Home / Industry / Banking /  How Indian banking is changing, in 5 charts

Banks are at the heart of any growing economy. As banks grow, the economy grows, and as the economy grows, the banks grow. It’s a mutually reinforcing relationship. So, the question is how have Indian banks performed in this context. In this piece we try to answer this question. The results are surprising to some extent, including the fact that lending and borrowing of commercial banks has stagnated for more than 10 years now. Along with this, Indian banks are getting more interested in giving out retail loans than industrial loans. Further, private banks have been gradually gaining market share.

Stagnating Banks


As of end-March 2001, the total outstanding loans of Indian banks stood at 5.1 trillion, or 23.9% of the country’s annual gross domestic product (GDP) of the time. By September 2022, the figure had grown to 130.4 trillion, or 50.3% of GDP. Meanwhile, the total bank deposits have jumped from 9.6 trillion, or 45% of GDP, as of end-March 2001, to 175.4 trillion, or 67.6% of the GDP. Expressing credit and deposits in GDP terms allows us to take the size of the growth of the economy into account as well.

While the growth appears to be sharp, the interesting thing is that the size of Indian banking has been stagnating for over a decade now. The lending of banks has remained around 50-53% of the GDP since March 2009 (with 2020-21 being an exception due to covid-19), and deposits have remained between 67-70%.

Retail Winning

For decades, banks used to lend majorly to industry, but that has been changing. As of end-March 2013, the bank lending to industry peaked at 22.4% of the GDP. It has since fallen, and as of September 2022, stood at 12.5%. In absolute terms, the bank lending to industry has grown by just 4% per year during the period.

In comparison, as of September 2022, the retail loans of banks stood at 14.3% of the GDP, up from 9% in March 2013. In absolute terms, the outstanding retail loans have grown at the rate of 16.1% per year between March 2013 and September 2022. Clearly, banks increasingly want to give out more retail loans than industrial loans. The major reason for this is that public sector banks had gone overboard giving out industrial loans in the 2000s and early 2010s. This led to a massive accumulation of bad industrial loans—a consequence they’ve grown wary of.


Private Upswing

PRIVATIZATION IS another major change that has happened with banks. While the majorly government-owned public sector banks haven’t been privatized, the sector as a whole is getting gradually privatized. As of March 2010, public sector banks accounted for 75.1% of the outstanding bank loans and 74.2% of the deposits. But they have been losing share since then. As of September 2022, public sector banks accounted for 54.5% of the loans and 59.7% of the deposits.

The lending share of private banks has jumped from 17.5% to 37.3%. Their deposit share has risen from 17.7% as of March 2010 to 31.4% as of September 2022. Again, the massive accumulation of bad loans by public sector banks—it peaked at about 9 trillion as of March 2018—has been a major reason for them losing share and for the slowing of their lending process.

Loan Clean-up


THE BAD loans of banks have been falling. They peaked at 10.4 trillion as of March 2018 and have fallen to 7.4 trillion as of March 2022. Bad loans are largely loans which haven’t been repaid for a period of 90 days or more.

The major reason for this reduction has been an increase in bad loans being written off.

Bad loans worth more than 10 trillion have been written off over the last five financial years. In fact, most bank loan write-offs are an accounting eventuality.

Loans that have remained bad loans for four years and against which 100% provisioning has been carried out can be dropped from the balance sheet, leading to a reduction in bad loans. Recovery efforts for bad loans that have been written off continue, though the recovery rate is abysmal.

In the last five financial years 1.03 trillion of written-off loans were recovered.

Different States


THE CREDIT-DEPOSIT ratio of banks is calculated by dividing the total loans banks have given out in a particular state to the deposits sourced from the state.

Among relatively large states, Jharkhand was and continues to have the least ratio. Its credit-deposit ratio as of June 2014 was at 0.3, meaning only 30% of the deposits sourced from the state were lent in the state. This had risen only marginally to 0.32 by September 2022.

The interesting story in the list is that of Bihar. The credit-deposit ratio of the state has increased from 0.32 to 0.45. Further, the credit-deposit ratio of India’s most populated state, Uttar Pradesh, has barely moved up from 0.44 to 0.45. Andhra Pradesh, Tamil Nadu and Telangana have a ratio of greater than 1, implying that banks need to import deposits from other states in order to meet their lending requirements in these states.

Vivek Kaul is the author of Bad Money.


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