Thursday, December 30, 2010




This Blog has covered Banking Industry extensively throughout the year 2010.

Banking Industry is one Industry which invariably grows well when the Indian economy grows well. It has several advantages over most other Industries.

It is not dependent on external factors like dollar, US economy, European economy and so on.

It is not also dependent on foreign technology, FDI or foreign know-how much. On the other hand, there is much that foreign Banks can learn from Indian Banking Industry and its success.

There are many growth factors for Banking Industry in India.

The demand for Banking services in India is very huge. Geographically, almost  half of India is yet to be covered by Banking services.  Overall, about 75% of population in urban and to rural population are yet to avail Banking services.

Most of the banks are yet to provide the full range of Banking services generally available in the developed countries, to their customers.

This gives huge opportunity to Banks in India to expand their products and services and their Geographical spread every year. We do find many Banks expanding their business and profits almost by 20% every year. Expansion by over 100 branches every year has become almost a norm for most Banks.


The automation process in Indian Banking Industry is proceeding very efficiently and very fast. The main contributors to this are our OWN IT Biggies – Infy, TCS etc, who have developed the best banking softwares of the world. Compared to the cost and efficiency of getting the Best Banking softwares and their  implementation in other countries, by the banks abroad, our Banks are getting the Best, at a fraction of the cost and with greater efficiently.


Financial inclusion process in India is moving ahead at a reasonable pace and in a cost effective manner under the supervision of RBI. Even private Banks are not lagging behind in the process. There is a realization among all stakeholders that financial inclusion at this moment, may or may not be very profitable – but will not be loss making. In the future, this financial inclusion is the one which will prove to be a goldmine, as the country moves on its growth path.

Financial services must move to the villages and to the disadvantaged. And they are moving. Banks are on the move all over India. Small Banks are growing into mid-size and Mid-size Banks are growing into Big Banks – very, very fast now. What did not happen for several decades is happening in a span of 3-4 years now. Most Banks are in the Pink of health.


India provides huge advantages to its Banks in expanding their services.

The regulator in RBI is one of the most enlightened and efficient regulators in the world. When Banking Industry in USA and Europe were under severe stress, our Banking Industry was flourishing well.


There is usually an apprehension among all stakeholders about NPA Problem. It is true that even Big banks get into a loop with NPA Problem some times. Like Bank Of India did. Like IOB did. But, in most other cases, all such problems last either for just one quarter or for very few quarters. Thereafter it is Growth as usual. Even in case of BOI and IOB, the same will hold true after they come out of their NPA problem.

NPA problem usually arises in a Bank due to inadequate examination of the debtor’s capabilities and business prospects. Some times, a Bank depends heavily on a particular Business segment – which later takes a hit. These are inherent Business problems. A 1% Net NPA level does not hurt much in respect of profitability. Many Indian Banks are around this level. Some are less than one tenth of this level.

RBI prescription for provisioning for NPAs at 70% is very healthy and most Banks have already attained it. Many Banks are provisioning much beyond that now. Thus, NPA should not be that much of a worrying point for investors and other stakeholders now.


Capital adequacy norms at Basel I and II levels is now no more a problem in India. Most banks are achieving these norms easily. They are also prepared for Basel III. Banks in India are more conscious of these requirements than even the regulator.


Banks in India are concentrating more on CASA deposits – and some Banks are at around 52% level in CASA DEPOSITS. CASA DEPOSITS are purely short term deposits. Even the Fixed deposits in Banks are of 2-3 years duration. Banks are not encouraging long term deposits which involve slightly higher cost, in recent past.

But, most lending is for long term loans of 15-20 years duration like Housing and infrastructure sectors. A huge mismatch can develop if this trend continues, in the sources and uses of deposits.
Banks and RBI are realizing this mismatch and seem to be taking steps for encouraging long term deposits to an adequate level.


Net Interest Margins of Indian Banks have crossed the 3% level in many cases. This is quite healthy.

Other Banks are also striving hard to achieve these levels.

While the interest differential has been the mainstay of Bank profitability, Banks are now discovering many other new avenues to augment their revenues and profits.


Banks are developing many profitable products – like insurance, investment services, capital market services and so on. And, these are catching on in a Big way. Banks are looking at both organic and inorganic growth – but essentially organic growth. Small Banks are as successful and ambitious as Big Banks.

Some are more successful and consistent than others.
This Blog had examined quite a few of this SUCCESSFUL category :
(1)      Axis bank
(2)      HDFC Bank
(3)      Punjab national Bank
(4)      Bank of Baroda
(5)      Canara Bank
(6)      Andhra Bank
(7)      Indian Bank
(8)      Dena Bank
(9)      YES BANK
(11)  SOUTH INDIAN BANK…and so on (Many others)

All these are great Banks in their own category and are growing very profitably and very fast. They have good managements.

These are also finding place in many awards categories in recent Banking Industry surveys conducted by prestigious financial Magazines for the year 2010.

In the BW-PwC survey conduced for 2010,

In the LARGE BANK category : HDFC Bank is adjudged as the BEST BANK, while AXIS BANK is the Fastest growing bank. Axis Bank is of course ranked as No.2 Best Bank, with PNB and BOB ranked at No.3 and 4. Among Fastest growing large Banks, IDBI Bank, HDFC Bank, OBC, PNB figure at rank.2,3,4 and 5.

In the MID-SIZE category, Andhra Bank is the Best Mid-size Bank, while YES BANK is the Fastest growing Mid-size bank. Yes Bank is again the No.2 in Best Mid-size category, with SBH, Federal Bank and IndusInd at rank no.3,4 and 5 in this category. In the fastest growing Mid-size category, IndusInd is at rank.2, while SBH, UBI and KMB are at rank 3,4,5.

In the SMALL BANK Category, South Indian Bank and Karur Vysya Bank are both ranked as the No.1.Best Small Banks, while DBS Bank (a foreign Bank) is the fastest growing small Bank. Tamilnadu Mercantile Bank, Deautche Bank and DBS are ranked No.3,4,5 in the best Small Bank category. Among the Fastest growing small Banks, we find Lakshmi vilas Bank at No.2 and City Union Bank, Bank of Nova scotia, Tamilnadu Mercantile Bank at rank.,3,4,5.

Another Prestigious Magazine, Business Today has also conducted Banking Industry survey (with KPMG) with approximately the same results :

Axis Bank is the overall winner and also the most consistent performer in the Large Bank category. Yes Bank is adjudged as the overall winner in the Mid-size category.

Andhra Bank, has pole-vaulted 15 places to No. 6 in the list of best Banks. It has achieved growth without any compromise in asset quality.PNB has moved to No.2 while HDFC Bank has moved to No.3.

BOB, Allahabad bank and Indian Bank etc have also performed well in the survey.

This Blog is in total agreement with these conclusions of both the surveys and congratulates all the winners.

 *  *  *   E  N  D   *  *  *

No comments:

Post a Comment