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January, 2012

Indian Banking Sector: Brief Introduction

The Rs 64 trillion (US$ 1.22 trillion) Indian banking industry has made exceptional progress in last few years, even during the times when the rest of the world was struggling with financial meltdown. Even today, financial institutions across the world are facing the repercussions of the turmoil but the Indian ones are standing stiff under the regulator's watchful eye and hence, have emerged stronger.

Ratings agency Moody's believe that strong deposit base of Indian lenders and Government's persistent support to public sector and private banks would act as positive factors for the entire system amidst the negative global scenario.

The sector has undergone significant developments and investments in the recent past. Some of them are discussed hereafter along with the key statistics and Government initiatives pertaining to the same.

Indian Banking Sector: Key Statistics

  • According to the Reserve Bank of India (RBI)'s Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks', March 2011, Nationalised Banks, as a group, accounted for 53.0 per cent of the aggregate deposits, while State Bank of India (SBI) and its associates accounted for 21.6 per cent. The share of New private sector banks, Old private sector banks, Foreign banks and Regional Rural banks in aggregate deposits was 13.4 per cent, 4.6 per cent, 4.4 per cent and 3 per cent respectively.
  • With respect to gross bank credit also, nationalised banks hold the highest share of 52.8 per cent in the total bank credit, with SBI and its associates at 22.1 per cent and New Private sector banks at 13.2 per cent. Foreign banks, Old private sector banks and Regional Rural banks held relatively lower shares in the total bank credit with 4.9 per cent, 4.6 per cent and 2.4 per cent respectively.

Another statement from RBI has revealed that bank advances grew 17.08 per cent annually as on December 16 while bank deposits rose 18.03 per cent.

RBI data shows that India raised US$ 1.6 billion through external commercial borrowings (ECBs) in November 2011 for new projects, capital outlay et al. 78 companies raised US$ 1.3 billion under automatic route and US$ 253 million was raised under the approval route (it requires case-by-case approval by the regulator).

  • India's foreign exchange reserves stood at US$ 297 billion as on December 30, 2011.
  • In recent years, deposits under non-resident Indians (NRI) schemes have witnessed an upsurge. There was an inflow Rs 14,763 crore (US$ 2.83 billion) under NRI deposits in 2010-11, which was 6.5 per cent higher from 2009-10. In 2011, the total of NRI deposits was Rs 2,30,812 crore (US$ 44.2 billion), compared to Rs 2,27,078 crore (US$ 43.5 billion) in 2010.

Indian Banking Sector: Recent Developments

  • The US Export-Import Bank, with a commitment of US$ 7 billion, is on a way to diversify its portfolio in India by financing projects in education, healthcare and agriculture. After Mexico, India is the second biggest investment destination for the bank as the entity anticipates the country to become the largest market in next 12-18 months.
  • India Infrastructure Finance Company Ltd (IIFCL) and IDBI Bank have inked a five-year memorandum of understanding (MoU) to launch infrastructure debt fund (IDF) schemes. The IDF, for which IDBI Bank and IIFCL would play strategic investors, is expected to get launched by the end of February 2012.
  • With 'green power' projects getting highly popular in India, especially in the states of Gujarat and Rajasthan, banks are increasingly opening up to projects from non-conventional (solar and wind) energy space. After receiving project proposals that were meant for a particular industry/consumer or group of industries/consumers for their own use, banks are now getting projects that entail commercial viability (25-100 mega watt).
  • With an intension to strengthen its hold in Southern India, the Uco Bank is planning to add 11 more branches in Andhra Pradesh to its 66-branch-strong network in the state. The bank has made exemplary progress in recent past with 2,004 branches in the country and four abroad.