Indian banking assets are growing faster than the real economy.Banking assets as a percentage of India’s gross domestic product (GDP) have grown from 85.7% in fiscal 2006, to 92.5% in the last fiscal year, says Reserve Bank of India’s annual publication on the industry, Report on Trend and Progress of Banking in India 2006-07, released on Tuesday.
For the third consecutive year, advances grew more than 30% last year but banks’ deposit liabilities could not cope with it and grew by 24.6%.
The most significant trend of the industry last fiscal, was the growing clout of new private and foreign banks. Their combined market share rose from 22.3% to 24.9%, while public sector banks’ market share shrank from 72.3% to 70.5%. Old Indian private banks too lost market share—from 5.4% to 4.6%.
The retail portfolio of the banking sector, on which the Reserve Bank of India is keeping a hawk eye, slowed down its growth last fiscal and it grew at 29.9%, against 40.9% in the previous fiscal. However the share of retail loans in the overall bank credit grew marginally from 25.5% to 25.8%. The exposure of banks to capital markets, real estate and commodities, known as the “sensitive sector,” declined last fiscal year, but it still was higher than overall credit growth. Total exposure of the banking sector to the sensitive sector rose to 20.4% of their loan book—rising from 18.8% in the previous fiscal year.
Net non-performing assets (NPAs) as a percentage of advances declined from 1.2% to 1%. Finally, the net profit of the Indian banking industry rose by 27% last fiscal, against 17.3% in the year-ago period, despite a sharp increase in provisions. Return on equity rose from 12.7% to 13.2% in the same period, while return on assets remained mostly unchanged.