Indian banks remain sound

Contrary to the trend in some advanced countries,the leverage ratio Tier I capital to total assets ratio in India has remained high reflecting the strength of the system,the report said. For instance,as observed by the World Bank 2009,the leverage ratio of banks in the UK witnessed a decline throughout 1990s,which was accentuated after 2000 to reach a level of about 3 per cent by 2008 from around 5 per cent in the 1990s. On the other hand,the leverage ratio for Indian banks has risen from about 4.1 per cent in March 2001 to reach a level of 6.3 per cent by March 2009.

The main reasons of insulation Indian banking can be attributed to the nascent stage of development of the credit derivatives market. The facts that regulatory guidelines on securitisation do not permit immediate profit recognition,perseverance of prudential policies which prevent institutions from excessive risk taking and financial markets from becoming extremely volatile and turbulent and a close co-ordination between supervision of banks and their regulation have prevented Indian banking system from the ill effects of the global financial crisis.

The report highlights that on different parameters like CRAR,non-performing assets NPAs,provisions and return on assets ROA,India has performed better than some of the other developing and developed economies. For instance,NPAs for Indian banks in 2008 have stood at 2.3 per cent as against its peers abroad like Indonesia,Philippines and South Africa,which have seen its NPAs growing at 3.5 per cent,5.2 per cent and 2.6 per cent respectively.

Provisions on loans on an average for Indian banks have also been lower at 52.6 per cent in 2008,as against 84.7 per cent in the United States and Australia at 87.2 per cent. Impact on Indian banking,however,has been rather muted providing a relatively bright outlook way ahead if Indian banking can reap the structural drivers from within, the report added.

The CRAR improved to 13.2 per cent at end-March 2009 from 13.0 per cent a year ago,thus,remaining above the stipulated minimum of 9.0 per cent. Return on Assets also remained unchanged at 1.0 per cent at end-March 2009 over its level at end-March 2008 indicating no deterioration in efficiency with which assets were deployed. The return on equity increased to 13.3 per cent as at end-March 2009 from 12.5 per cent in 2008,indicating increased efficiency in use of capital.

Sliding credit growth dips to 10.7

Mumbai: The recovery of Indian economy may be more than expected but the credit offtake situation is going from bad to worse with every passing fornight. The loan growth in the banking industry has dipped to 10.75 per cent for the year ended October 9,2009,as against 12.62 per cent for year ended September 25,2009,Reserve Bank of India RBI said on Thursday.

According to the RBI8217;s 8216;Report on trend and progress of banking India8217;,the growth rate of loans and advances of commercial banks,which was as high as 33.2 per cent as at end-March 2005 has been witnessing a slowdown since then. The growth rate decelerated to 21.2 per cent as at end-March 2009 from 25.0 per cent in the previous year, it said. However in absolute numbers,bank loans have shown an uptick by Rs 17,160 crore in the last two weeks for the fortnight ended October 9,2009.

Apart from cyclical factors which lead to slowdown in growth after a period of high credit growth,the deceleration was accentuated this year due to the overall slowdown in the economy in the aftermath of global financial turmoil. The deceleration in bank credit growth witnessed during 2007-08 continued in 2008-09 as well mainly reflective of the slowdown in real economy as also cautious approach adopted by banks against the backdrop of growing uncertainties. The RBI data suggests that growth rate of banks lending to industries,personal loans and services sector witnessed a deceleration,while bank8217;s lending to agriculture and allied activities increased substantially during 2008-09.

Provisional data on sectoral deployment of credit available till July 17,2009 indicate that on year-on-year basis bank credit growth to industry,services and personal loans decelerated to 20.8 per cent,13.8 per cent and 3.4 per cent,respectively,from 30.7 per cent,36.9 per cent and 17.0 per cent. Growth of credit to agriculture accelerated to 29.1 per cent from 14.9 per cent in the same period of the previous year. Credit to real estate and non-banking financial companies remained high at 46.7 per cent 43.9 per cent in July 2008 and 31.4 per cent 53.9 per cent in July 2008. The retail credit growth rate,which was higher than 40 per cent in 2004-05 and 2005- 06 has witnessed a deceleration since then. The growth rate in retail credit by banks decelerated further to 4.0 per cent as at end March 2009 from 17.1 per cent last year and 29.9 per cent as at end March 2007.