Current State & Future prospects of Indian Banking Industry

Balance sheet and performance

Study conducted compares different ratios of Indian banks with those of Chinese, France , German, Malaysian, Korean, US and Turkey banks. It shows Indian banks have relatively strong balance sheet and good performance.

Following are few ratio

• Return on Equity-
  Indian banks have 15.3 % ROE, highest being turkey (19.5 %) in above mentioned countries
• Cost to income ratio-
  Indian banks have 47.3 % cost to income ratio, lowest being Singapore 40.1%
• Price to Book ratio
  Indian banks have 1.8 PBV ,lowest being Germany 0.3 %>
• Bad debt to Asset ratio
  Indian banks have 0.6 % bad debt to asset ratio, lowest being France 0.2%

All and all Indian banks are performing well ,tough there is scope for improvement.

Growth Rate of Indian Banking Industry

With current growth rate Indian banking industry will be 3rd largest by 2025 with China at first rank and US at second rank (Considering total banking assets as barometer).

Growth Rate of Indian Banking Industry

• Indian banks are lacking at the number of saving accounts per branch.
• Large PSU banks, Foreign banks, New generation private banks have around 1000-1500 saving accounts per branch.
• Small PSU banks and old generation private banks have around 500-1000 saving accounts per branch.
• This number can certainly be improved as banks have CASA (current account saving account) as their major source of funds.

Diversifying in new channels

• In early 2000’s banks major revenue was from cash and cheque services.
• Today banks are diversifying. Their revenues are coming from ATM card, Mobile- POS(point of sale), Credit cards (POS),Online banking.
• The banks investing in these new channels will emerge as winners.

Operating model change

• Foreign banks, New generation private banks are the banks adapting to new technology quickly and effectively. They are offering Services like centralized inward clearing, outward clearing, account opening .
  
• Comparatively large and small PSU banks and old generation private banks are not aggressively investing in technology. These banks can improve their operating model by adapting to new technology and services.
  

Bad debts

• Gross NPA in priority sector lending can be reduced from current levels.
• As on March 31,2011 following are some figures of gross NPA
• Unsecured and student loans have 4.96 % gross NPA.
• MSME loans have 4.34 % gross NPA.
• Auto loans have 4.01 % gross NPA.
• Agriculture loans have 3.74 % gross NPA.