Banking Sector Review

7/30/2019 Banking Sector Review

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Banking SectorReview


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Introduction

The Banking Regulation Act, 1949 defines a banking company as a company which transactsthe business of banking in India. Banking is defined as accepting, for the purpose of lendingor investment, of deposits of money from the public, repayable on demand or otherwise andwithdraw-able by cheque, draft, and order or otherwise.

The banking sector is one of the important pillars of an economy. A strong banking sector is amust for any economy to flourish be it developing or developed. Indian banks adhere tointernational standards and are characterized by high prudential and regulatory norms. Due totheir strong fundamentals, Indian banks managed to weather the ill effects of the globaleconomic crisis.


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Structure of Banking in India

Pre-nationalisation regime-

The RBI, which commenced operations on April 1, 1935, is at the centre of Indias financialsystem. Hence it is called the Central Bank . It has a fundamental commitment to maintainingthe nations monetary and financial stability. It started as a private share -holders bank butwas nationalized in 1949, under the Reserve Bank (Transfer of Public Ownership) Act, 1948.RBI is banker to the Central Government, State Governments and Banks.

By the 1960s, the Indian banking industry had become an important tool to facilitate thedevelopment of the Indian economy. In the year 1969, the Government of India nationalised14 scheduled commercial banks and repeated the exercise again in 1980 to nationalise 6 moreschedule commercial banks.

Post nationalisation regime-

Currently the structure of banking in our country is as such:

RBI is the apex regulator for banks.

Banks can be broadly categorized as Commercial Banks or Co-operative Banks.

Commercial Banks include:

Public Sector Banks (SBI, SBI Associates and Nationalised Banks)

Private Sector Banks (Old, New and Foreign)

Regional Rural Banks

Co-operative Banks include:

Urban co -operative banks

Rural / Agricultural co -operative banks.

Banks which meet specific criteria are included in the second schedule of the RBI Act, 1934.

These are called scheduled banks. They may be commercial banks or co-operative banks.

Scheduled banks are considered to be safer, and are entitled to special facilities like re-finance from RBI. Inclusion in the schedule also comes with its responsibilities of reportingto RBI and maintaining a percentage of its demand and time liabilities as Cash Reserve Ratio(CRR) with RBI.


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In 1990s, as liberalization took off, a small number of private banks got licenses from thegovernment. These banks came to be known as New Generation tech-savvy banks, andincluded Axis Bank (earlier known as UTI Bank), ICICI Bank and HDFC Bank.

The private sector banks contribution to total business which was close to 16% inimmediately post nationalisation period got drastically reduced to 4% at the end of 1990thanks to the growth path adopted by the Public sector banks. However, during the period of economic reforms and financial sector deregulation after the 1990, the private sector banksthrough their market oriented and market friendly approach not only re-gained their lost sharebut also improved upon it to achieve a higher share of 19% in total business.


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Recent issues in banking sector

The Indian banking sector demonstrated continued revival from the peripheral spillovereffects of the recent global financial turmoil. However, persistent high interest rate sloweddown the credit demand and deteriorated the asset quality of the banks, especially in the

public sector. Banksnet margin profit has also gone down. The banking sector public andprivate showed impressive increase in priority sector lending during 2010-11. The FDI limitin banking sector is 74percent through automatic route. The Government recently deregulatedsaving accounts rates. The RBI has introduced tax incentive for foreign banks to establishthemselves in India via wholly owned subsidiaries (WOS), as WOS model will protect banksfrom external economic shocks.

Further, Global banking is shifting from Basel II to Basel III (The Basel III implementationwill start from April, 2013). Indian banks will need to raise capital to meet the requirements.Financial inclusion and achieving enhanced reach will be one of the important agendas for

banks in the coming years. During FY11, the number of branches added in the rural andsemi-urban region constituted almost 64percent of the total branches added during the year.According to a report by Boston Consulting Group, Indian banking industry would be theworld's third largest in asset size by 2025 and mobile banking would become the secondlargest banking mode after ATMs. Furthermore, owing to the positive eco-system of theindustry as well as regulatory and Government initiatives, mobile banking is anticipated toincrease from 0.1 per cent of transactions in a 45 per cent financial inclusion base in 2010 to34 per cent of the transactions with 80 per cent rural inclusion base by 2020.

Fortifying against Risk: shift to Basel III

The Basel III norms are aimed at strengthening the banking system to withstand differentkinds of risks and financial shocks.

The explainer: Basel Norms

What are Basel Norms?

Basel is a city in Switzerland. It is the headquarters of Bureau of International Settlement(BIS), which fosters co-operation among central banks with a common goal of financialstability and common standards of banking regulations. Every two months BIS hosts ameeting of the governor and senior officials of central banks of member countries. Currentlythere are 27 member nations in the committee. Basel guidelines refer to broad supervisorystandards formulated by this group of central banks - called the Basel Committee on BankingSupervision (BCBS). The set of agreement by the BCBS, which mainly focuses on risks tobanks and the financial system are called Basel accord. The purpose of the accord is to ensurethat financial institutions have enough capital on account to meet obligations and absorbunexpected losses. India has accepted Basel accords for the banking system. In fact, on a fewparameters the RBI has prescribed stringent norms as compared to the norms prescribed byBCBS.

Basel I

In 1988, BCBS introduced capital measurement system called Basel capital accord, alsocalled as Basel 1. It focused almost entirely on credit risk. It defined capital and structure of


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risk weights for banks. The minimum capital requirement was fixed at 8% of risk weightedassets (RWA). RWA means assets with different risk profiles. For example, an asset backedby collateral would carry lesser risks as compared to personal loans, which have no collateral.India adopted Basel I guidelines in 1999.

Basel II

In June 04, Basel II guidelines were published by BCBS, which were considered to be therefined and reformed versions of Basel I accord. The guidelines were based on threeparameters, which the committee calls it as pillars. Capital Adequacy Requirements: Banksshould maintain a minimum capital adequacy requirement of 8% of risk assets - SupervisoryReview: According to this, banks were needed to develop and use better risk managementtechniques in monitoring and managing all the three types of risks that a bank faces, viz.credit, market and operational risks - Market Discipline: This need increased disclosurerequirements. Banks need to mandatorily disclose their CAR, risk exposure, etc to the centralbank.

Basel II norms in India and overseas are yet to be fully implemented.

Basel III

In 2010, Basel III guidelines were released. These guidelines were introduced in response tothe financial crisis of 2008.

A need was felt to further strengthen the system as banks in the developed economies wereunder-capitalized, over-leveraged and had a greater reliance on short-term funding. Also thequantity and quality of capital under Basel II were deemed insufficient to contain any furtherrisk. Basel III norms aim at making most banking activities such as their trading book activities more capital-intensive. The guidelines aim to promote a more resilient bankingsystem by focusing on four vital banking parameters viz. capital, leverage, funding andliquidity.

Are Indian banks adequately prepared for migration to Basel III regime?

Commercial banks in India have already adopted standardised approaches under Basel II. It istime for larger banks to seriously consider upgrading their systems and migrating to advancedapproaches. Adoption of advanced approaches requires simultaneous use of the underlying

processes in the day-to-day risk management of banks. In the background of the recent globalregulatory developments, a question often discussed is whether the Indian banks are preparedfor Basel III. The building blocks of Basel III are by now quite well known: higher and betterquality capital; an internationally harmonised leverage ratio to constrain excessive risk taking; capital buffers which would be built up in good times so that they can be drawn downin times of stress; minimum global liquidity standards; and stronger standards forsupervision, public disclosure and risk management. Quick assessments show that at theaggregate level Indian banks will not have any problem in adjusting to the new capital rulesboth in terms of quantum and quality. Indian banks are comfortably placed in terms of compliance with the new capital rules.

One point to note though is that the comparative position is at the aggregate level; a fewindividual banks may fall short of the Basel III norms and will have to augment their capital.


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There will be challenges of upgrading risk management systems and meeting the credit needsof a rapidly growing economy even while adjusting to a more demanding regulatory regime.In addition to countercyclical capital buffers, Basel III also envisages countercyclicalprovisions. Migration to Basel III requires a high level of liquidity to be maintained through apool of liquid assets. The definition of liquid assets is very stringent including the

requirement that they should be freely available

BASEL III GUIDELINES FOR INDIA

Basel III guidelines as put out by the RBI on 2nd May focus on four key parameters onbanking, namely capital, leverage, funding and liquidity.

CAPITAL

The Reserve Bank of India has prescribed higher capital for banks under the Basel III normsand the banks have to abide by it in a phased-wise manner. Banks need to maintain aminimum total capital (MTC) of 9% of total risk weighted assets (RWAs). This will befurther divided as 7% for Tier 1 and 2% for Tier 2. The MTC stood at the same levels asprescribed by Basel II norms and as practiced in India. (Globally it is 8%). The Tier 1 capitalis further divided into the following components:

Common equity Tier 1 (CET1) at 5.5% of RWA (common equity is a measure of equity which only takes into account the common stockholders, and disregards thepreferred stockholders).

Additional Tier 1 at 1.5 of RWA: In addition to Common Equity Tier 1 capital of 5.5% of RWAs, the banks are also required to maintain a Capital Conservation Buffer

(CCB) of 2.5% of RWAs in the form of Common Equity Tier 1 capital. The main purpose of the proposed capital buffer is that it can be dipped into in times of stressto meet the minimum regulatory requirement regarding core capital and once accessed;certain triggers would get activated conserving the internally generated capital. Hence, thefocus clearly has been more on the common equity tier 1 capital, which has loss-absorbingcapacities. And with a capital conservation buffer, the minimum tier 1 capital goes to 8% (5.5+ 2.5) of the RWA and the total capital goes to 11.5% (9 + 2.5) of the RWA. Further, the RBIhas introduced a concept of countercyclical buffer. The RBI is currently working onoperational aspects of implementation of the Countercyclical Capital Buffer and the guidanceto banks on this will be issued in due course. A countercyclical capital buffer within a range

of 0 2.5% of RWAs in the form of common equity or other fully loss absorbing capital willbe applicable. According to the RBI, the primary objective of having a countercyclical bufferis to protect the banking sector from system-risks arising out of excessive credit growth. Thiscould be achieved by building a buffer in good times. Typically, excessive credit growthwould lead to the requirement for building up higher countercyclical buffer. However, therequirement could be reduced during periods of stress, thereby releasing capital for theabsorption of losses or for protection of banks against the impact of potential problems.Hence, the overall capital for the bank will vary from 11.5% to 13% considering both thebuffer ratios that is the capital conservation and counter cyclical capital buffer.

LEVERAGE RATIO


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The RBI under Basel III has introduced a regulatory leverage ratio. It can be calculated asTier 1 capital divided by banks on and off balance sheet exposures. Off-balance sheet itemsare obligations, liabilities or financing activity which companies tend to keep off their booksin order to make their balance sheets look better. Loan commitments, letters of credit andderivatives are few of the off-balance sheet exposures that a bank has. A leverage ratio has

been aimed to contain a build-up of excessive leverage in the system. The RBI has mandateda figure of 4.5%. According to the RBI, the leverage ratios are not binding until 2018 asbanks whose leverage ratio is below 4.5% may try to bring it above 4.5% as early as possible.Experts are of the opinion that since the off-balance sheet exposure of Indian banks isanyways very small; the impact of these changes in capital regulation on the balance sheets isgoing to be rather insignificant.

LIQUIDITY COVERAGE RATIO (LCR)

Banks need to maintain a liquidity coverage ratio to ensure that banks have adequate highquality liquid resources to survive a stress-like situation. For the LCR, the stock of high-quality liquid assets is compared with expected cash outflows over a 30-day stress scenario.The ratio will be introduced from 1 st Jan 15. The liquid assets include ca sh, reserve withcentral banks that can be withdrawn in case of stress and corporate bonds with some haircut.

FUNDING RATIO

This measure complements LCR. A net stable funding ratio (NSFR) is prescribed by theReserve Bank of India and calculated as available amount of stable funding against requiredamount of stable funding over a one-year horizon. The available amount of stable fundingincludes capital, liability with effective maturity of more than one year. The required amountof stable funding includes assets and off-balance sheet items that are less liquid over a one-year time horizon. Basically, the ratio ensures that the banks are highly liquid over a timeframe of one year.

The CRR debate

For every Rs.100 of fresh deposits raised, banks have to keep aside Rs.4.75 as Cash ReserveRatio (CRR) with RBI, on which they earn no interest income. The balance sheet of bank ishit straight away- a bank has to now deploy Rs. 95.25 at commercial rates in such a way as to

ensure the depositor earns interest on his Rs. 100. But, before they can do that, banks have toinvest another Rs. 23 in government securities under the Statutory Liquidity Ratio (SLR)which offer the lowest interest rate among all interest bearing asset categories. So, now bankshave to earn enough interest income from the remaining Rs. 72.25 to ensure that not only thedepositor earns his interest income, but the bank earns a healthy profit. But this is not the endof anomalies. From the remaining, 72.25, a good 40% has to be allocated to priority sector.Also, the interest rate for priority sector loans does not exceed the base rate of the bank pluseight per cent annually. This model is antithetical to not only funding the future course of growth, expansion planning, and improving the banks competitive edge, but also pursuingfinancial inclusion. As a consequence, there is rising debate over scrapping CRR or providinginterest on CRR. The supporters claim that CRR hugely affects a banks profitability;

however, the other side argues that paying interest on CRR defeats the very purpose of the CRR that is to impound bank deposits (to reduce liquidity). If the RBI is going to
http://economictimes.indiatimes.com/topic/CRRhttp://economictimes.indiatimes.com/topic/CRR


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withdraw liquidity through the CRR on the one hand and then pump in liquidity by payinginterest on these impounded balances on the other, the CRR, as a tool of monetary policy,loses all meaning.

The explainer: Cash Reserve Ratio

What is Cash Reserve Ratio?

In terms of Section 42(1) of the RBI Act 1934, Scheduled Commercial Banks are requiredto maintain with RBI an average cash balance, the amount of which shall not be less thanthree per cent of the total of the Net Demand and Time Liabilities (NDTL) in India, on afortnightly basis and RBI is empowered to increase the said rate of CRR to such higher ratenot exceeding 20% of the Net Demand and Time Liabilities (NDTL) under the RBI Act,1934.

In simple terms, all scheduled commercial banks must keep a 'certain percentage of their totaltime and demand liabilities with the RBI'.

A liability is also called a loan. Here, a liability is simply a deposit account with a bank,i.e. what we call a deposit is called a liability by the bank as it would have to repay us (themoney in that account). In other words, a deposit is our LOAN to the bank (and hence theinterest paid by the bank).

There are two kinds of liabilities (1) time deposit, and (2) demand deposit.

Time and Demand Deposits

A Time Deposit is a type of account from which you can withdraw your money ONLY after aspecified period of time . An example is a fixed deposit account. Hence, it is also called TermDeposit.

A Demand Deposit is one from which you can withdraw your money on demand . Forexample, from your Savings or Current account, you can withdraw money at anytime. (Also,you must have observed that an ATM is card is typically issued on these kinds of accounts,though they are also issued on some special types of fixed deposits).

CRR

Under the CRR, every scheduled commercial bank has to keep a certain percentage of suchdeposits with the RBI. The percentage lower limit is 3% while the upper limit is 20%. Thecurrent CRR is 4.75%.

The CRR is used by the RBI to control the supply of money in the market. The amount of money determines the rate of interest and the prices of different commodities.

How does this work?

0.25% roughly equals about Rs16000 crore.
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Let us say the RBI increases the CRR by 0.25%. This would mean that banks would have tokeep more money with the RBI (Rs16000 crore will go into the RBI). This would reduce themoney available with them. So this brings down the overall money supply in the market. Alower money supply would raise the interest rates (as demand for money is always high).

Now look at the reverse scenario. A reduction in CRR by 0.25% would release Rs 16000crore into the market. As the money supply rises, the interest rates decrease.

The impact of Budget 2012-13 on banking sector

In 2012-13, Public sector banks (PSBs) are likely to receive a major portion of the Rs. 159billion allocated for recapitalisation of government financial institutions. Additionally afinancial holding company is proposed to be set up to raise funds for PSBs, which is apositive given the significant amount of capital required under Basel III norms.

Additionally, Rs.100 billion will be allotted to NABARD for refinancing of regional ruralbanks (RRBs). This is a positive step taken towards the goal of financial inclusion. Also,interest rate subvention of 1% on home loans up to Rs. 1.5 million has been extended foranother year.

The LIBOR Scandal

For more than two decades it was the object of veneration. Indeed, the London Interbank Offered Rate was the axis around which western financial universe revolved. It was thebenchmark for all financial deals: loans, bonds, mortgages, credit cards, derivatives, swapsetc. These transactions are currently estimated to exceed $700 trillion.

What is LIBOR?

The LIBOR is calculated and published by Thomson Reuters on behalf of the BritishBankers Association (BBA). Each day on an average 18 of worlds largest international

banks send in responses to the level of interest rates they can borrow from other largeinternational banks, or that they are prepared to lend them at, across 10 different currenciesand 15 different maturities. The reported rate is a trimmed average of these submissions: thehighest 25% and the lowest 25% of the rates submitted are removed and the arithematic meanof the remaining submissions is calculated.

LIBOR and financial crisis

At the height of the financial crisis in late 2007, many banks stopped lending to each otherover concerns about their financial health with some banks submitting much higher rates thanothers. Barclays was one of those submitting much higher rates than others, attracting somemedia attention.


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Barclays' Libor 3-month sterling submissions vs daily Libor fix

Consequences

The LIBOR scandal has further undermined the trust in banks. The deputy governer of theBank of England called the LIBOR market a cesspit.

While those paying interest on loans would have benefited from lower LIBOR rates, saversand investors would have lost out. Lawsuits have been launched by US municipalities,pensions funds and hedge funds.


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Trends

Ten Major Trends that will Shape the Indian Banking Industry-

1. Mortgages to cross Rs 40 trillion by 2020:

Mortgages typify the retail banking opportunity in an economy. The total mortgages in thebooks of the banks have grown from 1.5 percent to 10 percent of the total bank advances, in aperiod of ten years. The ratio of total outstanding mortgages, including the Housing FinanceCompanies (HFCs) to the GDP is currently 7.7 percent. If by 2020, this ratio were to reach 20percent, a number similar to that of China, we could expect the mortgage industry growing atan average rate of over 20 percent during the next decade. The outstanding mortgages areexpected to cross Rs 40 trillion which is higher than the entire loan book of the bankingindustry pegged at Rs 30 trillion.

2. Wealth management will be big business with 10X growth: Going forward, wealth is expected to get further concentrated in the hands of a few. The topband of income distribution is expected to grow most rapidly over the next decade. By 2020,the top 5 percent house holds, predominantly residing in the metros and Tier I cities, willaccount for 30 percent of the total disposable income. Wealth management services will bedemanded by the nouveau rich and will be an integral part of the product portfolio for both,private as well as public sector banks.

3. The Next Billion wil l be the largest segment:

The income group right below the middle class in the annual house hold income range of Rs90,000 to Rs 200,000 per annum will be the largest group of customers. These customers willbe profitably served only with low cost business models having low break even ticket size of business. The next decade would witness banks experimenting with different low costbusiness models, smaller cost effective branches and new use of technology to serve thissegment profitably.

4. The number of branches to grow 2X; ATMs to grow 5X:

India has a very low penetration of branches and ATMs as compared to some of the otherdeveloped and developing nations. It is evident that the bank branches and ATMs are by farthe most popular channels, despite a decade of promotion of alternate channels. Theexperience in developed economies also corroborates that branches and ATMs continue to bethe critical channels, although certain transactions have shifted to alternate channels. As such,there is a requirement of at least 40,000 50,000 additional branches and 160,000 190,000additional ATMs in the coming decade. This will be 3 times more than the branches andATMs launched in the last decade.

5. Mobile banking to see huge growth and will redefine transaction banking paradigm:

The uptake of internet and call centers is low in all segments other than foreign banks.Comparing with usage pattern in US, the significant potential in online and phone channels isapparent. However, India may evolve differently. The penetration of internet and broad bandaccess in India has been low so far. However, with the advent of mobile banking, the access


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to banking facilities could completely get revolutionized over the next decade. As per BCGsfindings, even if 25 30 percent of mobile users have GPRS / 3G activated, there would be250 million to 300 million customers who would access banking services over the mobile. Onthe other hand, customer survey of over 3000 customers in urban areas has indicated that callcenters and internet are the most dissatisfying channels. They expect the Indian banking

industry to invest significant attention in technology innovation to drive next generationframework for transaction banking. Indian banks could set an example for the rest of theworld.

6. Customer Relationship Management (CRM) and data warehousing will drive thenext wave of technology in banks:

The average number of banking products per customer in India is significantly lesser than theglobal benchmarks. There is a significant potential for cross selling amongst all categories of banks in India. Given that cross selling is highly cost effective as compared to all othermeans of customer acquisition, banks will adopt CRM strategies aggressively in pursuit of cost effective business models described in point 3 above.

7. Banking margins will come under pressure:

The next decade will see a dramatic change in margins as the wholesale debt markets deepenand corporate customers access the whole sale markets directly. Further, should the savingsbank rate be liberalized, banks will move to a regime of low margins. The public sector banksexpect to see their margins squeeze with a much higher likelihood as compared to the privatesector / foreign banks. The NIM of the public sector banks has consistently declined and thisperhaps reflects in the pessimistic view on future margins adopted by the public sector.

8. New models to serve the Small and Medium Enterprises (SME):

As per the results of a survey conducted by FICCI to gauge the level of satisfaction amonglarge, medium and small business customers with regard to banking services; the largecustomers are more satisfied across all dimensions as compared to the medium and smallsized ones. The smallest businesses are most dissatisfied. Due to higher risk and lower ticketsize, the SME typically get less attention. Banks are yet to create innovative models to serveSMEs with sufficient and timely credit at the right price. In general, the level of dissatisfaction is higher on pricing and product range. A further analysis highlights that thedissatisfaction on pricing is higher for the private sector banks while dissatisfaction on

product range is higher for the public sector ones. As the yields in large corporate bankingfalls with further deepening of wholesale debt markets, the banking industry in India will findcost effective ways to serve the SME customers where yields are quite high.

9. Investment banking will grow over ten fold:

Investment banking will be among the fastest growing segments in the banking industryrising from 4 percent to 7 percent of the entire corporate banking revenue pool. The largercorporate customers expect to demand higher support for international expansion andmergers and acquisitions over next decade. Further, as the wholesale debt markets deepen,the larger corporates would avail of advisory and capital market services from banks to

access capital markets. The revenue pool will shift from traditional corporate banking toinvestment banking and advisory. Banks with international presence stand to benefit.


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10. Infrastructure financing to hit over Rs 20 trillion on commercial banks books:

As India continues to rely on private funding for infrastructure development, infrastructurewill occupy a larger share of the balance sheets. Half of the debt finance for infrastructuretoday comes from banks. By 2020 banks would have accumulated infrastructure assets worth

Rs 20 25 trillion on their books. This would touch 12 15 percent of the total advances.Infrastructure loans coupled with home loans would together account for about 25 30 percentof the total advances of the banking industry. This would be the limit to which banks will becomfortable taking long term assets on their books. Even as the asset liability mismatchissues are resolved by IIFCL and the government, the real challenge for banks would be todevelop skills to undertake the risks of long gestation infrastructure projects and manageconcentration risk in infrastructure.


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Key Players

Amidst a slowdown in credit off take and an increasing interest rate scenario that prevailedduring the review period, Indian Banks have reported largely stable interest margins. Lendingyields, which increased by 110 bps for the banks reviewed by ICRA in H1, FY2012, showedsigns of stabilizing in Q3, FY2012 as there was no further increase in banks base lendingrates in that quarter; lending yields increased by just 10 bps in Q3, FY2012, taking the overallincrease to 120 bps in the period under review. Aggregate cost of funds for banks increasedby around 90 basis points in the same period. Even as interest rates are expected to turnbenign over the next few quarters, cost of funds for the banking system may not reducesharply over next two quarters given the significant share of fixed-rate, medium-termresources mobilized. Further, elevated level of loan loss provisions would also constrainbanks from reducing the lending yields without unduly impacting their profitability; althoughdeclining interest rates may give some leeway to the banks as provisioning requirement onthe investment book could reduce.

Gross NPAs of Nationalized Banks increased by 50 bps as on March 31, 2011 to 2.4% as onDecember 31, 2011, while those of SBI Group increased sharply by 130 basis points to 4.3%from 3.0% during this period; Gross NPAs of private banks moderated to 2.1% from 2.3%during the same period. Although the stress level in the operating environment could easeout, ICRA anticipates a further deterioration in the quality of banks credit portfolio due tostructural weaknesses in certain sectors and an increasing proportion of restructured loans.Government of Indi as commitment to infuse capital in certain PSU banks is likely to providecushion to absorb shocks and support growth, over the medium term.

State Bank of India

The State Bank of India is the countrys oldest bank and a premier in terms of balance sheetsize, number of branches, market capitalization and profits. Earlier known as the ImperialBank of India, it got its current name in 1955 after its nationalization by the government of India.

The Company has a number of subsidiaries and has been a market outperformer in recenttimes. It achieved revenues of $22 Billion. The SBI has 7 subsidiaries of which 2 have beenmerged and 5 remain:

State Bank of Bikaner Jaipur State Bank of Hyderabad State Bank of Mysore State Bank of Patiala State Bank of Travancore

It has a market share among Indian commercial banks of about 20 per cent in deposits andloans. It has been rated as the 29th most reputed company by Forbes . State bank is one of theBig four banks of India with ICICI, PNB and HDFC.

Key indicators 2011-12 (amount in rupee 2010-11 (amount in rupee


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Crore) crore)

Deposits 933,933Net NPA ratio 1.82 1.63Advances/ loan funds 756719

Capital adequacy ratio 13.86%

Tier-1 capital: 9.79%


11.98%



ICICI bank

It is the largest Indian Private Bank with operations in all Financial Services Sectors. It is thesecond largest bank in India by assets and third largest by market capitalization. It offers awide range of banking products and financial services to corporate and retail customersthrough a variety of delivery channels and through its specialized subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. LikeHDFC Bank majority of the shareholding for ICICI bank is with foreign investors.

Key indicators 2011-12 (amount in rupeebillion)

2010-11 (amount in rupeebillion)

Deposits 2555 2256Net NPA ratio 0.73% 1.11%Advances/ loan funds 2537 2163

Capital adequacy ratio 19.5% 18.5%

HDFC

HDFC Bank like Axis Bank has shown remarkable growth in the last few years. It wasfounded by Indias largest housing finance company HDFC. It is one of the best rated banksin terms of service quality and growth.

As of June 30, 2012, the Bank s distribut ion network was at 2,564 branches and 9,709 ATMsin 1,416 cities as against 2,111 branches and 5,998 ATMs in 1,111 cities as of June 30, 2011.The banks expansion plans take into account the need to have a presence in all majorindustrial and commercial centres where its corporate customers are located as well as theneed to build a strong retail customer base for both deposits and loans products. Being aclearing settlement bank to various leading stock exchanges, the bank has branches in centreswhere the NSE/BSE have a strong and active member base.

Key indicators 2011-12 (amount in rupee crore)
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Deposits 257, 531Net NPA ratio 0.2%Net advances 213,338Capital adequacy ratio 15.5%

Tier 1 CAR- 10.9%

Axis Bank

Axis Bank has been the best performing private bank along with HDFC Bank showing excellentgrowth in top-line and bottom-line. The Bank has been expanding into insurance and investmentbanking. It recently acquired Enam to this end. Axis Bank was formerly UTI Bank that began itsoperations in 1994. The Bank was promoted jointly by UTI, LIC and other state owned generalinsurers.Axis Bank has operations in 29 States and 3 Union Territories in India. The bank has a network of

3595 ATM machines and is the third largest ATM network provider in India.

Key indicators 2011-12 (amount in rupeecrore)

2010-11 (amount in rupeecrore)

Deposits 220,104 189,238Net NPA ratio 0.25% 0.26%Demand deposits as a %of total deposits

38% 37%

Capital adequacy ratio 13.66% 12.65%


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Recommended reading

Indian Banking 2020 report- BCGAnnual reports of SBI, AXIS, HDFC and ICICI bank Report on trend and progress of Banking in India- RBI

Documents

Banking Sector Review