201 17,119 4,422 5,130 7,338 10,663 12,401 3,150 3,582 4,027 3,538 4,718

REPORT ON INDIAN BANKING SECTOR

Growth (%)

1,544 1,380 729 1,306 1,280 170 1,110

Other income Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

Growth (%)

13.7

12.4

(12.1)

33.4

1,378 1,515 832 1,069 1,543 200 1,343

1,451 1,609 956 1,242 1,671 250 1,421

2,213 1,661 1,130 1,054 1,905 340 1,565

2,311 1,877 1,188 1,391 2,572 500 2,072

21.1

5.8

10.1

32.4

Profit and loss account for the period ended (Rs cr) FY08 FY09 Particulars Q1 Q2 Q3 Q4 Q1 Q2 Q3 3,380 3,483 3,550 3,788 3,731 4,109 4,625 Interest Earned 2,486 2,696 2,616 2,866 2,711 2,960 3,381 Interest Expended 894 787 934 922 1,019 1,149 1,244 Net Interest income

growth (q-o-q) Other income (OI) Total Income (TI)

OI as a % of TI Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

growth (q-o-q)

(12.0)

18.7

(1.3)

10.5

12.7

8.3

4.9

380 1,274

572 1,359

546 1,481

714 1,637

369 1,388

339 1,488

757 2,002

846 2,152

29.8

42.1

36.9

43.6

26.6

22.8

37.8

39.3

428 235 302 311 70 241

432 277 179 472 70 402

445 278 199 559 100 459

357 341 375 564 100 464

421 263 541 163 40 123

422 292 144 629 100 529

504 284 353 861 160 701

530 349 354 919 200 719

66.9

14.3

1.1

(73.6)

331.6

32.5

2.5

Particulars FY05 33.8 CASA Ratio 3.9 Gross NPA/Gross Adv. 1.9 Net NPA/Net Adv. 12.8 CRAR Source: Capital Line, Company and CARE Research

188

Q4 4,654 3,349 1,305

Ratio Analysis (in %) FY06 FY07 FY08 33.3 31.5 31.5 2.3 1.5 1.3 1.1 0.9 0.8 11.2 13.5 13.3

FY09 NA 1.6 1.1 14.1

Balance Sheet as on year ended (Rs cr) FY05 FY06 FY07 FY08 410 410 410 410 5,699 6,722 9,944 10,090 96,796 116,803 142,381 154,072

Particulars Capital Reserves & Surplus Deposits

y-o-y growth Borrowings Other liabilities and Prov. Total Liabilities Cash and Bank Balances Advances

114 7,394 110,413 8,669 60,421

20.7

21.9

8.2

26 8,977 132,938 12,824 79,426

1,574 11,789 166,099 16,374 98,506

2,517 13,606 180,696 17,878 107,238

31.5

24.0

8.9

36,974 688 3,026 132,938

45,226 2,861 3,133 166,099

49,812 2,917 2,852 180,696

Investments Fixed Assets other Assets Total Liabilities

38,054 673 2,596 110,413

Share Holding Pattern (in %) as on Mar'05 Mar'06 Mar'07 Mar'08 73.2 73.2 73.2 73.2 3.2 1.5 2.3 5.4 15.4 18.5 17.5 14.4 0.1 0.0 6.3 5.8 8.2 6.8 0.8 1.3 100.0 100.0 100.0 100.0

Particulars Mar'04 73.2 Promoters 2.6 Domestic Institutions 11.8 Foreign Institutions 1.0 Indian Public 11.4 Others 100.0 Total Source: Capital Line, Company and CARE Research

Mar'09 73.2 8.4 11.5 6.0 0.9 100.0

Fig NPAs of the bank over the quarters 2.5 1.94

2.0

1.66

1.55 Percent

1.56

1.54

1.5 1.0

1.31

1.18 0.89

0.99

0.89

0.84

1.31 0.85

1.28 0.89

1.09

Gross NPA/Gross Advances Source : Capital Line and CARE Research

189

Net NPA/Net Advances

Q4'09

Q3'09

Q2'09

Q1'09

Q4'08

Q3'08

-

Q2'08

0.5 Q1'08

REPORT ON INDIAN BANKING SECTOR

y-o-y growth

16.5 Central Bank of India Particulars Interest Earned Interest Expended Net Interest income

Profit and loss account for the year ended (Rs cr) FY05 FY06 FY07 FY08 FY09 5,205 5,386 6,234 7,996 10,455 2,830 3,006 3,760 5,772 8,227 2,375 2,380 2,474 2,223 2,228

REPORT ON INDIAN BANKING SECTOR

Growth (%)

920 1,278 408 982 627 270 357

Other income Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

Growth (%)

0.2

4.0

(10.2)

0.2

531 1,276 440 819 376 119 257

476 1,175 509 570 695 197 498

791 1,214 531 416 852 302 550

1,070 1,273 589 512 925 354 571

(28.0)

93.5

10.5

3.8

Profit and loss account for the period ended (Rs cr) FY08 FY09 Particulars Q1 Q2 Q3 Q4 Q1 Q2 Q3 1,759 1,919 1,993 2,211 2,411 2,674 2,722 Interest Earned 1,195 1,398 1,478 1,702 1,934 2,028 2,050 Interest Expended 564 521 516 509 477 646 672 Net Interest income

growth (q-o-q) Other income (OI) Total Income (TI)

OI as a % of TI Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

growth (q-o-q)

(7.8)

(1.0)

(1.2)

(6.4)

35.5

4.0

(35.5)

115 679

188 708

212 728

387 897

161 638

94 741

311 983

503 936

16.9

26.5

29.1

43.2

25.3

12.8

31.7

53.7

295 120 121 143 45 98

314 147 123 124 0 124

324 124 (12) 292 91 201

281 139 184 293 166 127

292 125 155 66 7 59

293 153 107 188 91 96

383 134 (97) 564 210 353

304 178 347 107 45 63

25.7

62.6

(36.7)

(53.4)

62.1

267.4

(82.3)

Particulars FY05 43.6 CASA Ratio 9.0 Gross NPA/Gross Adv. 3.0 Net NPA/Net Adv. 12.2 CRAR Source: Capital Line, Company and CARE Research

190

Q4 2,647 2,214 433

Ratio Analysis (in %) FY06 FY07 FY08 46.8 42.1 36.1 6.8 4.8 3.2 2.6 1.7 1.5 11.0 10.4 10.4

FY09 33.4 2.7 1.2 11.8

Balance Sheet as on year ended (Rs cr) FY05 FY06 FY07 FY08 1,124 1,124 1,124 1,204 2,141 2,318 2,666 4,739 60,752 66,483 82,776 110,320

Particulars Capital Reserves & Surplus Deposits

y-o-y growth Borrowings Other liabilities and Prov. Total Liabilities Cash and Bank Balances Advances

140 4,721 68,878 7,053 27,277

9.4

24.5

33.3

311 4,833 75,069 4,794 37,483

782 5,996 93,344 8,813 51,795

449 7,752 124,464 12,839 72,997

37.4

38.2

40.9

28,639 725 3,427 75,069

27,742 767 4,226 93,344

31,455 2,320 4,851 124,464

Investments Fixed Assets other Assets Total Liabilities

30,835 752 2,961 68,878

Share Holding Pattern (in %) as on Mar'05 Mar'06 Mar'07 Mar'08 100.0 100.0 100.0 80.2 4.2 7.9 6.5 1.2 100.0 100.0 100.0 100.0

Particulars Mar'04 100.0 Promoters Domestic Institutions Foreign Institutions Indian Public Others 100.0 Total Source: Capital Line, Company and CARE Research

Mar'09 80.2 2.3 6.6 8.6 2.3 100.0

Fig NPAs of the bank over the quarters 6.0 5.0

4.94

4.81

4.37

4.0 Percent

3.16

3.03

2.0

1.58

1.41

1.22

1.45

2.81

2.79

3.0 1.36

1.17

2.67 1.18

1.24

Gross NPA/Gross Advances

Source : Capital Line and CARE Research

191

Net NPA/Net Advances

Q4'09

Q3'09

Q2'09

Q1'09

Q4'08

Q3'08

-

Q2'08

1.0 Q1'08

REPORT ON INDIAN BANKING SECTOR

y-o-y growth

16.6 HDFC Bank Particulars Interest Earned Interest Expended Net Interest income

Profit and loss account for the year ended (Rs cr) FY05 FY06 FY07 FY08 FY09 3,093 4,475 6,648 10,115 16,332 1,316 1,930 3,179 4,887 8,911 1,778 2,546 3,468 5,228 7,421

REPORT ON INDIAN BANKING SECTOR

Growth (%)

651 277 809 365 979 313 666

Other income Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

Growth (%)

43.2

36.2

50.7

42.0

1,124 487 1,204 725 1,254 383 871

1,516 777 1,644 925 1,639 497 1,142

2,283 1,301 2,444 1,484 2,281 691 1,590

3,291 2,238 3,295 1,880 3,299 1,054 2,245

30.8

31.1

39.3

41.2

Profit and loss account for the period ended (Rs cr) FY08 FY09 Particulars Q1 Q2 Q3 Q4 Q1 Q2 Q3 2,069 2,363 2,727 2,956 3,622 3,991 4,469 Interest Earned 1,084 1,200 1,289 1,314 1,898 2,125 2,489 Interest Expended 986 1,163 1,438 1,642 1,723 1,866 1,979 Net Interest income

growth (q-o-q) Other income (OI) Total Income (TI)

OI as a % of TI Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

growth (q-o-q)

18.0

23.6

14.2

5.0

8.3

6.0

(6.4)

573 1,558

482 1,645

679 2,116

549 2,191

593 2,317

643 2,510

939 2,919

1,115 2,967

36.7

29.3

32.1

25.1

25.6

25.6

32.2

37.6

284 491 307 477 155 321

319 499 289 537 169 368

353 697 423 643 214 429

346 757 465 624 152 471

541 749 344 683 219 464

612 775 346 777 249 528

582 878 532 926 305 622

504 892 657 913 282 631

14.7

16.5

9.7

(1.4)

13.7

17.8

1.5

Particulars FY05 60.65 CASA Ratio 1.65 Gross NPA/Gross Adv. 0.24 Net NPA/Net Adv. 12.16 CRAR Source: Capital Line, Company and CARE Research

192

Q4 4,251 2,399 1,852

Ratio Analysis (in %) FY06 FY07 FY08 55.45 57.68 54.49 1.40 1.36 1.40 0.44 0.43 0.47 11.41 13.08 13.60

FY09 44.40 1.98 0.60 15.69

Balance Sheet as on year ended (Rs cr) FY05 FY06 FY07 FY08 295 366 366 366 5,333 7,479 8,284 10,678 81,333 93,662 124,916 152,034

Particulars Capital Reserves & Surplus Deposits

y-o-y growth Borrowings Other liabilities and Prov. Total Liabilities Cash and Bank Balances Advances

1,641 6,062 94,664 9,254 43,400

Investments Fixed Assets other Assets Total Liabilities

37,074 861 4,074 94,664

33.4

21.7

4,802 7,084 113,393 13,455 59,912

1,143 8,438 143,146 18,280 83,621

3,927 12,594 179,600 22,299 106,701

38.0

39.6

27.6

35,114 921 3,991 113,393

34,944 1,089 5,213 143,146

43,870 2,427 4,302 179,600

Share Holding Pattern (in %) as on Mar'05 Mar'06 Mar'07 Mar'08 22.2 22.0 21.6 23.3 5.5 5.2 6.3 7.4 53.1 53.6 51.5 49.3 5.2 5.2 12.7 11.1 14.0 14.1 7.9 8.9 100.0 100.0 100.0 100.0

Particulars Mar'04 24.2 Promoters 7.6 Domestic Institutions 46.2 Foreign Institutions 5.7 Indian Public 16.3 Others 100.0 Total Source: Capital Line, Company and CARE Research

Mar'09 19.4 13.7 47.0 11.2 8.8 100.0

Fig NPAs of the bank over the quarters 2.5

1.20

1.0

Gross NPA/Gross Advances Source : Capital Line and CARE Research

193

0.50

Q1'09

0.50

Q4'08

0.40

Q3'08

Q1'08

-

0.40

Q2'08

0.5

0.40

0.60

0.60

Net NPA/Net Advances

0.60

Q4'09

1.20

Q3'09

1.30

1.60

1.50

1.34

Q2'09

1.5

1.98

1.90

2.0 Percent

REPORT ON INDIAN BANKING SECTOR

y-o-y growth

15.2

16.7 ICICI Bank Particulars Interest Earned Interest Expended Net Interest income

Profit and loss account for the year ended (Rs cr) FY05 FY06 FY07 FY08 FY09 9,410 14,306 21,996 30,788 31,093 6,571 9,597 16,359 23,484 22,726 2,839 4,709 5,637 7,304 8,367

REPORT ON INDIAN BANKING SECTOR

Growth (%)

3,416 737 2,562 432 2,524 519 2,005

Other income Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

Growth (%)

65.9

19.7

29.6

14.5

4,181 1,082 3,919 795 3,094 554 2,540

6,928 1,617 5,074 2,229 3,645 535 3,110

8,811 2,079 6,075 2,908 5,053 895 4,158

7,604 1,972 5,073 3,808 5,117 1,359 3,759

26.7

22.4

33.7

(9.6)

Profit and loss account for the period ended (Rs cr) FY08 FY09 Particulars Q1 Q2 Q3 Q4 Q1 Q2 Q3 7,331 7,516 7,912 8,029 7,892 7,835 7,836 Interest Earned 5,852 5,730 5,952 5,950 5,802 5,687 5,846 Interest Expended 1,479 1,786 1,960 2,079 2,090 2,148 1,990 Net Interest income

growth (q-o-q) Other income (OI) Total Income (TI)

OI as a % of TI Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

growth (q-o-q)

20.8

9.7

6.1

0.5

2.8

(7.3)

7.5

1,951 3,430

2,072 3,858

2,427 4,386

2,362 4,441

1,538 3,628

1,877 4,025

2,515 4,505

1,674 3,813

56.9

53.7

55.3

53.2

42.4

46.6

55.8

43.9

522 1,383 552 972 197 775

520 1,451 644 1,243 240 1,003

571 1,557 760 1,498 268 1,230

467 1,684 947 1,343 193 1,150

523 1,391 792 922 194 728

488 1,252 924 1,361 347 1,014

503 1,231 1,008 1,763 491 1,272

457 1,200 1,085 1,071 327 744

29.4

22.7

(6.5)

(36.7)

39.3

25.4

(41.5)

Particulars FY05 24.27 CASA Ratio 2.98 Gross NPA/Gross Adv. 1.65 Net NPA/Net Adv. 11.78 CRAR Source: Capital Line, Company and CARE Research

194

Q4 7,530 5,391 2,139

Ratio Analysis (in %) FY06 FY07 FY08 22.72 21.78 26.09 1.51 2.08 3.30 0.72 1.02 1.55 13.35 11.69 14.92

FY09 28.70 4.32 2.09 15.53

Balance Sheet as on year ended (Rs cr) FY05 FY06 FY07 FY08 1,087 1,240 1,249 1,463 11,813 21,316 23,414 45,358 99,819 165,083 230,510 244,431

Particulars Capital Reserves & Surplus Deposits

y-o-y growth Borrowings Other liabilities and Prov. Total Liabilities Cash and Bank Balances Advances

33,545 22,172 168,435 12,930 91,405

65.4

39.6

6.0

38,522 25,898 252,059 17,040 146,163

51,256 38,883 345,312 37,121 195,866

65,648 43,517 400,417 38,041 225,616

59.9

34.0

15.2

71,547 3,981 13,327 252,059

91,258 3,923 17,144 345,312

111,454 4,109 21,197 400,417

Investments Fixed Assets other Assets Total Liabilities

50,487 4,038 9,575 168,435

Share Holding Pattern (in %) as on Mar'05 Mar'06 Mar'07 Mar'08 17.3 15.1 16.1 16.8 71.6 73.5 71.8 69.6 0.4 6.9 7.7 11.2 11.1 5.2 5.9 100.0 100.0 100.0 100.0

Particulars Mar'04 Promoters 15.6 Domestic Institutions 72.8 Foreign Institutions Indian Public 11.6 Others 100.0 Total Source: Capital Line, Company and CARE Research

Mar'09 22.2 64.0 8.0 5.8 100.0

Fig NPAs of the bank over the quarters 4.18

Net NPA/Net Advances

2.09

Q4'09

Q3'09

1.55

2.07

1.91

Q2'09

1.50

1.80

Q1'09

1.43

Q3'08

1.35

Q4'08

2.96

2.82

2.63

3.30

Gross NPA/Gross Advances Source : Capital Line and CARE Research

195

4.32

4.14

3.72

Q2'08

5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 -

Q1'08

Percent

REPORT ON INDIAN BANKING SECTOR

y-o-y growth

16.8 IDBI Bank Profit and loss account for the year ended (Rs cr) Particulars Interest Earned Interest Expended Net Interest income

FY05 2,656 2,468 188

FY06 5,381 5,001 380

102.2

73.2

2.8

96.0

627 158 296 73 288 (19) 307

1,280 319 541 213 588 27 560

1,027 283 496 224 683 52 630

1,582 390 569 477 823 93 729

1,390 583 755 392 986 127 859

82.7

12.5

15.7

17.7

REPORT ON INDIAN BANKING SECTOR

Growth (%) Other income Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

Growth (%)

FY07 6,345 5,687 658

FY08 8,041 7,364 676

Profit and loss account for the period ended (Rs cr) FY08 FY09 Particulars Q1 Q2 Q3 Q4 Q1 Q2 Q3 1,793 1,906 2,084 2,255 2,418 2,697 3,247 Interest Earned 1,730 1,756 1,864 2,014 2,326 2,468 2,731 Interest Expended 63 150 220 242 92 229 516 Net Interest income

growth (q-o-q) Other income (OI) Total Income (TI)

OI as a % of TI Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

growth (q-o-q)

Q4 3,262 2,781 481

137.8

47.2

9.8

(61.9)

148.8

125.5

(6.8)

400 463

431 581

366 586

392 633

321 414

320 549

266 782

472 954

86.4

74.3

62.5

61.8

77.7

58.3

34.0

49.5

79 127 86 172 19 153

84 145 175 177 21 156

81 133 174 197 22 176

142 167 47 277 32 245

85 127 20 182 22 160

113 152 100 184 22 162

158 234 144 247 25 223

223 247 112 372 59 314

1.6

13.1

39.3

(34.8)

1.7

37.0

40.9

Particulars FY05 38.26 CASA Ratio 1.40 Gross NPA/Gross Adv. 1.74 Net NPA/Net Adv. 12.16 CRAR Source: Capital Line, Company and CARE Research

196

FY09 11,632 10,306 1,326

Ratio Analysis (in %) FY06 FY07 FY08 29.51 25.43 16.56 1.98 1.89 1.90 1.01 1.12 1.30 11.41 13.08 13.60

FY09 14.78 1.38 0.92 11.57

Balance Sheet as on year ended (Rs cr) FY05 FY06 FY07 FY08 722 724 724 725 5,205 5,647 7,575 8,096 15,103 26,001 43,354 72,998

Particulars Capital Reserves & Surplus Deposits

y-o-y growth Borrowings Other liabilities and Prov. Total Liabilities Cash and Bank Balances Advances

50,006 10,396 81,430 5,653 45,414

Investments Fixed Assets other Assets Total Liabilities

25,055 889 4,419 81,430

66.7

68.4

47,530 8,719 88,621 5,363 52,739

42,404 9,908 103,966 6,911 62,471

38,613 10,437 130,867 8,759 82,213

16.1

18.5

31.6

25,351 811 4,358 88,621

25,675 2,778 6,130 103,966

32,803 2,766 4,327 130,867

Share Holding Pattern (in %) as on Mar'05 Mar'06 Mar'07 Mar'08 58.5 52.8 52.7 52.7 9.1 14.8 12.8 11.3 16.3 14.4 15.4 13.4 0.1 0.7 15.3 16.3 16.0 17.4 3.9 6.3 100.0 100.0 100.0 100.0

Particulars Mar'04 58.5 Promoters 13.4 Domestic Institutions 12.6 Foreign Institutions 0.1 Indian Public 15.5 Others 100.0 Total Source: Capital Line, Company and CARE Research

Mar'09 52.7 9.6 16.8 16.2 4.7 100.0

Fig NPAs of the bank over the quarters 2.5 2.06

2.24

2.04

1.5

1.15

1.98

1.87

2.0 Percent

1.19

1.11

1.30

1.87 1.36

1.71 1.38

1.28 1.04

1.0

0.92

Gross NPA/Gross Advances

Source : Capital Line and CARE Research

197

Net NPA/Net Advances

Q4'09

Q3'09

Q2'09

Q1'09

Q4'08

Q3'08

-

Q2'08

0.5

Q1'08

REPORT ON INDIAN BANKING SECTOR

y-o-y growth

72.2

16.9 State Bank of India Particulars Interest Earned Interest Expended Net Interest income

Profit and loss account for the year ended (Rs cr) FY05 FY06 FY07 FY08 FY09 32,428 35,980 39,491 48,950 63,788 18,483 20,390 23,437 31,929 42,915 13,945 15,589 16,054 17,021 20,873

REPORT ON INDIAN BANKING SECTOR

Growth (%)

7,120 6,907 3,167 4,469 6,522 2,217 4,305

Other income Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

11.8

3.0

6.0

22.6

7,435 8,123 3,602 4,393 6,906 2,499 4,407

5,769 7,933 3,891 2,375 7,625 3,084 4,541

8,695 7,786 4,823 2,669 10,439 3,710 6,729

12,691 9,747 5,901 3,735 14,181 5,059 9,121

2.4

3.1

48.2

35.6

Growth (%)

Profit and loss account for the period ended (Rs cr) FY08 FY09 Particulars Q1 Q2 Q3 Q4 Q1 Q2 Q3 11,09 11,61 12,66 13,57 13,79 15,56 18,03 1 6 7 7 9 7 0 Interest Earned 6,889 7,853 8,410 8,776 8,982 10,11 12,27 Interest Expended 1 2 4,201 3,763 4,256 4,801 4,818 5,455 5,758 Net Interest income

growth (q-o-q) Other income (OI) Total Income (TI)

OI as a % of TI Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

growth (q-o-q)

(10.4)

13.1

12.8

0.4

13.2

5.6

(15.9)

1,139 5,340

2,042 5,805

2,697 6,954

2,817 7,618

2,404 7,222

2,343 7,798

3,226 8,984

4,718 9,560

21.3

35.2

38.8

37.0

33.3

30.0

35.9

49.4

2,026 952 159 2,202 776 1,426

1,995 1,096 86 2,628 1,016 1,611

2,195 1,099 804 2,856 1,047 1,809

1,570 1,675 1,619 2,754 871 1,883

2,131 1,128 1,549 2,413 772 1,641

2,221 1,384 611 3,583 1,323 2,260

3,046 1,456 197 4,286 1,807 2,478

2,350 1,934 1,378 3,899 1,157 2,742

13.0

12.2

4.1

(12.9)

37.7

9.7

10.6

Particulars FY05 41.28 CASA Ratio 5.96 Gross NPA/Gross Adv. 2.65 Net NPA/Net Adv. 12.45 CRAR Source: Capital Line, Company and CARE Research

198

Q4 17,34 2 12,50 0 4,842

Ratio Analysis (in %) FY06 FY07 FY08 47.55 48.48 43.00 3.88 2.92 3.00 1.88 1.56 1.78 11.88 12.34 12.64

FY09 39.26 2.84 1.76 12.97

Balance Sheet as on year ended (Rs cr) FY05 FY06 FY07 FY08 526 526 526 631 23,546 27,118 30,772 48,401 367,048 380,046 435,521 537,404

Particulars Capital Reserves & Surplus Deposits

3.5

14.6

23.4

38.1

30,641 55,829 494,161 44,560 261,801

39,703 60,283 566,806 51,969 337,337

51,727 83,961 722,125 67,466 416,768

53,714 110,697 964,432 104,404 542,503

29.4

28.9

23.5

30.2

162,534 2,753 22,513 494,161

149,149 2,819 25,533 566,806

189,501 3,373 45,016 722,125

275,954 3,838 37,733 964,432

Share Holding Pattern (in %) as on Particulars Mar'04 Mar'05 Mar'06 Mar'07 Mar'08 59.7 59.7 59.7 59.7 59.7 Promoters 11.7 11.5 11.6 8.0 9.7 Domestic Institutions 19.4 19.8 19.8 24.1 21.5 Foreign Institutions 6.0 5.9 Indian Public 9.2 8.9 8.9 2.3 3.3 Others 100.0 100.0 100.0 100.0 100.0 Total Source: Capital Line, Company and CARE Research

Mar'09 59.4 16.0 12.5 6.9 5.1 100.0

y-o-y growth Borrowings Other liabilities and Prov Total Liabilities Cash and Bank Balances Advances

y-o-y growth

19,184 49,768 460,072 39,322 202,374 197,098 2,698 18,580 460,072

Investments Fixed Assets other Assets Total Liabilities

Fig NPAs of the bank over the quarters 3.5

3.30

3.07

3.04

2.82

3.0

2.54

2.84

2.61

2.51

2.5 Percent

2.0

1.62

1.63

1.5

1.78 1.44

1.76 1.42

1.34

1.36

1.0

Gross NPA/Gross Advances Source : Capital Line and CARE Research

199

Net NPA/Net Advances

Q4'09

Q3'09

Q2'09

Q1'09

Q4'08

Q3'08

-

Q2'08

0.5 Q1'08

REPORT ON INDIAN BANKING SECTOR

FY09 635 57,313 742,073

16.10 Syndicate Bank Particulars Interest Earned Interest Expended Net Interest income

Profit and loss account for the year ended (Rs cr) FY05 FY06 FY07 FY08 FY09 3,758 4,050 6,040 7,906 9,580 2,064 2,170 3,890 5,834 6,978 1,694 1,881 2,150 2,073 2,602

REPORT ON INDIAN BANKING SECTOR

Growth (%)

564 961 303 561 433 31 403

Other income Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

Growth (%)

11.0

14.3

(3.6)

25.5

592 1,037 398 486 552 15 537

618 894 492 655 728 12 716

890 929 566 463 1,006 157 848

860 1,045 671 722 1,025 112 913

33.2

33.4

18.5

7.6

Profit and loss account for the period ended (Rs cr) FY08 FY09 Particulars Q1 Q2 Q3 Q4 Q1 Q2 Q3 1,846 1,939 1,987 2,134 2,132 2,370 2,566 Interest Earned 1,299 1,449 1,513 1,572 1,629 1,622 1,776 Interest Expended 547 489 474 563 503 748 789 Net Interest income

growth (q-o-q) Other income (OI) Total Income (TI)

OI as a % of TI Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

growth (q-o-q)

(10.6)

(3.1)

18.7

(10.5)

48.5

5.6

(28.8)

153 700

216 706

279 753

242 805

147 650

157 905

193 982

364 925

21.9

30.7

37.0

30.1

22.6

17.4

19.6

39.3

255 130 48 266 45 221

237 142 59 267 40 228

238 142 44 329 56 273

199 151 313 142 16 126

200 156 314 (20) (108) 88

285 162 138 320 58 262

301 167 23 492 135 356

259 185 247 233 27 207

3.0

20.0

(53.8)

(30.4)

198.0

36.1

(42.0)

Particulars FY05 37.05 CASA Ratio 5.17 Gross NPA/Gross Adv. 1.59 Net NPA/Net Adv. 10.70 CRAR Source: Capital Line, Company and CARE Research

200

Q4 2,512 1,950 562

Ratio Analysis (in %) FY06 FY07 FY08 38.18 30.63 30.95 4.00 2.95 2.70 0.86 0.76 0.97 11.73 11.74 11.22

FY09 27.10 1.93 0.77 12.70

Balance Sheet as on year ended (Rs cr) FY05 FY06 FY07 FY08 472 522 522 522 1,727 2,312 3,105 3,769 46,295 53,624 78,634 95,171

Particulars Capital Reserves & Surplus Deposits

15.8

46.6

21.0

343 4,290 61,091 5,214 36,466

1,374 5,644 89,277 9,499 51,670

1,306 6,364 107,132 11,657 64,051

36.4

41.7

24.0

17,269 419 1,723 61,091

25,234 772 2,102 89,277

28,076 770 2,579 107,132

20,371 381 1,577 52,128

Share Holding Pattern (in %) as on Particulars Mar'04 Mar'05 Mar'06 Mar'07 Mar'08 73.5 73.5 66.5 66.5 66.5 Promoters 3.9 5.3 6.1 5.2 6.3 Domestic Institutions 1.0 2.9 12.5 12.8 12.9 Foreign Institutions 0.1 0.1 14.0 12.5 Indian Public 21.5 18.3 14.9 1.6 1.9 Others 100.0 100.0 100.0 100.0 100.0 Total Source: Capital Line, Company and CARE Research

Mar'09 66.5 10.2 4.0 12.7 6.5 100.0

y-o-y growth

322 3,313 52,128 3,070 26,729

Borrowings Other liabilities and Prov Total Liabilities Cash and Bank Balances Advances

y-o-y growth

20,371 381 1,577 52,128

Investments Fixed Assets other Assets Total Liabilities

322 3,313 52,128 3,070 26,729

Fig NPAs of the bank over the quarters 3.5

3.07

3.06

2.86

3.0

2.84

2.71

2.55

2.39

2.5 Percent

1.93

2.0 1.27

1.5 1.0

0.82

0.97

0.95

1.03

0.92

0.86

0.77

Gross NPA/Gross Advances Source : Capital Line and CARE Research

201

Net NPA/Net Advances

Q4'09

Q3'09

Q2'09

Q1'09

Q4'08

Q3'08

-

Q2'08

0.5 Q1'08

REPORT ON INDIAN BANKING SECTOR

FY09 472 1,727 46,295

16.11 Union Bank Particulars Interest Earned Interest Expended Net Interest income

Profit and loss account for the year ended (Rs cr) FY05 FY06 FY07 FY08 FY09 4,970 5,864 7,382 9,447 11,916 2,905 3,489 4,592 6,361 8,076 2,065 2,374 2,790 3,086 3,840

REPORT ON INDIAN BANKING SECTOR

Growth (%)

15.0

17.5

10.6

24.4

494 867 536 572 895 219 675

687 874 602 621 1,380 535 845

1,087 845 748 720 1,860 473 1,387

1,456 1,152 1,062 737 2,345 618 1,727

(6.1)

25.1

64.2

24.5

766 806 451 962 612 (107) 719

Other income Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

Growth (%)

Profit and loss account for the period ended (Rs cr) FY08 FY09 Particulars Q1 Q2 Q3 Q4 Q1 Q2 Q3 2,074 2,238 2,422 2,540 2,533 2,831 3,262 Interest Earned 1,340 1,582 1,671 1,769 1,723 1,856 2,133 Interest Expended 734 656 752 771 810 975 1,128 Net Interest income

growth (q-o-q) Other income (OI) Total Income (TI)

OI as a % of TI Staff cost other operating Expenses Provisions Operating Profit Taxes Net Profit

growth (q-o-q)

(10.6)

14.5

2.6

5.0

20.4

15.7

(17.9)

215 950

287 944

384 1,136

373 1,145

222 1,032

283 1,259

392 1,520

559 1,485

22.7

30.4

33.8

32.6

21.5

22.5

25.8

37.6

254 170 155 370 145 225

255 161 98 431 155 276

279 220 111 525 160 365

57 197 365 526 4 521

225 191 296 320 92 228

292 267 203 496 135 361

322 343 (45) 900 228 672

313 261 283 628 163 465

22.5

32.4

42.8

(56.2)

58.3

85.8

(30.8)

Particulars FY05 32.68 CASA Ratio 5.01 Gross NPA/Gross Adv. 2.64 Net NPA/Net Adv. 12.09 CRAR Source: Capital Line, Company and CARE Research

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Q4 3,290 2,363 926

Ratio Analysis (in %) FY06 FY07 FY08 32.36 34.50 34.86 3.84 2.94 2.20 1.56 0.96 0.17 11.41 12.80 12.51

FY09 30.00 1.96 0.34 13.27

Balance Sheet as on year ended (Rs cr) FY05 FY06 FY07 FY08 460 505 505 505 3,154 4,053 4,685 6,843 61,831 74,094 85,180 103,859

Particulars Capital Reserves & Surplus Deposits

19.8

15.0

21.9

3,974 6,547 89,174 6,391 53,380

4,216 8,194 102,780 8,426 62,386

4,760 8,401 124,368 10,098 74,348

33.1

16.9

19.2

25,918 810 2,675 89,174

27,982 825 3,160 102,780

33,823 2,200 3,899 124,368

22,793 824 2,149 72,443

Share Holding Pattern (in %) as on Particulars Mar'04 Mar'05 Mar'06 Mar'07 Mar'08 60.9 60.9 55.4 55.4 55.4 Promoters 2.7 4.2 6.6 8.6 11.9 Domestic Institutions 12.9 18.3 20.0 20.0 19.6 Foreign Institutions 13.6 11.6 Indian Public 23.5 16.7 18.0 2.4 1.6 Others 100.0 100.0 100.0 100.0 100.0 Total Source: Capital Line, Company and CARE Research

Mar'09 55.4 15.8 14.2 10.9 3.6 100.0

y-o-y growth

2,021 4,977 72,443 6,572 40,105

Borrowings Other liabilities and Prov Total Liabilities Cash and Bank Balances Advances

y-o-y growth

22,793 824 2,149 72,443

Investments Fixed Assets other Assets Total Liabilities

2,021 4,977 72,443 6,572 40,105

Fig NPAs of the bank over the quarters 3.0

2.78 2.42

2.5

2.18

2.10

2.08

1.96

1.93

2.0

1.68

1.5 0.65

Gross NPA/Gross Advances Source : RBI and CARE Research

203

0.14

0.14

Net NPA/Net Advances

0.34

Q4'09

0.15

Q3'09

Q2'08

Q1'08

-

0.15

Q2'09

0.35

0.5

Q1'09

0.78

Q4'08

1.0

Q3'08

Percent

REPORT ON INDIAN BANKING SECTOR

FY09 460 3,154 61,831

Contact: Ms. Revati Kasture Head – Industry Research (D): +91-22-6754 3465

[email protected]

Mr. Parag Jariwala Analyst (D): +91-22-6754 3448

[email protected]

REPORT ON INDIAN BANKING SECTOR

Website: www.careratings.com Email: [email protected] Other Industry Research reports by CARE Research are: i) Indian Cement Industry

ii) Indian Express Industry iii) Indian Fertilizer Industry iv) Indian Soda Ash Industry v) Indian Shipping Industry vi) Indian Steel Industry vii) Indian Commercial Vehicle Industry viii) Indian Pharmaceutical Industry ix) Indian Pesticide Industry x) Indian Pipe Industry xi) Indian Tyre Industry xii) Indian Coal Industry xiii) Indian Construction Industry xiv) The Shipbuilding Industry xv) Indian Gems & Jewellery Industry xvi) Indian Retail Industry

204

HEAD OFFICE: Mumbai: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai – 400 022 Tel: +91-22-6754 3456, Fax: +91-22-6754 3457. REGIONAL OFFICES: New Delhi: 710, Surya Kiran, 19, Kasturba Gandhi Marg, New Delhi – 110 001 Tel: +91-11-2331 8701 / 2371 6199 / 2332 8524.

REPORT ON INDIAN BANKING SECTOR

Kolkata: 3rd Floor, Prasad Chambers (Shagun Mall Building), 10A, Shakespeare Sarani, Kolkata - 700 0717 Tel: +91-33-2283 1800 / 2283 1803 / 2280 8472. Chennai: 2-B, Wellington Plaza, 90, Anna Salai, Chennai – 600 002 Tel: +91-44-2860 0876 / 2860 7812 / 2860 5284. Ahmedabad: 307, 3rd Floor, ISCON Mall, Near Jodhpur Cross Road Satellite, Ahmedabad – 380 015 Tel: +91-79-6631 1821 / 6631 1822. Hyderabad: 302, Priya Arcade, 8-3-826, Yellaredyguda, Srinagar Colony, Hyderabad – 500 073 Tel: +91-40-6675 8386. Bangalore: No.G-1, Canopy Royal Manor, Near Manipal Hospital, Rustombagh, Off. Airport Road, Bangalore – 560 017 Tel: +91-80-2520 5575.

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