Mr Banker, what crisis are you talking about?

Mr Banker, what crisis are you talking about?
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First Published: Sun, Aug 30 2009. 10 01 PM IST

Updated: Sun, Aug 30 2009. 10 01 PM IST
The global ranking of State Bank of India (SBI), the country’s largest lender, is down by a few notches.
Going by the list of the world’s top 1,000 banks based on tier I capital, or equity and reserves, carried in the July issue of The Banker, a Financial Times publication, SBI is the world’s 64th largest bank. Last year, SBI’s position was 57th. When it comes to assets, SBI is the world’s 76th largest bank. Here, too, it has slipped. Last year, its position was 70th.
ICICI Bank Ltd, India’s second largest lender by assets, has moved up the ladder dramatically. Based on tier I capital, ICICI Bank is now the world’s 81st largest bank. Its rank was 150th last year. Based on assets, ICICI Bank’s world ranking is 127th, up from 148th.
This is the first time that two Indian banks feature among the top 100 banks in the world in terms of tier I capital. ICICI Bank has also managed to get into the league of the top 25 Asian banks, excluding Japan. Among the top 25 Asian banks, on the basis of tier I capital, SBI ranks 11 and ICICI Bank 15.
No other Indian lender has been able to break into the list of the top 200 banks. Punjab National Bank, the second largest government-owned bank in India, is 239th in terms of tier I capital and 216th in terms of assets. Five other Indian banks are among the top 300 banks in the world both in terms of tier I capital and assets.
To be sure, neither the tier I capital nor the size of the assets of Indian banks are strictly comparable with their global peers as The Banker does not have the latest figures for all banks. For instance, while SBI’s tier I capital and assets are for the year ending March 2009, most of the other Indian banks’ financials are those of the previous year, ended March 2008. In contrast, the financials of all US and European banks as well as those from China and Japan are for the year ended December 2008.
Indeed, our banks do not have the scale, but they are healthy and The Banker survey is an immensely interesting study of contrast between India and the rest of the globe. Collective profits of the top 1,000 banks plunged by a staggering 85.3%, from $780 billion (Rs38.14 trillion) to $115 billion, in a year that witnessed the worst ever credit crunch in history. Return on capital, or RoC, one of the key measures of banks’ efficiency, dropped to an average of 2.69% last year from 20% in the previous year.
The banks have written off losses but at the same time they also received massive dollops of recapitlization from governments and, as a result, their tier I capital has risen by 9.7% to $427 billion. Assets too have grown by 6.8% to $96,395 billion (Rs96.39 trillion), albeit at a slower pace.
For the first time in the top 1,000 bank listing’s 39-year history, the top 25 banks—which account for almost 40% of the top 1,000 banks’ tier I capital and 45% of assets—recorded a loss, of at least $32 billion. In the West, US banks made an aggregate loss of $91 billion; banks in Europe $16.1 billion; and those from the UK $51.2 billion.
When it comes to other financial ratios such as RoC and return on assets (RoA), the findings are startling. For instance, the aggregate RoC of the UK banks is –15.32% and that of the US banks is –10.32%. Between 2003 and 2008, the assets of western banks doubled and the scorching pace of growth was the key contributor to the crisis. Assets of Indian banks, during this period, at least doubled, but they remained insulated from the global turmoil.
The average net profit of 37 listed commercial banks grew by 26% last year; no bank posted losses and only four of them registered a drop in net profit. SBI’s net profit growth was 36%. If that sounds a bit too much, consider these facts: PNB, Bank of India and Bank of Baroda posted at least 50% growth each in net profit while net profit of HDFC Bank Ltd grew by 41% and that of Axis Bank Ltd by 61%.
Except for ICICI Bank, whose assets actually shrank by 5%, all other Indian banks showed growth in assets and SBI expanded by 34%. Two private banks, HDFC Bank and Axis Bank, grew their assets by 38% and 35%, respectively. Overall, the assets of the listed banks grew by 22% last year.
As they ploughed back a substantial portion of their net profit after paying dividends to shareholders, the net worth, or equity and reserves, of these banks—a proxy for tier I capital—on an average grew by 18%.
Among other critical financial parameters, RoA of 21 banks was at least 1% and 10 of them have 1.25% or more. Similarly, barring three, all of them have double-digit RoC and 13 of them have a RoC between 20% and 30%.
Finally, when it comes to stressed assets as a percentage of their loan book, 24 of the banks had less than 1% net non-performing assets (NPA) and only two of them had more than 2% net NPAs.
Needless to say, no Indian bank had any problem in terms of capital and liquidity last year.
Crisis, financial sector meltdown... Did someone say? Let’s celebrate the success of our prudent bankers and vigilant regulator.
Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as Mint’s deputy managing editor in Mumbai. Comment at
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First Published: Sun, Aug 30 2009. 10 01 PM IST