the Banking industry seems to have hit a plateau — M. Narendra, Chairman, Indian overseas bank

Growth is not a constant or a homogenous concept. Growth is heterogeneous and constantly changing.

Growth can mean different things to different entities depending upon the nature of activity and the objectives to be achieved. For the self-employed it means one thing. Growth for a small or medium firm means something else while growth for a multinational company means an entirely different thing. Therefore, analysis of growth is also a varied and diverse concept.

Growth cannot be analysed or measured in a single parameter. GDP does not tell the whole growth process of an economy. Profit or sales do not reveal the full picture of a company.


To fully and properly understand and analyse growth it has to be disaggregated and dissected. A disaggregated approach makes policy decision-making easier and effective.

Disaggregation means breaking up the total integrated whole, or a conglomerate, into smaller elements, parts or units for easier handling or management.

Granularity of Growth

This has been made popular by the book Granularity of Growth by McKinsey partners. According to the authors, there’s a problem with the broad-brush way that many companies describe their business opportunities. They argue that growth opportunities best emerge from a finer-than-usual understanding of market segments, their needs, and the capabilities required to serve them well.

Economy has changed

In nearly 70 years of Independence, the Indian economy has undergone numerous changes. Sectoral growth has changed with industry overtaking agriculture first and services overtaking both industry and agriculture later. The picture of regional development in the country has changed. The economy’s link with the global economy has significantly changed.

Similarly, the banking industry too has gone through a process of fundamental changes. First it was all private banking and development banking institutions. After nationalisation social banking took precedence. Now, after economic liberalisation, commercial banking has once again taken precedence.

After a remarkable run of nearly two decades the growth of the banking industry seems to have hit a plateau. Of course, there are domestic and global factors behind this. However, it cannot be said that banks have run out of growth opportunities.

As an emerging country there are still immense prospects for growth. As the banking industry embraces the whole gamut of growth, banks have a huge potential for growth which has to be unlocked.

It is here that granularity of growth becomes significant. What does it mean? Granularity is the extent to which a system is broken down into small parts, either the system itself or its description or observation. It is the extent to which a larger entity is subdivided.

Banks have a host of factors affecting their growth. Advances, deposits, non-performing assets, funded and non-funded business, fee-based business, composition of deposits and advances, branch spread, overseas business, treasury and cash management, priority sector, financial inclusion and so on. Each of these factors reflects on growth in different degrees.

For instance, we did a back-of-the-envelope comparison of balance sheets of 15 banks for last year. It showed Deposits, Advances and CASA (current and savings account balances) have a direct and strong relationship with net profit while bad assets (NPAs) and Capital Adequacy have a relatively weaker relationship. The relationship between RoA (return on assets) and RoE (return on equity) and net profit was found to be neutral.

Banks have to go in for this type of granular analysis in a deeper way to discover the relative merit of different growth areas. This is not a one-time exercise. It has to be part of the regular planning process.

(The author is Chairman of Indian Overseas Bank.)

(This article was published on November 23, 2012)
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