Major Private Sector Banks in India

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WELINGKAR INSTITUTE OF MANAGEMENT DEVELOPMENT & REASEARCH MAY, 2011

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MAJOR PRIVATE SECTOR BANKS IN INDIA

SAGAR VIJAY MULIK

LPGD/JA10/0141

BANKING, INVESTMENT AND INSURANCE


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ACKNOWLEDGMENT

With immense pleasure I would like to present this report on MAJOR PRIVATE SECTOR

BANKS IN INDIA.

I would like to thank to Welingkar Institute Of Management Development & Research. My

special thanks to Mr. Charu Dutt Sharma for his valuable guidance, co-operation &

supervision.

Acknowledgements are due to my parents, friends & all those people who have helped me

directly or indirectly in the successful completion of this project.


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&(57,),&$7( )520 7+( *8,'(

This is to certify that the project work titled MAJOR PRIVATE SECTOR BANKS IN INDIA

is a bonafide work carried out by Mr. Sagar Mulik (Roll No. LPGD/JA10/0141) is a candidate

for Post Graduate Diploma in Business Administration examination of Welingkar Institute of

Management Development & Research under my guidance and direction.

SIGNATURE OF GUIDE Name: Mr. Charu Dutt Sharma

Designation: Head Operations

Address: SME Rating Agency of India Limited

(SMERA)

Unit No. 102, 1 st Floor, Sumer Plaza,

Marol Maroshi Road, Marol

Andheri (E)

Mumbai 400 059

Maharashtra

Date: 30 th May, 2011

Place: Mumbai


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Banks Operations in the Primary Market 56

6 Operations of Scheduled Commercial Banks in Capital Market 57

Performance of Banking Stocks in the Secondary Market

57 59Shareholding Pattern

Technological Developments

RTGS and NEFT: A Comparative Analysis of Scales of Operation 60

Customer Services 61

Financial Inclusion 62

Conclusion 63

7 Gist of the comments on the Discussion Paper onEntry of New Banks in the Private Sector 65 67

8 Bibliography 68


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EXECUTIVE SUMMARY

Banks play a crucial role in the national and international economy. They safeguard and

allocate savings and investment, intermediate financial exchanges, administrate payment

systems, implement monetary policy, and promote economic growth. A vital mission of governments and their financial sector regulators is to ensure the soundness of the financial

system and avoid the system-wide damage that would be triggered by the collapse of a major

bank.

Private participants in the markets also are keen to prevent bank failures and limit disruptions

in the financial system. Consequently, when a sizable or strategic institution runs into

difficulties, the government and private sector usually act together to manage the problem and

prevent outright default.

In mature economies, the rescue of a failing bank typically is orchestrated by the private

sector--with some behind-the-scenes help from banking regulators in the form of a takeover

of the failing institution by a larger and stronger banking group.

The project was undertaken to study the various aspects of the Indian Banking Industry with a

special focus on Private Sector Banks and to understand the role of Private Sector Bank in thesmooth functioning of the Indian economy.


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MAJOR PRIVATE SECTOR BANKS IN INDIA

Banks are in the business of managing risk, not avoiding it..

INTRODUCTION

Overview of Banking

Banking Regulation Act of India, 1949 defines Banking as accepting, for the purpose of

lending or of investment of deposits of money from the public, repayable on demand or

otherwise or withdrawable by cheque, draft order or otherwise. The Reserve Bank of India

Act, 1934 and the Banking Regulation Act, 1949, govern the banking operations in India.

Banking is "accepting, for the purpose of lending or investment of deposits of money from the

public, repayable on demand or otherwise and withdrawable by cheques, draft, order or

otherwise."

Role of Banks

Banks play a positive role in economic development of a country as repositories of

communitys savings and as purveyors of credit. Indian Banking has aided the economic

development during the last fifty years in an effective way.

The banking sector has shown a remarkable responsiveness to the needs of planned economy.

It has brought about a considerable progress in its efforts at deposit mobilisation and has

taken a number of measures in the recent past for accelerating the rate of growth of deposits.

As recourse to this, the commercial banks opened branches in urban, semi-urban and rural

areas and have introduced a number of attractive schemes to promote economic development.

The activities of commercial banking have growth in multi-directional ways as well as multi-

dimensional manner.


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Banks have been playing a catalytic role in area development, backward area development,

extended assistance to rural development all along helping agriculture, industry, international

trade in a significant manner. In a way, commercial banks have emerged as key financial

agencies for rapid economic development.

By pooling the savings together, banks can make available funds to specialized institutions

which finance different sectors of the economy, needing capital for various purposes, risks

and durations.

By contributing to government securities, bonds and debentures of term- lending institutions

in the fields of agriculture, industries and now housing, banks are also providing these

institutions with an access to the common pool of savings mobilized by them, to that extent

relieving them of the responsibility of directly approaching the saver. This intermediation role

of banks is particularly important in the early stages of economic development and financialspecification.

A country like India, with different regions at different stages of development, presents an

interesting spectrum of the evolving role of banks, in the matter of inter-mediation and

beyond.

Mobilisation of resources forms an integral part of the development process in India. In this

process of mobilisation, banks are at a great advantage, primarily because of their network of

branches in the country. And banks have to place considerable reliance on the mobilisation of

deposits from the public to finance development programmes. Further, deposit mobilisation

by banks in India acquired greater significance in their new role in economic development.

Commercial banks provide short-term and medium-term financial assistance. The short-term

credit facilities are granted for working capital requirements. The medium-term loans are for

the acquisition of land, construction of factory premises and purchase of machinery and

equipment. These loans are generally granted for periods ranging from 05 to 07 years. They

also issue / open letter of credit on behalf of their clients favouring suppliers of raw materials/ machinery (Inland / Foreign) which extend the bankers assurance for payment and thus help

their delivery.


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Certain transaction, particularly those in contracts of sale of Government Departments, may

require guarantees being issued in lieu of security earnest money deposits for release of

advance money, supply of raw materials for processing, full payment of bills on the assurance

of the performance etc. Commercial banks issue such guarantees also.

Broad Classification of Banks in India:

1) The Reserve Bank of India (RBI): The RBI is the supreme monetary and banking authority

in the country and has the responsibility to control the banking system in the country. It keeps

the reserves of all scheduled banks and hence is known as the Reserve Bank.

2) Public Sector Banks:

State Bank of India and its Associates

Nationalized Banks

Regional Rural Banks Sponsored by Public Sector Banks

3) Private Sector Banks:

Old Generation Private Banks

Foreign New Generation Private Banks

4) Co-operative Sector Banks:

State Co-operative Banks

Central Co-operative Banks

Primary Agricultural Credit Societies

Land Development Banks /State Land Development Banks


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5) Development Banks: Development Banks mostly provide long term finance for setting up

industries. They also provide short-term finance (for export and import activities)

Industrial Finance Co-operation of India (IFCI)

Industrial Development of India (IDBI)

Industrial Investment Bank of India (IIBI)

Small Industries Development Bank of India (SIDBI)

National Bank for Agriculture and Rural Development (NABARD)

Export-Import Bank of India

Products and Services Offered By Banks

Banks provide almost all payment services by conducting checking or current accounts for

customers, paying cheques drawn by customers on the bank, and collecting cheques deposited

to customers' accounts. Banks also enable customer payments via other payment methods

such as telegraphic transfer. Banks have added new payment channels like Internet banking,

Mobile Banking, ATMs etc.

Banks' activities can be divided into;

Retail Banking: Dealing directly with individuals

Business Banking: Providing services to mid-size business

Corporate Banking: Dealing with large business entities

Private Banking: Providing wealth management services to Individuals and business

organasation

Investment Banking: Relates to serving customers to raise funds in the Capital Markets

and advising on mergers and acquisitions.


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Today banks are now moving towards Universal Banking, which is a combination of

commercial banking, investment banking and various other activities including insurance and

other financial services.

Broad Classification of Products in a bank:

The different products in a bank can be broadly classified into:

Retail Banking.

Trade Finance.

Treasury Operations

Retail Banking and Trade finance operations are conducted at the branch level while the

wholesale banking operations, which cover treasury operations, are at the hand office or adesignated branch.

Retail Banking:

Deposits

Loans, Cash Credit and Overdraft

Negotiating for Loans and advances

Remittances

Book-Keeping (maintaining all accounting records)

Receiving all kinds of bonds valuable for safe keeping Trade Finance

Issuing and confirming of letter of credit

Drawing, accepting, discounting, buying, selling, collecting of bills of exchange,

promissory notes, drafts, bill of lading and other securities


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Treasury Operations:

Buying and selling of bullion. Foreign exchange

Acquiring, holding, underwriting and dealing in shares, debentures, etc.

Purchasing and selling of bonds and securities on behalf of constituents

The banks can also act as an agent of the Government or local authority. They insure,

guarantee, underwrite, participate in managing and carrying out issue of shares, debentures,

etc.

Apart from the above-mentioned functions of the bank, the bank provides other services like

investment counselling for individuals, short-term funds management and portfolio

management for individuals and companies. It undertakes the inward and outward remittances

with reference to foreign exchange and collection of varied types for the Government.


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Banking Services

Banking covers so many services that it is difficult to define it. However, these basic services

have always been recognized as the hallmark of the genuine banker. These are

The receipt of the customers deposits

The collection of his cheques drawn on other banks

The payment of the customers cheques drawn on himself

There are other various types of banking services like:

1) Advances Overdraft, Cash Credit, etc.

2) Deposits Saving Account, Current Account, etc.

3) Financial Services Bill discounting etc.

4) Foreign Services Providing foreign currency, travellers cheques, etc.

5) Money Transmission Funds transfer etc.

6) Savings Fixed deposits, etc.

7) Services of place or time ATM Services.

8) Status Debit Cards, Credit Cards, etc.


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Genesis of Banking in India

For the past three decades India's banking system has several outstanding achievements to its

credit. The most striking is its extensive reach. It is no longer confined to only metropolitans

or cosmopolitans in India. In fact, Indian banking system has reached even to the remote

corners of the country.

The journey of Indian Banking System can be segregated into three distinct phases. They are

as mentioned below:

Phase I

Early phase from 1786 to 1969 of Indian Banks

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and

Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay

(1840) and Bank of Madras (1843) as independent units and called it Presidency Banks.

These three banks were amalgamated in 1920 and Imperial Bank of India was established

which started as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab

National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913,

Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank

of Mysore were set up. Reserve Bank of India came in 1935.

During the first phase the growth was very slow and banks also experienced periodic failures

between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline

the functioning and activities of commercial banks, the Government of India came up with

The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949

as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with

extensive powers for the supervision of banking in India as the Central Banking Authority.

During those days public has lesser confidence in the banks. As an aftermath deposit

mobilisation was slow. Abreast of it the savings bank facility provided by the Postal

department was comparatively safer. Moreover, funds were largely given to traders.


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Phase II

Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector Reforms.

Government took major steps in this Indian Banking Sector Reform after independence. In

1955, it nationalised Imperial Bank of India with extensive banking facilities on a large scalespecially in rural and semi-urban areas. It formed State Bank of India to act as the principal

agent of Reserve Bank of India and to handle banking transactions of the Union and State

Governments all over the country.

Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19 th July,

1969, major process of nationalisation was carried out. It was the effort of the then Prime

Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were

nationalised.

Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with

seven more banks. This step brought 80% of the banking segment in India under Government

ownership.

The following are the steps taken by the Government of India to Regulate Banking

Institutions in the Country:

1949: Enactment of Banking Regulation Act.

1955: Nationalisation of State Bank of India.

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 200 crore.


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After the nationalisation of banks, the branches of the public sector bank India rose to

approximately 800% in deposits and advances took a huge jump by 11,000%.

Banking in the sunshine of Government ownership gave the public implicit faith and immense

confidence about the sustainability of these institutions.

Phase III

New phase of Indian Banking System with the advent of Indian Financial & Banking Sector

Reforms after 1991

This phase has introduced many more products and facilities in the banking sector in its

reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up

by his name which worked for the liberalisation of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are being put to

give a satisfactory service to customers. Phone banking and net banking is introduced. The

entire system became more convenient and swift. Time is given more importance than money.

The financial system of India has shown a great deal of resilience. It is sheltered from any

crisis triggered by any external macroeconomics shock as other East Asian Countries

suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the

capital account is not yet fully convertible, and banks and their customers have limitedforeign exchange exposure.


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Private banking in India

Private banking in India was practiced since the beginning of banking system in India. The

first private bank in India to be set up in Private Sector Banks in India was IndusInd Bank.

The first Private Bank in India to receive an in principle approval from the Reserve Bank of India was Housing Development Finance Corporation Limited, to set up a bank in the private

sector banks in India as part of the RBI's liberalization of the Indian Banking Industry. It was

incorporated in August 1994 as HDFC Bank Limited with registered office in Mumbai and

commenced operations as Scheduled Commercial Bank in January 1995. ING Vaysya, yet

another Private Bank of India was incorporated in the year 1930. Bengaluru has a pride of

place for having the first branch inception in the year 1934. With successive years of

patronage and constantly setting new standards in banking, ING Vaysya Bank has many

credits to its account.

Entry of Private Sector Banks

There has been a paradigm shift in mindsets both at the Government level in the banking

industry over the years since Nationalization of Banks in 1969, particularly during the last

decade. Having achieved the objectives of Nationalization, the most important issue before

the industry at present is survival and growth in the environment generated by the economic

liberalization greater competition with a view to achieving higher productivity and efficiency

in January 1993 for the entry of Private Sector banks based on the Nationalization Committee

report of 1991, which envisaged a larger role for Private Sector Banks.

The RBI prescribed a minimum paid up capital of Rs. 100 crores for the new bank and the

shares are to be listed at stock exchange. Also the new bank after being granted license under

the Banking Regulation Act shall be registered as a public limited company under the

companies Act, 1956.

Subsequently new commercial banks have been granted license to start bankingoperations in

India.


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OLD PRIVATE SECTOR BANKS NEW PRIVATE SECTOR BANKS

City Union Bank Ltd. Axis Bank Ltd.ING Vysya Bank Ltd. Development Credit Bank Ltd.SBI Commercial & International Bank Ltd. HDFC Bank Ltd.Tamilnad Mercantile Bank Ltd. ICICI Bank Ltd.The Catholic Syrian Bank Ltd. Kotak Mahindra Bank LtdThe Dhanalakshmi Bank Ltd. Yes Bank Ltd.The Federal Bank Ltd. Indusind Bank Ltd.The Jammu & Kashmir Bank Ltd.The Karnataka Bank Ltd.The Karur Vysya Bank Ltd.The Lakshmi Vilas Bank Ltd.The Nainital Bank Ltd.The Ratnakar Bank Ltd.The South Indian Bank Ltd.


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The pace of structural change

Banking systems in emerging economies have been transformed by privatisation,

consolidation and foreign bank entry. Bank efficiency and performance have improved,

apparently in response to a more competitive climate. More recently, reforms appear to have

slowed, in part because the easy work had been done and because of alternative approaches to

reform. For example, rather than engaging in full scale privatisation, countries like China and

India are only gradually transferring ownership of major state-owned banks to

the private sector.

As for bank consolidation, it has been market-driven and foreign banks have played an

important role in central and eastern Europe and Mexico, while the state has played a larger

role in Asia. Increased concentration was not seen as a threat to competition and access

to bank financing had improved with the growing presence of foreign banks. However foreign

banks raised political concerns because of perceived high profits and were also difficult to

supervise because parent banks' global goals and information flows did not always coincide

with the needs of host country supervisors.


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Evolution in and management of risks facing banks

Macroeconomic vulnerabilities (particularly to external shocks) appear to have declined,

reflecting a mix of favourable temporary conditions as well as improved policies (higher

foreign reserves, more flexible exchange rates, domestic debt market development and

improved fiscal policies). However, some central banks were still concerned about

vulnerability to certain shocks (eg. to domestic demand, to increases in oil prices or interest

rates or declines in property prices), particularly given the exposure of banks to interest rate or

exchange rate risk and the need in some countries for further fiscal consolidation.

Banks increasingly relied on systematic risk assessment procedures and quantitative risk

management techniques , with lending being influenced less by government direction or

special bank relationships with borrowers. However, challenges still arose from lack of data

on loan histories for estimating default probabilities, and risks related to liquidity and credit

risk transfer. Regarding liquidity risk, there is a need to ensure that banks rely on the

interbank markets, rather than the central bank for liquidity. Regarding credit risk transfer,

notwithstanding significant benefits associated with the growing use of credit risk transfer

instruments, their rapid spread might in some cases outpace the capacity of financial

institutions to assess and price risks.


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Trend and Progress of Banking in India in terms of Section 36(2) of the Banking Regulation

Act, 1949

The global economy is recovering from the worst financial crisis since the great depression.

The recovery, however, has been fragile and uneven.

The financial crisis has brought a number of lessons to the fore. First, financial regulation

needs to stay ahead of the curve to avoid falling behind financial innovations and emerging

new business models. This requires continuous sharpening of regulatory and supervisory

skills and instruments.

Second, there is need for interagency coordination which calls for understanding the

respective roles of central banks, regulators, supervisors, and fiscal authorities with regard to

financial stability. The agencies need to share information/data and sit together to resolve the

overlapping issues devolving on more than one regulator.

The third lesson points to the need to study the implications of large scale bail-out packages

for the regulatory architecture of the financial system and for the fiscal health of countries.

The rescue packages of one country may have worldwide repercussions through financial

channels, adding costs to macroeconomic management even when countries in question are

far removed from the epicentre of the crisis.

To mitigate the effects of contagion and its impact on the domestic financial system, relevant

issues regarding the methods and scope of deposit insurance and the feasibility of extending

guarantees to financial institutions may need to be explored.

The fourth lesson calls for better understanding of the weaknesses of structured products and

derivatives in the credit markets which have implications for financial stability. In this

respect, the relative superiority of different modes of trading and settlement practices needthorough examination to address the shortcomings inherent in the originate-to distribute

models. Finally, regulators should remain vigilant while striking the right balance between


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moderating risk-taking and economic growth since markets and institutions have the tendency

to succumb occasionally.

The global banking industry showed some improvements in performance during 2009-10,

after witnessing a tumultuous period of large income losses and write downs in the wake of global crisis in 2008-09. Though the large scale monetary and fiscal stimulus measures led

economic recovery and the revival of equity markets helped the global banking industry in

terms of strengthening capital and liquidity and improving profitability, various concerns over

downside risks to the global banking industry remained in regard to the quality of banks

assets and profitability.

Financial Performance of Private Sector Banks in India

Private sector banks play an important role in development of Indian economy. After

liberalization the banking industry under went major changes. The economic reforms totally

have changed the banking sector. RBI permitted new banks to be started in

the private sector as per the recommendation of Narashiman committee. The Indian banking

industry was dominated by public sector banks. But now the situations have changed new

generation banks with used of technology and professional management has gained a

reasonable position in the banking industry.


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FINANCIAL SNAPSHOT OF PRIVATE SECTOR BANKS

Axis Bank Particulars (Amount inrupees crore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 352 501 626 786 1,019 No. of employees 6,553 9,980 14,739 20,624 21,640Business per employee (in Rs.lakh) 1,020 1,024 1,117 1,060 1,111Profit per employee (in Rs.lakh) 9 8 8 10 12Capital and Reserves &surplus 2,886 3,402 8,771 10,215 16,045

Deposits 40,114 58,786 87,626 1,17,374 1,41,300

Investments 21,527 26,897 33,705 46,330 55,975

Advances 22,314 36,876 59,661 81,557 1,04,343

Interest income 2,889 4,462 7,005 10,835 11,638

Other income 730 1,010 1,795 2,897 3,946

Interest expended 1,811 2,993 4,420 7,149 6,634

Operating expenses 814 1,215 2,155 2,858 3,710

Cost of Funds (CoF) 4 5 5 6 4Return on advances adjustedto CoF 4 4 5 5 5

Wages as % to total expenses9 9 10 10 12

Return on Assets1 1 1 1 2

Capital To Risk WeightedAssets Ratio 11 12 14 14 16

Net NPA ratio1 1 0 0 0


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Catholic Syrian Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 333 356 375 377 377

No. of employees 2,863 2,791 2,723 2,676 2,681Business per employee (in Rs.lakh) 247 278 317 374 423Profit per employee (in Rs.lakh) 0 1 1 1 0

Capital and Reserves & surplus 216 229 305 388 390

Deposits 4,289 4,749 5,318 6,333 6,978

Investments1,432 1,553 1,819 2,184 2,289

Advances 2,695 3,013 3,314 3,684 4,467

Interest income365 409 481 557 578

Other income 40 43 60 100 74

Interest expended 218 252 317 391 455

Operating expenses 150 137 151 187 189

Cost of Funds (CoF)5 5 6 7 7

Return on advances adjusted toCoF 5 5 5 5 4




Net NPA ratio 3 2 2 2 2


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City Union Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 143 164 183 210 225



Deposits 3,518 4,699 6,425 8,207 10,285

Investments 1,057 1,307 1,718 2,397 3,210

Advances 2,550 3,329 4,537 5,645 6,833

Interest income 326 400 596 804 957

Other income 40 54 90 124 143



Cost of Funds (CoF) 6 6 7 8 7Return on advances adjusted toCoF 5 5 5 5 5

Wages as % to total expenses 14 14 10 9 9

Return on Assets 1 2 2 2 2Capital To Risk WeightedAssets Ratio 12 13 12 13 13



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Development Credit Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 91 93 104 110 110



Deposits 3,124 4,415 6,075 4,647 4,787

Investments 1,307 1,847 2,135 1,622 2,018

Advances 1,867 2,658 4,069 3,274 3,460


Other income 55 92 174 120 107








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Dhanalakshmi Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 187 190 190 190 256

No. of employees 1,385 1,385 1,411 1,402 3,275Business per employee (in Rs.lakh) 312 367 409 586 370Profit per employee (in Rs.lakh) 1 1 2 4 0Capital and Reserves &surplus 134 147 172 424 440

Deposits 2,533 3,088 3,608 4,969 7,098

Investments710 865 1,075 1,567 2,028

Advances 1,594 1,837 2,102 3,196 5,006


Other income 22 28 42 79 91




Return on advances adjustedto CoF 5 5 5 5 4






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Federal Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 488 553 619 640 699


Capital and Reserves & surplus 1,250 1,502 3,926 4,326 4,690

Deposits 17,879 21,584 25,913 32,198 36,058

Investments6,272 7,033 10,027 12,119 13,055

Advances 11,736 14,899 18,905 22,392 26,950

Interest income1,437 1,801 2,515 3,315 3,673

Other income 217 303 395 516 531

Interest expended 837 1,085 1,647 2,000 2,262



Return on advances adjusted toCoF 4 5 4 6 5





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HDFC Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 516 666 745 1,422 1,729



Deposits 55,797 68,298 1,00,769 1,42,812 1,67,404

Investments 28,394 30,565 49,394 58,818 58,608

Advances 35,061 46,945 63,427 98,883 1,25,831

Interest income 4,475 6,648 10,115 16,332 16,173

Other income 1,124 1,516 2,283 3,291 3,808


Operating expenses 1,691 2,421 3,746 5,533 5,764






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ICICI Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 569 716 1,269 1,430 1,717

No. of employees 25,384 33,321 40,686 34,596 35,256Business per employee (in Rs.lakh) 905 1,027 1,008 1,154 1,029Profit per employee (in Rs.lakh) 10 9 10 11 12


Deposits 1,65,083 2,30,510 2,44,431 2,18,348 2,02,017

Investments 71,547 91,258 1,11,454 1,03,058 1,20,893

Advances 1,46,163 1,95,866 2,25,616 2,18,311 1,81,206

Interest income 14,306 21,996 30,788 31,093 25,707

Other income 4,181 6,928 8,811 7,604 7,478


Operating expenses 5,001 6,691 8,154 7,045 5,860






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IndusInd Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 152 185 195 195 230

No. of employees 2,365 2,613 2,869 4,251 5,383Business per employee (in Rs.lakh) 880 1,040 1,063 836 837Profit per employee (in Rs.lakh) 2 3 3 3 7

Capital and Reserves & surplus 866 1,057 1,350 1,664 2,397

Deposits 15,006 17,645 19,037 22,110 26,710

Investments 5,410 5,892 6,630 8,083 10,402

Advances 9,310 11,084 12,795 15,771 20,551

Interest income 1,188 1,500 1,881 2,309 2,707

Other income 189 244 298 456 553

Interest expended 873 1,229 1,580 1,850 1,821







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ING Vysya Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 388 413 421 470 493



Deposits 13,335 15,419 20,458 24,889 25,865

Investments 4,372 4,528 6,293 10,496 10,473

Advances 10,232 11,976 14,650 16,756 18,507

Interest income 1,222 1,268 1,680 2,240 2,233

Other income 139 286 419 548 620

Interest expended 741 822 1,182 1,590 1,403




Return on Assets 0 1 1 1 1Capital to risk weighted assetsratio 11 11 10 12 15



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Jammu & Kashmir Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 455 461 499 510 510



Deposits 23,485 25,194 28,593 33,004 37,237

Investments 8,994 7,392 8,758 10,736 13,956

Advances 14,483 17,080 18,883 20,930 23,057

Interest income 1,706 1,899 2,434 2,972 3,057

Other income 111 160 245 261 416








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Karnataka Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 412 428 453 469 486



Deposits 13,243 14,037 17,016 20,333 23,731

Investments 5,549 5,048 6,327 8,961 9,992

Advances 7,792 9,553 10,842 11,810 14,436

Interest income 1,018 1,256 1,560 1,948 2,043

Other income 167 174 237 321 311

Interest expended 652 836 1,102 1,444 1,708







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Karur Vysya BankParticulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 265 293 319 344 367


Capital and Reserves & surplus 872 1,063 1,190 1,350 1,620

Deposits 7,577 9,340 12,550 15,101 19,272

Investments 2,298 2,874 3,526 4,716 6,602

Advances 5,555 7,040 9,422 10,410 13,497

Interest income 651 867 1,106 1,446 1,758

Other income 121 119 183 265 247

Interest expended 368 520 765 1,036 1,193







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Lakshmi Vilas Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 241 250 253 265 279



Deposits 4,336 5,020 5,618 7,361 9,075

Investments 1,280 1,309 1,694 1,863 2,983

Advances 2,953 3,613 3,859 5,236 6,277


Other income 35 57 82 107 104








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Nainital Bank

Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 81 82 89 94 103

No. of employees 624 662 667 650 692Business per employee (in Rs.lakh) 225 279 366 425 521Profit per employee (in Rs.lakh) 2 3 4 6 6


Deposits 1,125 1,481 1,790 2,137 2,507

Investments372 388 483 561 707

Advances603 795 995 1,131 1,288


Other income13 5 8 10 16

Interest expended40 55 93 116 131

Operating expenses37 34 32 39 45

Cost of Funds (CoF)4 4 6 6 6Return on advances adjusted to

CoF 6 6 6 7 5




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Ratnakar Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 78 80 79 87 90

No. of employees 544 553 544 566 704Business per employee (in Rs.lakh) 251 254 310 373 391Profit per employee (in Rs.lakh) 0 1 3 5 3


Deposits 874 876 1,101 1,307 1,585

Investments 277 316 361 407 507

Advances 491 531 586 801 1,170










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SBI Commercial & International Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 3 3 2 3 3

No. of employees 101 90 93 84 71Business per employee (in Rs.lakh) 626 648 755 960 1,055Profit per employee (in Rs.lakh) 6 8 14 13 4


Deposits 378 488 522 588 492

Investments 111 126 144 295 319

Advances 254 329 358 311 205








Net NPA ratio 4 - - 0 0


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South Indian Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 458 484 510 541 575


Capital and Reserves & surplus 641 724 1,161 1,304 1,485

Deposits 9,579 12,239 15,156 18,092 23,012

Investments 2,739 3,430 4,572 6,075 7,156

Advances 6,370 7,919 10,454 11,848 15,823

Interest income 761 977 1,291 1,687 1,936

Other income 72 103 143 164 208








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Tamilnad Mercantile Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 184 194 217 230 233


Capital and Reserves & surplus 657 759 858 989 1,148

Deposits 5,203 6,020 7,670 9,566 11,639

Investments 2,362 2,316 2,554 3,207 3,499

Advances 3,126 4,047 5,331 6,572 8,288

Interest income 548 638 774 977 1,118

Other income 78 83 131 136 173








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Yes Bank Particulars (Amount in rupeescrore) 2005-06 2006-07 2007-08 2008-09 2009-10

No. of offices 9 41 68 118 151

No. of employees 627 2,443 3,150 2,671 3,034Business per employee (in Rs.lakh) 848 531 683 988 1,527Profit per employee (in Rs.lakh) 9 4 6 11 16

Capital and Reserves & surplus 573 787 1,319 1,624 3,090

Deposits 2,910 8,220 13,273 16,169 26,799

Investments 1,350 3,073 5,094 7,117 10,210

Advances 2,407 6,290 9,430 12,403 22,193

Interest income 193 588 1,305 2,001 2,370

Other income 97 195 361 435 576





Return on Assets 2 1 2 2 2Capital to Risk WeightedAssets Ratio 16 14 14 17 21

Net NPA ratio - - 0 0 0


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Maturity Profile of Assets and Liabilities of Private Sector Banks

Maturity Profile of Select Liabilities/Assets(As at end-March)

(% to total under each item)Liabilities/assets Old Private Sector Banks New Private Sector

Banks2009 2010 2009 2010

I DepositsUpto 1 year 48.3 47.6 54 47.71 to 3 year 38.4 36.8 35.3 39Over 3 year 13.3 15.6 10.7 13.3

II BorrowingsUpto 1 year 62 49.2 31 33.91 to 3 year 7.9 15.7 22.8 24.4Over 3 year 30.1 35.1 46.2 41.7

III Loans &AdvanceUpto 1 year 40.8 40.5 32.4 361 to 3 year 35.5 36.8 35.5 33.4Over 3 year 23.7 22.7 32.1 30.6

IV. InvestmentsUpto 1 year 37.2 24.4 46.3 42.41 to 3 year 7.1 8.8 25 25.6Over 3 year 55.8 66.8 28.8 32

The asset liability management by banks is critically dependent on the maturity profile of

their assets and liabilities. As banks generally raise resources through short-term liabilities to

finance assets ranging from short- to long-term, the liquidity and credit risks get multiplied

particularly during the periods of crisis.

The maturity profile of assets and liabilities of Indian banks in general shows greater reliance

on short-term deposits matched by short- and medium-term loans and advances, and long-

term investments on the assets side.


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In 2009-10, there was a shift towards the short- (up to 1 year) and medium-term (over one and

up to three years) deposits mobilised by banks.

Concurrently, there was a decline in the share of deposits with long-term maturity of over

three years. While the maturity distribution of loans and advances remained largelyunchanged in 2009-10, there was a shift in favour of long-term investments by banks.

New private sector banks, which normally relied heavily on short-term deposits, exhibited a

shift in favour of medium- and long term deposits in 2009-10, while their loans moved closer

towards the short-term end of the spectrum.

Base Rate System of Interest Rates

The system of Benchmark Prime Lending Rate (BPLR) introduced in 2003 was expected to

serve as a benchmark rate for banks pricing of their loan products so as to ensure that it truly

reflected the actual cost. However, the BPLR system fell short of its original objective of

bringing transparency to lending rates.

This was mainly because under the BPLR system, banks could lend below the BPLR. For the

same reason, it was difficult to assess the transmission of policy rates of the Reserve Bank to

lending rates of banks.

The Base Rate system is applicable to all new loans and to the old loans that come up for

renewal. The existing loans based on the BPLR system may run till their maturity. The

Reserve Bank on April 28, 2010 also deregulated the interest rate on rupee export credit with

effect from July 1, 2010 and stipulated that the interest rate on rupee export credit could be

priced at or above the Base Rate.

The Base Rate system is expected to facilitate better pricing of loans, enhance transparency in

lending rates and improve the assessment of transmission of monetary policy.


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For the system as a whole, the Base

Rates were in the range of 5.50 9.00 %

as on October 13, 2010. During end-

September and early-October 2010,

several banks increased their base rates by 25-50 basis points. There has been a large degreeof convergence of base rates as announced by banks. In the latest review, 48 banks with a

share of 94 % in total bank credit fixed their base rates in the range of 7.50-8.50 %. In July

2010, over 40 banks with the share of 81 % in total bank credit had fixed their base rates in

the range of 7.25 - 8.00 %.

Range of BPLR and Base Rates of PrivateSector Banks

(As on 13 Oct, 2010)BPLR Range Base Rate Change 12.75 to 17.50 7.00 to 9.00


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Non-Performing Assets

There were some emerging concerns with regard to the important soundness indicator of

banks of Non-Performing Assets (NPAs). Asset quality of Indian banks had generally seen a

steady improvement as evident from a declining level of gross and net NPA ratio since 1999.

CLASSIFICATION OF LOAN ASSETS OF PRIVATE SECTOR BANKS

(Amounts in Rs. Crore)As on March 31

StandardAssets

Sub-standardAssets

DoubtfulAssets

Loss Assets Gross NPAs TotalAdvanc

esAmount %

shareAmou

nt%

shareAmou

nt%

shareAmou

nt%

shareAmou

nt%

shareAmount

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)2005 2,21,781 96.16 2,270 0.98 5,671 2.49 910 0.39 8,851 3.84 2,30,6322006 2,96,020 97.44 2,396 0.79 4,438 1.46 940 0.31 7,774 2.56 3,03,7932007 3,82,630 97.64 4,368 1.11 3,930 1.00 941 0.24 9,239 2.36 3,91,8692008 4,59,369 97.25 7,280 1.54 4,452 0.94 1,244 0.26 12,976 2.75 4,72,3452009 5,02,768 96.75 10,526 2.03 5,017 0.97 1,345 0.26 16,888 3.25 5,19,6552010 5,67,207 97.03 8,676 1.48 6,542 1.12 2,166 0.37 17,384 2.97 5,84,591

It is noteworthy that the growth in NPAs of Indian banks has largely followed a lagged

cyclical pattern with regard to credit growth. The empirical analysis taking growth rates of

gross advances and gross NPAs since June 2000 indicated that NPA growth

At the bank group level, the gross NPA ratio was the highest for foreign banks at end-March

2010 followed by private sector banks. On the other hand, it was the lowest for public sector

banks. The increase in the gross NPA ratio between 2009 and 2010 could be seen across all

bank groups except in the case of private sector banks. The increase in the gross NPA ratio

during this period was perceptible for foreign banks.


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Non-Performing Assets of Private Sector Banks - Sector-wise(As at end-March 2010)

(Amount in ` crore)

Sr.No.

Name of theBank

PrioritySector NPAs

Of which,Agriculture

Of which,SmallScale

Industries

Of which,Others

Non-Priority

Sector NPAs

TotalNPAs

Amount

% tototal

Amount

% tototal

Amoun

t

% tototal

Amount

% tototal

Amount

% tototal

Amount 15= (3+11+13

)1 2 3 4 5 6 7 8 9 10 13 14 15

PrivateSector Banks 4,792 27.6 2,023 11.6

1,139 6.6 1,630 9.4

12,592 72.4

17,384

Old PrivateSector Banks 1,613 44.7 269 7.4 475 13.2 869 24.1 1,999 55.3 3,612

1 CatholicSyrian Bank Ltd.

62 41.7 7 4.6 32 21.4 23 15.7 87 58.3 149

2 City UnionBank Ltd.

41 44.2 16 17.1 9 9.7 16 17.3 52 55.8 94

3 Dhanalakshmi Bank Ltd.

35 45.6 4 5.3 6 7.3 26 33.0 42 54.4 78

4 Federal Bank Ltd. 440 53.6 65 8.0 18 2.2 356 43.4 381 46.4 821

5 ING VysyaBank Ltd. 65 29.2 36 16.1 23 10.3 6 2.8 159 70.8 224

6Jammu andKashmir Bank Ltd.

286 61.8 32 7.0 54 11.7 199 43.2 176 38.2 462

7 KarnatakaBank Ltd. 324 59.0 51 9.2 172 31.2 102 18.6 225 41.0 550

8 Karur VysyaBank Ltd. 68 29.0 7 2.9 53 22.7 8 3.4 167 71.0 235

9LakshmiVilas Bank Ltd.

58 17.8 10 3.1 15 4.5 33 10.1 267 82.2 325

10 NainitalBank Ltd. 17 73.4 8 34.9 2 9.2 7 29.4 6 26.6 23

11 Ratnakar Bank Ltd. 18 65.0 2 8.6 10 35.6 6 20.8 10 35.0 28

12SBICommercialand

2 62.4 - - - - 2 62.4 1 37.6 3


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InternationalBank Ltd.

13 South IndianBank Ltd. 88 41.7 12 5.7 27 12.9 49 23.0 123 58.3 211

14TamilnadMercantileBank Ltd.

46 40.2 10 9.0 12 10.6 24 20.6 69 59.8 115

New PrivateSectorBanks

3,179 23.1 1,754 12.7 664 4.8 760 5.510,59

4 76.913,77

2

15 Axis Bank Ltd. 528 40.8 248 19.1 140 10.8 141 10.9 767 59.2 1,295

16DevelopmentCredit Bank Ltd.

68 21.2 14 4.3 52 16.2 3 0.8 251 78.8 319

17 HDFC Bank Ltd.

400 22.1 110 6.1 276 15.3 14 0.8 1,407 77.9 1,807

18 ICICI Bank Ltd. 1,946 21.0 1303 14.1 50 0.5 593 6.4 7,321 79.0 9,267

19 IndusIndBank Ltd. 84 33.0 31 12.0 46 18.1 8 3.0 171 67.0 255

20Kotak MahindraBank Ltd.

152 - 49 6.5 100 13.0 2 0.3 616 80.2 767

21 Yes Bank Ltd. - - - - - - - 60100.

0 60


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Non-Performing Assets in Advances to Weaker Sections - Private SectorBanks

(As at end-March 2010)(Amount in in crore)

Sr.No.

Name of the bank NPAs in Advances toWeaker Sections

Amount % of totaladvances to

weakersections

1 2 3 4Private Sector Banks 130 0.5Old Private Sector Banks 98 1.0

1 Catholic Syrian Bank Ltd. 5 34.22 City Union Bank Ltd. - -3 Dhanalakshmi Bank Ltd. - -4 Federal Bank Ltd. - -

5 ING Vysya Bank Ltd. 2 0.66 Jammu and Kashmir Bank Ltd. 17 0.77 Karnataka Bank Ltd. 11 3.88 Karur Vysya Bank Ltd. 40 4.09 Lakshmi Vilas Bank Ltd. - 0.1

10 Nainital Bank Ltd. - -11 Ratnakar Bank Ltd. 1 4.7

12 SBI Commercial and International Bank Ltd. - -13 South Indian Bank Ltd. 8 0.414 Tamilnad Mercantile Bank Ltd. 2 0.3

New Private Sector Banks 32 0.215 Axis Bank Ltd. - -16 Development Credit Bank Ltd. 1 0.417 HDFC Bank Ltd. 17 1.518 ICICI Bank Ltd. - -19 IndusInd Bank Ltd. - -20 Kotak Mahindra Bank Ltd. 14 1.221 Yes Bank Ltd. - -


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Sectoral Distribution of Bank Credit

Sectoral distribution of bank credit provides an understanding of the contribution of bank

credit towards economic growth and financial inclusion as well as its role in ensuring

financial stability.

Accordingly, this section highlights the general trends and relevant issues in sectoral

distribution of bank credit in 2009-10 followed by detailed discussions on the trends in

priority sector credit as well as retail credit and credit to certain sensitive sectors.

Bank credit witnessed a slowdown on a year-on-year basis during 2009-10 continuing with

the trend observed in the recent past. However, there were signs of pick up in growth of bank

credit in general, and industrial credit in particular, following the recovery in the real sector.

The growth in Index of Industrial Production (IIP), a proxy for the real economic activity,

which is expected to largely impact the corporate sector loans of banks, showed signs of

recovery from June 2009, but it consolidated only after October 2009 entering into the double

digit zone. It was also the period when growth in industrial credit, and bank credit as a whole,

began to increase. Taking monthly data on industrial credit and production from April 2006

onwards, the elasticity of industrial credit with respect to industrial production worked out to

2.08.

On the year-on-year basis, the main drivers of non-food bank credit during 2009-10 were the

sectors of industry and agriculture. There was a considerable slowdown in credit to the

services sector and personal loans during the year other hand, personal loans, which were a

major driver during the high credit growth phase of the mid-2000s, witnessed a decline in

their percentage contribution.

A decline could also be seen in the contribution from the services sector to the increment intotal credit.


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Credit to Priority Sectors

Priority sectors have been an integral part of bank credit delivery in India. Between 2009 and

2010, there was a growth in priority sector credit from domestic commercial banks of 18.4 %

primarily due to the growth in agricultural credit.

The growth in agricultural credit from domestic banks was to the tune of 22.6 % in 2009-10.

Foreign banks, however, posted a much lower growth of 8.8 % in priority sector credit in

2009-10 than their domestic counterparts.

S. No. Private Sector BanksPriority Sector Advances

(in crores)

2008-09 2009-10

1 City Union Bank Ltd. 1,824.93 2,516.84

2 ING Vysya Bank Ltd. 6,155.00 6,875.35

3SBI Commercial & InternationalBank Ltd. 133.75 102.94

4 Tamilnad Mercantile Bank Ltd. 2,758.21 3,603.80

5 The Catholic Syrian Bank Ltd. 1,412.44 1,505.63

6 The Dhanalakshmi Bank Ltd. 1,050.25 1,255.36

7 The Federal Bank Ltd. 8,463.91 9,851.07

8 The Jammu & Kashmir Bank Ltd. 7,345.95 8,632.29

9 The Karnataka Bank Ltd. 4,372.16 5,252.96

10 The Karur Vysya Bank Ltd. 3,781.09 4,450.87

11 The Lakshmi Vilas Bank Ltd. 1,629.98 2,142.44

12 The Nainital Bank Ltd. 628.49 670.42

13 The Ratnakar Bank Ltd. 236.95 299.49

14 The South Indian Bank Ltd. 4,027.86 4,941.44

TOTAL OF 15 PVT. SECTOR BANKS [I] 43,820.97 52,100.90


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NEW PRIVATE SECTOR BANKS

15 Axis Bank Ltd. 22,949.04 29,940.42

16 Development Credit Bank Ltd. 1,371.35 1,457.56

17 HDFC Bank Ltd. 29,781.60 44,157.57

18 ICICI Bank Ltd. 62,051.60 53,977.39

19 Indusind Bank Ltd. 5,568.79 6,326.63

20 Kotak Mahindra Bank Ltd. 6,278.46 6,790.37

21 Yes Bank Ltd. 3,377.55 4,491.62

TOTAL OF 7 NEW PVT.SECTOR BANKS [II] 1,31,378.39 1,47,141.56

TOTAL OF 21 PVT. SECTOR BANKS [I+II] 1,75,199.36 1,99,242.46

At end-March 2010, private sector banks had more than met their overall priority sector

lending targets of 40 and 32 %, respectively. However, at the disaggregated level, 2 out of 21

private sector banks could not meet the overall priority sector target in 2010.

There were some concerns regarding the performance of domestic banks in meeting the sub-

target (of 18 %) under agriculture. At the aggregate level, private sector banks were below the

sub-target of 18 % for agriculture at end-March 2010.

At the disaggregated level, half of the private sector banks (11 out of 21) could not meet the

agricultural sub-target. Within private sector banks, the performance was relatively poor in

the case of old private sector banks, while most new private sector banks were able to meet

the sub-target under agriculture. Further, majority of the private sector banks (15 out of 21)

could not meet the sub-target of 10 % under weaker sections.


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Banks Operations in the Primary Market

After abstaining during 2008-09, banks started resorting to capital market for raising

resources in 2009-10.

This revival in primary market resource mobilisation was a reflection of the easing of

liquidity constraints witnessed during the previous year, a buoyant secondary market and

improved investment demand by corporate Given the concerns related to a slow pace of

economic recovery in the industrialised economies and emergence of European sovereign

debt crisis, mobilisation of resources by domestic banks from global capital markets showed

no major signs of revival in 2009-10.

There was resource mobilisation to the tune of INR 843 (in crores) through Global Depository

Receipts (GDRs) by private sector banks in 2009-10.

Given that private placements and public issues largely act as substitutes of one another in

raising resources, in 2008-09, when there was no resource mobilisation through public issues

in the domestic capital market, banks resource mobilisation through private placements had

shown a significant increase by 34.6 %.

Banks continued to raise funds through private placements in 2009-10 but the growth had

abated to 15.8 %.

The growth in mobilisation of resources through private placements in 2009-10 was

attributable to private sector banks.


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Operations of Scheduled Commercial Banks in Capital Market

Capital market provides an important avenue to banks to raise resources for strengthening

their capital base as well as to provide trading ground for bank stocks. Hence, in a liberalised

and competitive environment, banks operations in the capital market have critical

implications for the growth of their banking business.

This section highlights the operations of banks in the primary and secondary capital markets.

Public issues by Private Sector Banks

Year Equity Debt2008-09 - -

2009-10 313 -

Performance of Banking Stocks in the Secondary Market

The domestic stock market, which had recorded significant losses in 2008-09 as a fallout of

the financial crisis, registered phenomenal increase of 80.5 % in 2009-10 outperforming many

Emerging Market Economies (EMEs) largely a reflection of domestic economic recovery and

resumption of FII flows. Though the Dubai-debt crisis and the uncertainty over the health of

indebted euro-zone countries overshadowed the stock market sentiment in the beginning of

the 2010, there was a general upward movement in stock prices throughout the year with the

BSE Sensex reaching the pre-crisis level in mid- September 2010.

The BSE Bankex (representing the banking sector scrips) recorded larger gains than those in

the BSE Sensex during 2009-10 reflecting the buoyancy in bank stocks. However, while the

returns were higher, the volatility of BSE Bankex, reflecting the risk in trading in these

stocks, was also higher than that of BSE Sensex in 2009-10.


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In line with the overall trend, all of the 39 listed banks recorded gains during 2009-10. The

upward movement of prices of bank stocks was also reflected in increase of Price/Earning

(P/E) ratios across most bank stocks. H owever the increase in P/E ratio was much sharper in

the case of scripts of private sector banks as compared to those of their public sector

counterparts.

After registering almost a doubling of their share

in total capital market turnover between 2007-08

and 2008-09, bank stocks witnessed a decline in

their share in total turnover in 2009- 10 and even

in 2010-11 (between April and October 15). On

the other hand, the share of bank stocks in total

market capitalisation posted a rise since 2007-08.

Shareholding Pattern

The extent of foreign shareholding in new private sector banks was much greater; three banks

out of seven from this bank group had foreign shareholding exceeding 50 %.

Technological Developments

Developments in the field of Information Technology (IT) strongly support the growth andinclusiveness of the banking sector thereby facilitating inclusive economic growth. IT not

only enhances the competitive efficiency of the banking sector by strengthening back-end

administrative processes, it also improves the front-end operations and helps in bringing down

the transaction costs for the customers.

It has the potential of furthering financial inclusion by making small ticket retail transactions

cheaper, easier and faster for the banking sector as well as for the small customers. The

Reserve Bank has thus been actively involved in harnessing technology for the development

of the Indian banking sector over the years.

Year No. of issues Amount raised

(in crores)

2008-09 13 6,967

2009-10 18 17,101


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RTGS and NEFT: A Comparative Analysis of Scales of Operation

There has been a steady increase in the ratio of total value of electronic payments to Gross

Domestic Product (GDP) reflecting growing preference for the electronic mode of payments

in the recent years.

Among the various electronic modes of payment, the centralised version of Electronic Fund

Transfer (EFT) National EFT (NEFT) has become an important means of retail payments,

while the Real Time Gross Settlement (RTGS) has shown significant growth as a means of

settling large value payments.

The Reserve Bank has taken a series of initiatives to facilitate use of electronic mode for

various retail and large value transactions. RTGS is a large value payment system which

processes both customer and inter-bank transactions of INR 100,000 and above, whiles the

NEFT is essentially a retail system. Further, while RTGS is a realtime gross settlement

arrangement, NEFT is a near-real time system with settlements taking place at hourly

intervals. Both systems are operated by the Reserve Bank.

The volume and value of transactions processed through the two systems has shown an

impressive growth over the years. Considering the fact that RTGS is a large value payment

system as against NEFT, the value of transactions processed in the former are much larger.

However, the growth trend in the value of transactions in the two systems reveals that the

amount of transactions processed in NEFT has increased exponentially since 2007-08, while

RTGS has exhibited a relatively steady growth.


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Bank group-wise data for

2008-09 and 2009-10 of RTGS

and NEFT systems show that

private sector banks weremajor participants in the

systems and accounted for over one-third of total transactions .

The top major private sector banks HDFC Bank, ICICI Bank, and Citi Bank along with other

nationalised banks accounted for more than 50 % of total volume and value of transactions as

at end-March 2010.

Customer Services

Making banks more customer-friendly has been high on the agenda of the Reserve Bank.

Accordingly, a number of steps have been taken towards enhancing financial literacy and

strengthening channels of information dissemination relating to banking services to

customers. A full-fledged Customer Service Department was set up in 2006 by the Reserve

Bank to enhance the pace and quality of provision of customer services, while providing

customers a forum for redressal of their grievances.

The forum of redressal of consumers grievances about banking, the Banking Ombudsman(BO), received 79,266 complaints at its 15 offices in 2009-10 contributed largely by the

complaints received at the offices of the three major metropolises of Mumbai, New Delhi and

Chennai.

The share of complaints received against new private sector banks, which had been on a rapid

increase in the recent years, showed signs of slowing down in 2009-10.

RTGS NEFT(Number of transactions in million)

2008-09 2009-10 2008-09 2009-10

4.2 11.3 14.4 29.3


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Financial Inclusion

The Reserve Bank has put financial inclusion process into mission mode given that from the

World Bank suggest that India ranks low when compared with the OECD countries with

regard to financial penetration.

When compared with select Asian peer group countries, the difference in financial access is

much less striking as far as access to bank branches is concerned but it is prominent with

regard to access to ATMs. Further, the size and depth of the banking sector when measured

taking private credit to GDP ratio also works out to be much lower for India than many of its

Asian peer group countries.

These trends underline the need for strengthening the financial inclusion process in India in

the years to come.

Financial inclusion in the Indian context has been defined as the provision of affordable

financial services, viz., access to payments and remittance facilities, savings, loans and

insurance services by the formal financial system to those who tend to be excluded.

The Indian policy approach towards financial inclusion since early 2000 has been focused on

ensuring inclusion at the individual and household level. Accordingly, the scheme of no frills

accounts (no pre-condition, low minimum balance maintenance) was initiated by the Reserve

Bank in 2005 to provide an easy financial savings facility to the population at large, which

can act as a means of their entry into the formal banking system.


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Micro-finance has been another important component of the financial inclusion process in

India. Micro-finance is defined as provision of thrift, credit and financial services and

products of very small amount to the poor in rural, semiurban and urban areas for enabling

them to raise their income levels and improving living standards.

The Self-Help Group-Bank Linkage Programme (SBLP), which started as a pilot programme

in 1992 has developed with rapid strides over the years. In 2009-10, 1.59 million new SHGs

were credit-linked with banks, and bank loan of INR 14,453 crore (including repeat loan) was

disbursed to these SHGs. Further, at end-March 2010, 6.95 million SHGs maintained savings

accounts with banks.

Conclusion

In the near future, banking sector needs to support the growth momentum in the economy

while giving due attention to the asset quality and prudent provisioning to balance emerging

returns and risks. Further, banks need to step up efforts towards financial inclusion using the

instrument of scale-neutral technology as this would help in bringing the vast population into

the ambit of formal finance and also boost future economic growth coupled with equity.

Keeping in view the higher capital charge proposal under the enhanced Basel II framework,

the global banking industry in some regions especially in the Euro area may witness further

challenges to recapitalisation over the coming years as private sector funding matures and

extraordinary public support is withdrawn.


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Gist of the comments on the Discussion Paper on Entry of New Banks in the Private Sector

It may be recalled that pursuant to the announcement made by the Union Finance Minister in

his budget speech for the year 2010-11 that the Reserve Bank was considering giving some

additional banking licences to private sector players, the Governor, Reserve Bank of India

indicated in the Annual Policy Statement for the year 2010-11 that the Reserve Bank would

prepare a discussion paper marshalling the international practices, the Indian experience as

well as the extant ownership and governance (O&G) guidelines and place it on the Reserve

Banks website by end-July 2010 for wider comments and feedback. Accordingly, the

Reserve Bank released on its website on August 11, 2010, the Discussion Paper on Entry of

New Banks in the Private Sector seeking the views/comments from banks, non-banking

financial institutions, industrial houses, other institutions and the public at large.

INTRODUCTION

The Union Finance Minister, in his budget speech for the year 2010-11 had announced that

The Indian banking system has emerged unscathed from the crisis. We need to ensure that

the banking system grows in size and sophistication to meet the needs of a modern economy.

Besides, there is a need to extend the geographic coverage of banks and improve access to

banking services. In this context, I am happy to inform the Honourable Members that the RBI

is considering giving some additional banking licences to private sector players. Non Banking

Financial Companies could also be considered, if they meet the RBIs eligibility criteria.

Subsequently, in line with the above announcement, the Governor, Reserve Bank of India

indicated in the Annual Policy Statement for the year 2010-11 that the Reserve Bank will

prepare a discussion paper marshalling the international practices, the Indian experience as

well as the extant ownership and governance (O&G) guidelines and place it on the Reserve

Banks website by end-July 2010 for wider comments and feedback. The Reserve Bank also

noted that detailed discussions will be held with all stakeholders on the discussion paper and

guidelines will be finalised based on the feedback. All applications received in this regardwould be referred to an external expert group for examination and recommendations to the

Reserve Bank for granting licenses.


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WHY NEW BANKS IN INDIA

It is generally accepted that greater financial system depth, stability and soundness contribute

to economic growth. But beyond that, for growth to be truly inclusive requires broadening and

deepening the reach of banking. A wider distribution and access of financial services helps

both consumers and producers raise their welfare and productivity. Such access is especially powerful for the poor as it provides them opportunities to build savings, make investments,

avail credit, and more important, insure themselves against income shocks and emergencies.

As of March 31, 2009, the Indian banking system comprised 27 public sector banks, 7 new

private sector banks, 15 old private sector banks, 31 foreign banks, 86 Regional Rural Banks

(RRBs), 4 Local Area Banks (LABs), 1,721 urban co-operative banks, 31 state co-operative

banks and 371 district central co-operative banks.

The average population coverage by a commercial bank branch in urban areas improved from

12,300 as on June 30, 2005 to 9,400 as on June 30, 2010 and in rural and semi urban areas

from 17,200 as on June 30, 2005 to 15,900 as on June 30, 2010. The all India weighted

average during the same period improved from 15,500 to 13,400.

Though the Indian financial system has made impressive strides in resource mobilization,

geographical and functional reach, financial viability, profitability and competitiveness, vast

segments of the population, especially the underprivileged sections of the society, have still

no access to formal banking services.

The Reserve Bank is therefore considering providing licences to a limited number of new

banks. A larger number of banks would foster greater competition, and thereby reduce costs,

and improve the quality of service. More importantly, it would promote financial inclusion,

and ultimately support inclusive economic growth, which is a key focus of public policy.


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Issues For Consideration

Various opinion makers have expressed views about the desirability of permitting new banks

(including local area banks), allowing conversion of NBFCs into banks and whether large

industrial and business houses should be allowed to set up banks. A number of issues,

however, bear consideration. These include:

Minimum capital requirements for new banks and promoters contribution Minimum and maximum caps on promoter shareholding and other shareholders Foreign shareholding in the new banks Eligible Promoters


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BIBLIOGRAPHY

Book / Working Papers

Reserve Bank of India (2010), Report of the Working Group on Benchmark Prime Lending

Rate Chairman: Shri Deepak Mohanty).

Mohanty, Deepak (2010), Perspectives on Lending Rates in India, Speech delivered at the

Bankers Club, Kolkata, RBI Bulletin, July.

Website

www.rbi.gov.in

www.ssrn.com

Major Private Sector Banks in India

Documents

Transcript of Major Private Sector Banks in India