The publication profiles 82 scheduled commercial banks, comprising of 28 Public Sector Banks, 25 Private Sector Banks and 29 Foreign Banks, as defined by the RBI. The group of Public Sector Banks (PSBs) includes nationalised banks, SBI & its Associates and IDBI Ltd .*
With the purpose of gaining a deeper understanding of the Indian banking industry, an overall profiling of the industry has been attempted in this section. This study considers only the 82 banks profiled in this publication. The data for the study was collated through responses received directly from banks, from sources in the public domain like annual reports, the RBI documents and the bank websites. Various parameters like efficiency, growth, productivity, etc., have been examined for gaining insights.
Total assets for the 82 scheduled commercial banks combined stood at Rs 27,785,739 mn in FY06, of which Public Sector Banks had the largest share of 72.5%, followed by Private Sector Banks of 20.2% and Foreign Banks at 7.3%.
The asset base of SBI & Associates in FY06 stood at 24.9% of the total assets for the 82 banks profiled. In other words, excluding SBI & Associates, the asset base of Public Sector Banks was 47.6% of total assets of scheduled commercial banks.
* During the year FY06, two domestic banks were amalgamated - Ganesh Bank of Kurundwad with Federal Bank Ltd and Bank of Punjab Ltd with Centurion Bank Ltd to become Centurion Bank of Punjab Ltd, while one foreign bank, UFJ Bank Ltd merged with Bank of Tokyo-Mitsubishi Ltd. ING Bank NV closed its business in India. In Sept, 06, The United Western Bank Ltd was placed under moratorium, leading to its amalgamation with Industrial Development Bank of India Ltd. in Oct, 2006, Sangli Bank, another Private Sector Bank was merged with ICICI Bank. Ganesh Bank of Kurundwad, Sangli Bank and The United Western Bank have therefore been excluded of the publication.
The assets for all the profiled banks have grown at a rate of 22.6% over the previous year. It was observed that the asset base of Private Sector Banks was growing more rapidly compared to the other bank groups. Total assets of private banks grew by 16% in FY05 and 33% in FY06, over the previous year. The asset base of Foreign Banks grew by 13% in FY05 and by 30% in FY06 mainly driven by the growth in advances of four banks in this group. The Public Sector Banks maintained a decent year-on-year growth of 15% and 19% in the respective years. However, it should be noted that the growth of Public Sector Banks is on a very high base.
The total income for the 82 banks stood at Rs 2,215,280 mn in FY06, of which the Public Sector Banks held the highest share of 72.7%, Private Sector Banks at 19.5% followed by 7.8% for the Foreign Banks. The SBI & Associates accounted for 36.6% of the total income for Public Sector Banks; having a combined income of Rs 589, 096.6 mn which is slightly higher than one fourth of the total income of the 82 banks profiled.
The top ten banks classified on the basis of their respective total income accounted for nearly 56% of the total income of the 82 banks. Of these top ten banks, 8 banks were Public Sector Banks while the remaining two were Private Sector Banks.
Non-Interest Income/Total Income
The non-interest income for all the 82 banks profiled in this publication on an average stood at 22.1% of the total income. Among the bank groups, non-interest income was the highest for Foreign Banks at 31%, followed by Private Sector Banks at 19.8%; indicative of the value-added services these banks offer. For Public Sector Banks, non-interest income was just 15.3% while interest income was a high 84.7%. Non-interest income includes fee income components such as commission, brokerage and exchange transactions, sale of investments, corporate finance transactions, M&A deals; and any other income other than the interest income generated by the bank.
The net profit for the profiled banks together stood at Rs 248,281.5 mn for FY06. The top ten banks, based on the net profit classification, accounted for nearly 58.5% of the total net profit of all the 82 banks. These top ten banks included 6 Public Sector Banks, two Private Sector Banks and two Foreign Banks. Interestingly, of these top 10 banks, four banks that managed to make it to the top ten on the basis of net profit do not feature among the top ten on the basis of total income.
Bank group-wise, Public Sector Banks continued to dominate with a 66.6% share in the net profit. The share of Private Sector Banks in the total net profit stood at 21%, followed by Foreign Banks having a 12.4% share in the total net profit. Within the Public Sector Banks, SBI & Associates accounted for 36% of the total Public Sector Banks’ net profit, or nearly one-fourth of the total net profit of the 82 banks profiled. There are 5 banks, 4 foreign and one private, out of the profiled 82 banks, which made losses in FY06.
Banks across all three groups have been rapidly increasing their infrastructure to tap the under served markets, though Public Sector Banks are dominant all across in all regions. As of Mar 06, the total number of branches of the profiled banks operating in the country was 54,346, of which 88% of the branches belonged to the Public Sector Banks (PSBs), indicative of the extent of penetration these banks have in the country. Another 11% of the branches belonged to Private Sector Banks and the rest were of Foreign Banks.
Region-wise, the concentration of branches was highest in the rural areas, accounting for almost 35% of the total. The rural segment is entirely dominated by Public Sector Banks with 95% of the total rural branches belonging to PSBs. 23% of the branches of PSBs are located in semi urban area, while 19% branches are in the metropolitan regions. The immense reach of PSBs can be seen by the fact that almost 62% of total PSB branches are in rural & semi-urban areas.
Group-wise, the presence of Private Sector Banks was largely in urban areas with almost 30% of their branches in this region.
As of Mar 06, the total numbers of ATMs installed by profiled banks were 21,047. Public sector banks once again accounted for the largest share of installed ATMs with 12,608 machines, followed by the Private Sector Banks with 7,584 ATM’s. Foreign Banks have installed 855 ATMs around the country.
Growth in Deposits, Advances & Retail Credit
The overall deposit growth for the profiled banks was at 18.2% for FY06. Group-wise, deposits of Private Sector Banks witnessed a robust growth of 39.2%, closely followed by Foreign Banks at 31.7%. For Public Sector Banks the deposits grew at about 13% for the same time period. The share of Private Sector Banks in total deposits has been rising gradually, while that of Public Sector Banks has been declining over the years.
Growth in Deposits, Advances & Retail Credit
* The above figures are represented as an average % growth over FY05
Advances for all the profiled banks have grown at about 32% YoY and that made by Private Sector Banks grew at the highest rate of 44% for FY06 followed by a growth of 30.7% for Public Sector Banks and 30% for Foreign Banks. Among the major components of total advances, there was no relative change in the percentage share of Bills Purchased and Discounted, over the last three years. Cash Credits, Overdrafts and Loans have shown a yearly decline of 4% in FY05 as a part of total advances. Correspondingly, Term Loans have been growing and constitute a large component of advances. In FY04, Term Loans constituted 49.4% of Total Advances, which increased to 54.2% in FY05, and further to 55.7% in FY06.
Group-wise Average Growth in Term Loans
*All figures in %age
In FY06, Term Loans across the profiled banks grew on an average of 35.9%. Term Loans provided by the public sector banks showed robust growth of 59.8% in FY05 which almost reduced to half and stood at 32.2% in FY06. The growth shown by Private Sector Banks has varied too, with 38.7% growth in FY05 and 48.9% in FY06. Foreign Banks, however, have shown a lower growth in term loans in FY06 as compared to FY05, which grew by 30.2% in FY06 as against a growth of 37.2% in FY05. This growth in all three bank-groups can largely be attributed to the growth in retail credit and the overall economy, among other factors.
Retail credit for the Public Sector scheduled commercial banks increased by 35%, which was significantly higher than the profiled banks’ overall credit growth of 32%. The retail advances by the Private Banks grew by 48.3%, which too was well above the overall growth.
Credit Deposit Ratio
The Credit-Deposit ratio (C-D ratio) is the proportion of loan-assets created by the bank from the deposits received. Among the 82 banks profiled, the aggregate C-D ratio stood at 70.1% in FY06 as compared to 62.7% in FY05. Among the profiled bank-groups, foreign banks had the highest C-D ratio of 85.8% in FY06, which was slightly lower than that of FY05. An opposite trend was seen with private banks, where in their C-D ratio stood at 73.4% in FY06, higher than 70.9% for FY05. Public sector banks too showed a growth in their C-D ratio at 68.2% as compared to 59.5% in FY05. As seen earlier, the high rate of bank credit growth during the last two years has resulted in this unique behaviour of credit-deposit (C-D) ratio.
Priority Sector Advances / Total Advances
As instructed by the RBI, a target of 40% of net bank credit was stipulated for priority sector lending by domestic scheduled commercial banks, both in the public and private sectors. Within this, sub-targets of 18% and 10% of net bank credit had been stipulated for lending to agriculture and weaker sections, respectively.
In FY06, the average credit to the priority sector by the profiled Public Sector Banks accounted for 41.6% of their total credit, a little above the stipulated target level of 40%. In FY05, the profiled private banks lending to the priority sector constituted 39.6% of their total advances. The Public Sector Banks contributed 15.6% of their total credit to the agriculture sector and private banks contributed 11.9% for the same, both falling short of the stipulated sub-targets of 18%.
Net NPAs to Net Advances (Net NPAs/Net Advances)
On an average, the net NPA/Net Advances ratio for the 82 banks was 1.4% in FY06. Of this, the net NPAs to net advances ratio for the Public Sector Banks was estimated to be 1.4%, closely followed by Private Sector Banks at 1.8%. For Foreign Banks, the ratio was much lower at 0.9%.
The graph below depicts that the asset quality of all the banks has been improving for the past couple of years. It is evident that there has been a sharp decline in non-performing loans of Public Sector Banks and Private Sector Banks.
The operating expenses are those expenses that cover the day-to-day functioning of the bank like employee costs and charges for normal running of business. Among the profiled 82 banks, the ratio of operating expense to total expense for the Public Sector Banks was 26.5%, Private Sector Banks was 28.4%, while for Foreign Banks the ratio was nearly one-third of their total expenses and stands a little higher compared to their peers.
Intermediation cost is the ratio of operating expense to total assets, and when seen in conjunction with non-interest income explains how much is the non-interest income able to cover up the operating expenses of the banks. This gap (the excess of operating expenditure over non-interest income as a percentage to total assets) has been narrowing considerably over the past few years. Among the profiled banks, for Public Sector Banks this gap was 0.9%, for private banks 0.4% and for Foreign Banks it stood at 0.2% for the year ending Mar 06.
Capital Adequacy Ratio
The Capital Adequacy Ratio is a measure of the amount of a bank’s capital expressed as a percentage of its risk weighted credit exposures. The RBI guidelines require a capital adequacy ratio of 9%. All the banks profiled in this publication have a capital adequacy ratio of above 9%; with most of the banks placed well above the 9% mark.
Return on Assets
In the list of 82 banks profiled, the return on assets for Foreign Banks was highest at 1.5%, followed by Private Sector Banks at 0.9%; and Public Sector Banks at 0.6%. The graph depicts that the return on assets bounced back smartly for Foreign Banks after the slight decline it witnessed in FY05. The return on assets for the Private Sector Banks has more or less remained the same with just a slight decline in it. While the return on assets for Public Sector Banks shows a very sharp decline.
Return on Equity
Of the 82 banks profiled in the publication, the Return on Equity for Public Sector Banks was estimated to be the highest amongst its peers at 16%, closely followed by Private Sector Banks at 11.1% and 9.2% for Foreign Banks.
As shown in the graph depicting the trend in Return on Equity over the last four years, it is observed that the Return on Equity for Private Sector Banks fell drastically from 21.1% in the year 2003 to 11.1% in the year 2006. The Return on Equity for Public Sector Banks too showed a sharp decline from 21.8% in 2003 to 16% in 2006. As for Foreign Banks, the return on equity showed a marginal decline from 11% in 2003 to 9.2% in 2006.
One of the reasons for the declining RoE could be the large amount of resources raised from primary capital market to strengthen the capital base. As per RBI data ,the equity capital for public sector banks jumped close to five times from Rs 11040 mn in 2003-04 to a whopping Rs. 54130 mn in the year 2005-06. The private sector banks which had a low capital base in 2003- 04, also witnessed a huge jump in equity capital and ended the year with an equity capital of Rs. 56540 mn in 2005-06.
Net Interest Margin
It is defined as the excess of interest income over interest expense, as an percentage to total bank assets. Broadly speaking, this ratio reflects the allocative efficiency of financial intermediation, a lower ratio being indicative of upper efficiency. The net interest margin in FY06 stood at 3.5% for Foreign Banks its due to the fact that tradionally, the Foreign Banks can mobilise low-cost deposits. ; followed by 3.4% for Private Sector Banks and 3.13% for Public Sector Banks.
Business per employee is the total revenue generated on a per employee basis where as Net Profit per employee gives an indication of the ability of labour to generate profit. However, both can be used as tools for measuring the efficiency of an organisation with respect to its human assets.
In FY06, the Foreign Banks on an average generated business worth Rs 101.27 mn per employee, which was the highest among the various bank groups. The business generated per employee by public sector and private banks stood at Rs 41.64 mn and Rs 49.54 mn respectively.
Correspondingly, the profitability per employee for Foreign Banks was highest at Rs 2.20 mn per employee, followed by private banks with Rs 1.87 mn per employee. Public sector banks showed an aggregate Rs 0.21 mn profitability on per employee basis. This indicates that profit generation with respect to its human resource is highest in Foreign Banks followed by private banks, and lowest in Public Sector Banks.