The Hindu Business Line : FICCI study sees 10-20 pc growth for banking sector

A FICCI survey on `Status of the Indian Banking Industry' revealed that an overwhelming majority of 81 per cent of respondents expect the banking industry to grow at between 10 and 20 per cent this fiscal.

This growth expectation is maintained for the distant future (2009-10) as well with 80 per cent of the respondents claiming so, the survey revealed.

The survey is based on the feedback from more than 75 respondents, including leading bankers, financial institutions, intermediaries and other market players. According to the survey, public, private and foreign banks have reported higher advances over the previous year. Almost, 82 per cent of the banks (of those who have reported figures for both the years) have reported higher growth in advances this fiscal compared with last year, the survey stated.

Profitability per employee has increased every year for the last three years for all banks, including public sector banks. Further, 80 per cent of the respondents expect an upward shift in interest rates. While 48 per cent of the respondents see interest rates to rise within the next six months, 37 per cent perceive a rise in the next three months.

Rising inflation and global developments (hardening of interest rates worldwide and the rising oil prices et al) are cited as the primary reasons for the expected hike in interest rates with 72.4 per cent of the respondents attributing their expectations of interest rate increase to the former and 69 per cent to the latter. If interest rates rise, 62 per cent of PSBs aver that their balance sheets' will be adversely impacted because of the ensuing decline in treasury profits. Almost 73 per cent of private and foreign sector banks, however, will be able to accommodate this decline, the survey said.

The present risk management system of banks in the country does not compare favourably with the rest of the world with 76 per cent of the respondents claiming so and 55 per cent say that the present hedging mechanisms in India are not adequate. Further, 97 per cent of those surveyed favoured the introduction of interest rate derivatives.

Further, 55 per cent of the respondents claimed that banks are not prepared for shifting to Basel II norms by 2006. About 50 per cent of public sector banks have expressed their positive preparedness in meeting these guidelines.

While 43 per cent of banks and financial institutions say that after the adoption of the 90-day norm, NPAs will go up by between zero and 5 per cent of total balances, nearly 47 per cent claim that the increase will be between 5-10 per cent.

On Corporate Debt Restructuring (CDR), 61 per cent of the respondents held that the mechanism has been successful in recovery of NPAs.

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