Indian Banking Overview
Indian Economic Progress The Indian economy is on the retrieval path, supported by sound government policies and structural reforms. It has played a significant role in withstanding global uncertainties and dynamics of the rest of the world. During 2015, India continued to depict a much smaller Current Account Deficit (CAD) as it experienced large foreign direct investments flows. In fact, India’s CAD was at its lowest level in seven years in the quarter ended March 2016. The international reserves of India have increased by USD 46.7 bn since Mar 2014 to USD 350.4 bn in Dec 2015. Despite better growth prospects, India still faces the risk of high household inflation, fiscal deficits challenges along with risks of low investments flow, commodity cycle reversals, weakness in corporate sector financial positions and deterioration in the bank asset quality. India’s gross domestic product (GDP) stood at 7.6% in FY16 up from 7.2% in the preceding year. The government has pegged the GDP growth rate at 7- 7.75 % for FY17. The up lift for FY17 is expected to come from strong domestic demand, improvement in industrial activity, and an upturn in private investments, infrastructure development and overhaul of the corporate sector and revival of public sector bank balance sheets. Over the past seven years since the 2008-2009 global financial crisis, the Indian banking sector has depicted a distinct performance. As per RBI, the Indian banking industry is sufficiently capitalized and well-regulated. The banking industry consists of public, private, foreign, regional rural and co-operative banks . Nearly 80% of the market share is dominated by public sector banks. Over the years, Indian private sector banks and foreign sector banks have exhibited improvements in their profitability, asset quality, lower credit costs and healthy capital reserves. On the other hand, public sector banks (PSBs) are facing decline in their earnings growth, reduction in profit margins, asset quality deterioration and increase in credit costs.
Credit & Deposit Growth Continued to Remain Sluggish The credit and deposit growth of all SCBs have significantly declined during FY16. This is largely contributed by the overall subdued performance of the public sector banks. Credit growth of all SCBs slowed down to 8.8% in FY16 from 9.7% in FY15. Similarly, the deposit growth rate of all SCBs decelerated to 8.1% in FY16 as compared to 10.7% in FY15. Private and foreign sector banks outpaced public banks as the credit growth amongst the private and foreign sector stood at 24.6% and 11.8% respectively, whereas that of public sector banks displayed a marginal growth of 4% as of March 2016. Deposit growth amongst private and foreign sector banks were marked at 17.3% and 13.3%, public sector banks showed a growth of merely 5.2% for FY16.
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