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July, 2012

Brief Introduction

The Rs 64 trillion (US$ 1.17 trillion) Indian banking industry is governed by the Banking Regulation Act of India, 1949 and is closely monitored by the Reserve Bank of India (RBI). The growth in the sector has been more qualitative than quantitative wherein the market regulators got liberal in policy formulations realising the importance of private and foreign players over the past decade. Hence, liberal policies, Government support and huge development in other economic segments have made the Indian banking industry more progressive and inclusive with regards to the global banking standards.

Public sector banks account for 70 per cent of the Indian banking assets. But there lies immense opportunity for growth for global players, private bankers and investors as there is still a huge unbanked population in India that needs to be tapped.

Moreover, the emergence of online banking has given Indian banking landscape a makeover, wherein mobiles and Internet have proven to be important banking channels. The Government has also been focussing on expanding the reach of automated teller machines (ATMs) to every nook-and-corner of the country. According to data from National Payments Corporation of India, the number of ATMs in the country had reached 98,025 by the end of April 2012 of which about 70 per cent of the deployment has been in urban areas. Public sector banks have also decided set-up 60, 000 more ATMs across the country over 2012-14.

Key Statistics

  • The RBI has recently released its 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks', December 2011, which states that Nationalised Banks, as a group, accounted for 52.1 per cent of the aggregate deposits, while State Bank of India (SBI) and its associates accounted for 21.9 per cent. The share of New Private Sector Banks, Old Private Sector Banks, Foreign Banks, and Regional Rural Banks in aggregate deposits was 13.9 per cent, .8 per cent, 4.5 per cent and 2.9 per cent, respectively.

    Nationalised Banks held the highest share of 51.2 per cent in the total gross bank credit followed by SBI and its associates at 22.5 per cent and New Private Sector Banks at 13.8 per cent. Foreign Banks, Old Private Sector Banks and Regional Rural Banks had relatively lower shares in the total bank credit at 5.2 per cent, 4.8 per cent and 2.5 per cent, respectively.
  • Banks' credit grew 1.2 per cent in April-June 2012, while deposits expanded by 1.9 per cent, according to another statement released by RBI. The RBI projects credit growth at 17 per cent and deposit growth at 16 per cent in 2012-13.

    Banks' incremental credit-deposit ratio, which shows fresh demand for loans in proportion to deposits, stood at 48 per cent during the first quarter of fiscal 2012-13. Banks' outstanding credit was US$ 856.27 billion while deposits were Rs 62,291.73 billion (US$ 1, 133.78 billion) as on June 29, 2012.
  • India's foreign currency assets (FCAs) grew by US$ 1.17 billion to US$ 256.95 billion for the week ended June 29, 2012 which pushed foreign exchange reserves by US$ 1.36 billion to US$ 289.992 billion. The value of gold reserves increased by US$ 0.17 billion to US$ 25.76 billion during the same week.

Recent Developments

  • With an aim to enhance financial inclusion the North-Eastern circle of India, SBI has decided to open 56 'ultra small branches' (USB) across five districts in Assam in July 2012. The bank plans to complete 100 such USBs by July 31, 2012 and eventually convert all SBI customer service points into USBs.
  • Small Industries Development Bank of India (SIDBI), the Lucknow-based development bank, has revamped its business model to boost entrepreneurship and provide working capital to micro, small and medium enterprises (MSME). The MSME sector contributes 17 per cent to India's gross domestic product (GDP) and SIDBI has decided to help budding entrepreneurs wanting to venture into MSME zone.

    SIDBI will set up credit facilitation centres (CFCs) across India in collaboration with industrial associations. It would use its Rs 5, 000 crore (US$ 909.95 million) venture fund over 2012-16 to accomplish its target.
  • India's largest international bank, the Standard Chartered Bank, has launched the country's first instant online credit card approval mechanism, which will facilitate online application and approval for credit cards within few minutes. The bank would extend this facility to other Consumer Banking products over the next few months, making banking more convenient for its millions of customers.