The Indian Banking Industry[1]

8/2/2019 The Indian Banking Industry[1]

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ANALYSIS OF BANKING INDUSTRY IN INDIA:

A GLIMPSE OF NPA IN PUBLIC SECTOR BANKS

Presented by Jacqueline Lobo (PGP-EX)Under the guidance of Dr. Deepak Tandon, Professor, LBSIM-

New Delhi


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INDEX

SECTION I- Introduction to Banking Industry in India

Review of literature

Objective and methodology of the

Introduction to the public and private sector

Non performing assets and its classification

Reason for NPAs in Banks

NPA- Cause of concern in Indian Banking Industry

What are banks doing wrong?

SWOT analysis of Banking Sector

SECTION II- Introduction to Indian bank

Success story of Indian Bank

Recommendations


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GENERAL BANKING SCENARIO


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Glimpse of NPA in publicsector banks in India


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OBJECTIVES OF THE STUDY

This study focuses on the following major objectives:

To analyze relationship between Net N.P.A. as % of Net

Advances priority sector and non-priority sector lending bypublic sector banks in India.

To conceptualize NPAs and their impact on the liquidity ofbanks.

To analyze the factors attributable to NPAs in public sectorbanks.


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INTRODUCTION TO THE PUBLIC ANDPRIVATE SECTOR


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ON ASSET QUALITY, PSBS REPORT SOME

DETERIORATION WHILE PRIVATE BANKS SHOW

IMPROVEMENT:

SCBs FY06 FY07 FY08 FY09 FY10 FY11

Gross NPAs (%) 3.3 2.5 2.3 2.3 2.4 2.3

Net NPAs (%) 1.2 1 1 1.1 1.1 0.9

Fresh NPA Generation Rate (%) 2 1.7 1.8 2.1 2.2 2

Net NPAs/Net Worth (%) 10.1 9.2 7.8 8.6 9.1 10

PSBs FY06 FY07 FY08 FY09 FY10 FY11

Gross NPA (%) 3.6 2.7 2.2 2 2.2 2.3

Net NPA (%) 1.3 1.1 1 0.9 1.1 1.1

Net NPAs/Net Worth (%) 13.1 12.1 11.2 11.4 13.5 13.4

Private Banks FY06 FY07 FY08 FY09 FY10 FY11

Gross NPA (%) 2.1 2.1 2.4 2.9 2.7 2.3

Net NPA (%) 0.9 0.9 1.1 1.3 1 0.6

Net NPAs/Net Worth (%) 6.3 7.8 6.1 7.5 5.3 3.2


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ASSET QUALITY RELATED

CHALLENGES AHEAD

1. Spill-over from restructuring window not over yet

2. Exposure to State utilities remains an area of concern

3. Credit loss from exposure to micro lending institutions in APlikely


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NON-PERFORMING ASSETS

Non Performing Asset means a loan or an account of borrower,which has been classified by a bank or financial institution assub-standard, doubtful or loss asset, in accordance with thedirections or guidelines relating to asset classification issued byRBI.

Earlier assets were declared as NPA after completion of theperiod for the payment of total amount of loan and 30 daysgrace.

In present scenario assets are declared as NPA if none of theinstallment is paid till 180 days i.e. six months in respect of aterm loan.


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CLASSIFICATION OF NPA

Banks classify their assets into the following broad groups, viz.

1. Standard Assets

2. Sub-standard Assets

3. Doubtful Assets

4. Loss Assets


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NPA - CAUSE OF CONCERN FOR INDIAN ECONOMY!


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WHAT ARE THE BANKS DOING WRONG?


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SWOT ANALYSIS OF BANKING SECTOR

Strenths


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Section IIA CASE ANALYSIS OF INDIAN BANK


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0.000 2.000 4.000 6.000 8.000 10.000 12.000 14.000

Allahabad Bank

Andhra Bank

Bank of Baroda

Bank of India

Bank of Maharashtra

Canara Bank

Central Bank of India

Corporation Bank

Dena Bank

Indian Bank

Indian Overseas Bank

Oriental Bank of Commerce

Punjab and Sind Bank

Punjab National Bank

Syndicate Bank

UCO Bank

Union Bank of India

United Bank of India

Vijaya Bank

IDBI Bank Ltd.

State Bank Group

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

Percentage of NPA to advances

Percentage of NPA to advances


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0

10

20

30

40

50

60

70

80

90

Priority Sector NPAs

Non-Priority Sector NPAs


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COMPARING AN APPLE TO AN APPLE:

The Public sector banks in India of are different sizes and have been in existence for

different number of years. Since Indian bank has total advances of only $75,249.91

compared to an average of $113,404.25 of other public banks a comparison has been

made to compare it to a similar bank. In this case Indian Bank has been compared to

State Bank of Travancore.

State Bank of Travancore (SBT) was originally established as Travancore Bank Ltd. in1945 sponsored by the erstwhile princely state of Travancore. Under a special statute of

the Indian Parliament (SBI subsidiary Banks Act 1959) it was made an Associate of the

State Bank of India and a member of the State Bank Group, the largest banking group in

India.

The total advances of State Bank of Travancore (SBT) for FY 2010-2011 was Rs. 46,044 asopposed to Indian bank, which had total advances of Rs. 75,249.91 in the same year. The

Net N.P.A. as % of Net Advances State Bank of Travancore is 1.814% and that of Indian

Bank 0.957%.


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THE SUCCESS STORY OF INDIAN BANK

Operating profit increased to Rs.3291.7 crore as against Rs.2747.4 crore for 2009-10 registeringa growth of 19.8 per cent.

Net profit for 2010-11 crossed the Rs.1700 crore mark and was at Rs.1714.1 crore as comparedto Rs.1555 crore for 2009-10, showing a growth of 10.2 per cent.

Net Interest Margin improved to 3.75 per cent from 3.55 per cent.

Return on average assets was at 1.53 per cent.

Capital Adequacy Ratio was at 13.56 per cent as compared to 12.71 per cent as of March 2010.

Return on Net worth for 2010-11 was at 21.50 per cent.

Earnings per share was at Rs.38.79 and Book value per share was Rs.184.44.


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THE SUCCESS STORY OF INDIAN BANK

Global Business of the Bank crossed Rs.180,000 crore during the year and was at Rs.181,530crore, registering a growth of 20.3 per cent.

Total Deposits grew by Rs.17,576 crore to Rs.105,804 crore, a growth of 19.9 per cent for theyear 2010-11.

Gross Advances were at Rs.75,726 crore, registering an increase of Rs.13,068 crore (20.9 percent) as on 31.3.2011. Overall Credit Deposit ratio was at 71.6 per cent.

Priority Sector Advances at Rs.25,969 crore, grew by Rs.4304 crore (19.9 per cent).

Agriculture Credit grew by Rs.1904 crore (20.8 per cent) to Rs.11,048 crore and accounted for

18.57 per cent of Adjusted Net Bank Credit.

Under Financial Inclusion project, a total of 1.53 lakh No-Frill accounts have been opened.


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Prime Financial Indicators of Indian Bank as onMarch2011

Interest

Income /

WorkingFunds

Non-

Interest

Income /

WorkingFunds

Operating

Profit /

WorkingFunds

Return on

AssetsBusiness

per

Employee

Profit per

Employee

12.39 1.56 4.35 1.53% 929.76% 8.88%


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The Indian Banking Industry[1]