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Indian Banking Industry Analysis

October, 2014

Total Indian banking sector assets reached US$ 1.8 trillion in FY13 from US$ 1.3 trillion in FY10, with 72.7 per cent of it being accounted by the public sector. Total lending and deposits increased at a compound annual growth rate (CAGR) of 20.7 per cent and 19.7 per cent, respectively, during FY07-14 and are further poised for growth, backed by demand for housing and personal finance.

Credit off-take has been surging over the past decade, aided by strong economic growth, rising disposable incomes, increasing consumerism and easier access to credit. During FY07-14, credit off-take expanded at a CAGR of 20.7 per cent to an estimated US$ 1.03 trillion. Deposits grew at a CAGR of 19.7 per cent during FY07-14 to reach an estimated US$ 1.31 trillion.

The Reserve Bank of India (RBI) granted in-principle licenses to IDFC and Bandhan Microfinance in April 2014. RBI has emphasised the need to focus on spreading the reach of banking services to the unbanked population of India. RBI mandated the Know Your Customer (KYC) standards, wherein all banks are required to put in place a comprehensive policy framework in order to avoid money laundering activities.

Total banking sector credit is expected to increase at a CAGR of 18.1 per cent to US$ 2.4 trillion by 2017. The real annual disposable household income in rural India is forecasted to grow at CAGR of 3.6 per cent over the next 15 years. Also, the Indian agriculture, forestry and fishing sector has grown at a fast pace, clocking a CAGR of 14.2 per cent over the past seven years. These factors are expected to enhance the need for banking services in rural areas and therefore drive the growth of the sector.

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