• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

BANKS ARE IN fine fettle, with their net profits to total assets for the quarter ended June 2003 at 0.32 per cent against 0.24 per cent for the corresponding previous period. Spreads have gone up by 19.5 per cent in 2002-03, as an easy interest regime has trimmed deposit rates. Perhaps for the first time after 1992, when provisioning norms were put in place, incremental Non-Performing Assets (gross and net) turned negative in 2002-03; in absolute terms, gross NPAs dropped by Rs 2,147 crore and net NPAs by over Rs 1,800 crore, going by the Reserve Bank of India's Report on Trend and Progress of Banking in India, 2002-03. That can be the best pointer to an economic recovery though Indian banks have been found to be quite lax on provisioning. Empirical research into the trends between 1997 and 2003 indicates lower loan loss provisioning during an upturn when it should be the other way round. Further, any sharp rise in interest rates in the coming months need not adversely impact balance-sheets as a rise in interest rates by 2 percentage points should have a positive impact of 4.9 per cent on net interest income.

The Report discerns a pick-up in non-food credit since September 2003, and easy liquidity is being assured this year by dollar inflows more than making up for lower deposit mobilisation and credit demand. Between 1996-97 and 2002-03, treasury incomes recorded a compounded annual growth rate of 17.4 per cent against a 10.2 per cent growth in interest on advances, indicating a shift in the asset pattern of bank balance-sheets. Not surprisingly, the size of bank balance-sheets showed "slower growth" in 2002-03 over the previous year, and the Report says the ratio of bank assets to GDP at market prices, close to about 70 per cent, compares favourably with the figures for other developing nations. Lending rates continue to be sticky and there is no solution in sight over a single Prime Lending Rate for banks. As usual, the Report is rather skimpy over the state of rural credit delivery, except elaborating on the poor quality of the co-operative credit structure. The RBI could have elaborated on the status of Nabard, the lead refinance agency.

In its concluding remarks, the Report refers to increasing competition among banks and believes "the future profitability" will depend on generation of non-interest incomes and curbing operating expenses. Elsewhere in the Report, the RBI admits to the primary business of banking being "the creation of credit" and adds that though narrow banking may be appropriate "at times of easy liquidity", the macroeconomic performance of banks in the long run will hinge "on their ability to fund industrial and other enterprises." Can the Indian system mimic foreign banks which have little stake in the process of economic development? Can the Indian banking system even think of disowning the job of funding development when it is best placed today to take on the job?

Article E-Mail :: Comment :: Syndication

Stories in this Section
Becoming bankable

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line