banking survey report

CII Survey on Health of Indian Banking sector in current regulatory environment-------------------------------------------------------------------------------------------------------------------

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CII Survey on Health of Indian Banking sector in current regulatory environment


Survey on Health of Indian Banking sector in current regulatory environment

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Disclaimer: The findings of the survey represent the views of respondents and do not reflect the views of CII. On the clause of confidentiality, identity of the respondents can not be disclosed. CII has made every effort to ensure the accuracy of information presented in this document. However, CII makes no warranties as to the accuracy or completeness of the information in this report and accepts no liability for use of the information given in this report.


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TABLE OF CONTENTS

1. About the Survey ………………………………………………………………….. 4

2. Executive Summary......................................................................................... 5

3. Market Conditions:

o Analysis on Key Performance Indicators …………………………… 6

o Asset Quality & Capitalisation of Banks ……………………………. 8

o Growth Outlook …………………………………………………………… 10

4. Regulatory & Policy Environment:

o Effectiveness of monetary policy instruments ……………………… 11

o Changes in key policy rates & transmission effect ………………… 12

o Impact of key regulatory requirements on bank profitability …….. 13

5. Conclusion ……………………………………………………………………………. 15

6. Annexure Tables …………………………………………………………………….. 16


ABOUT THE SURVEY

The banking sector holds the central position in supporting the robust growth of Indian economy. Growing in excess of twice the pace of GDP growth, the total assets size of Indian banking industry increased more than five fold, from USD 250 billion in 2000 to more than USD 1.3 trillion in 2010. More importantly, the business of banks to GDP ratio almost doubled – from 68 per cent to 135 per cent during the last decade.

Even as the banking sector offers a tremendous growth potential in the long run, in the current scenario Indian banks are faced with significant challenges like deteriorating asset quality, large Government deficit, restructured loan accounts, expanding infrastructure loans, pressure on net interest margins, implementation of Basel III, etc.

Even as growth, inclusion and stability have been the key focus areas, the current regulatory and policy environment is critical to ensure the banks remain financially sound and profitable.

With an objective of taking stock of performance of banks and their outlook, CII conducted a survey of leading banks on “Health of Indian Banking sector in current regulatory environment“.

The survey questionnaire was divided in two parts. The first part attempts to assess the prevailing market conditions vis-à-vis asset quality, capitalisation of banks & estimate the growth outlook in the short and long term. Part two focuses upon regulatory & policy environment and aims to understand the views of banks on the current regulatory and policy environment vis-à-vis its impact on bank business and profitability.

The feedback received from 15 participant banks was aggregated and analyzed. Among the respondents, Top Management Executives of 5 Public Sector Banks (PSBs), 3 Private Sector Banks and 7 Foreign Banks participated in the Survey. The results obtained are presented in the following pages.

The findings of the survey represent the views of respondents and do not reflect the views of CII.

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Survey on Health of Indian Banking sector in current regulatory environment

December 2012


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EXECUTIVE SUMMARY

Key Performance Indicators:

Majority of the surveyed banks have seen deterioration in key performance indicators in the current fiscal (FY 2012-13) including Credit Growth, Growth in Deposits, Growth in Net Interest Income, Growth in Profit After Tax (PAT) and Return on Equity. However, their performance is expected to improve considerably during the next fiscal (FY 2013-14) – Ref. Annexure Table 1.

Asset Quality:

80 per cent of the respondent banks foresee a rise in their NPAs while 88 per cent of surveyed banks have projected an increase in their restructured loan accounts in the current fiscal.

Capital Adequacy:

In case of Public Sector Banks (PSBs), a strong pitch has been made by 80 per cent of the respondent banks for the need for capital infusion by the Government. CAR of respondent PSBs expected to average between 12.8 per cent as on January 1, 2013 and 8.5 per cent as on January 1, 2015.

The respondent Private sector banks are found to be maintaining an average CAR of 12 -16 per cent during the same period.

For foreign banks, the Survey responses indicate that most of smaller foreign banks are already well capitalized to meet the Basel III targets whereas big foreign banks are expected to raise their capital level through capital support from their head office.

Growth Outlook:

Majority of the survey respondents (68 per cent) believe that the leading credit rating agencies would consider to revisit the credit rating of Indian banks from negative to stable by the end first quarter of next fiscal (Q1 FY 2013-14).

78 per cent of the surveyed banks foresee the Indian banking sector to be the third largest globally (in terms of assets), by 2025.

Effectiveness of monetary policy instruments:

Majority of the respondent banks see repo rate as the most effective policy tool in the current macroeconomic scenario.

Changes in key policy rate:

64 per cent of the respondent banks believe that the RBI would cut the repo rate by another 25 basis points by end of the current fiscal while 36 per cent expected no change in repo rate.

82 per cent of the surveyed bankers expected a reduction of another 25 basis points in the Cash Reserve Ratio by end March 2013 to counter the liquidity deficit in the system.

Impact of key regulatory requirements on bank profitability:

The Basel III Capital requirement for banks is likely to have the highest impact on profitability of the Indian banking sector.

Among the other key regulatory requirements, the revised guidelines on Priority Sector Lending and higher provisioning norms for restructured assets would also have a major impact on bank’s profitability as highlighted by the respondent banks.


ANALYSIS ON KEY PERFORMANCE INDICATORS

Key Performance Indicators1

Credit Growth: The high credit growth witnessed during the past years is likely to abate during the current fiscal, in line with the RBI’s indicative target of credit growth (non-food) projected at 17 per cent2. The respondent banks foresee an average increase of 17 per cent in their credit portfolio during 2012-13 which is expected to rise to 18 per cent in FY 2013-14.

Growth in Deposits: The growth in deposits is likely to remain subdued in spite of high interest rates offered after the deregulation of savings rate. Surveyed banks view an estimated average growth of 14 per cent and 17 per cent for FY 2012-13 and FY 2013-14 respectively.

Growth in Net Interest Income: The respondent banks have projected a growth of 17 per cent and 19 per cent in their Net Interest Income for FY 2012-13 and FY 2013-14 respectively. The hardening of interest rates during the last two years could be attributed to a healthy growth in net interest income for banks.

Growth in PAT: Profitability of banks is likely to be impacted substantially this fiscal with situation expected to improve notably in the next financial year. From an average growth of 23 per cent witnessed during the last year (FY 2011-12), the surveyed banks have projected an increase of 14 per cent in profit after tax (PAT) for FY 2012-13. However, it is interesting to note that this has been forecasted to rise to 21 per cent in FY 2013-14, reflecting increased optimism of banks for a change in scenario positively.

Return on Equity: Return on equity is estimated to remain stagnant in the current fiscal at 16 per cent due to decline in profitability. For the next financial year, the situation is expected to improve marginally with estimated growth in return on equity estimated at 17 per cent in FY 2013-14.

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Credit growth Growth inDeposits

Growth in NetInterest Income

Growth in PAT Return on Equity

Projection on Key Performance Indicators

FY 2012-13

FY 2013-14

Source: CII Survey on Health of Indian Banking sector in current regulatory environment

1 Refer Annexure Table 1 - Projections on Key Performance Indicators2 RBI’s annual monetary policy statement for 2012-13

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Projections on growth in Credit Off-take (Segment-wise)3

Corporate Loan: Persistently high interest rates have taken its toll on the demand of bank funds by Indian Inc. As revealed by the CII Survey on Sources of Finance (December 2012), corporate sector, over the recent years, has increasingly relied upon internal accruals for their financing needs whereas large corporate entities have also taken recourse to External Commercial Borrowings (ECBs) to take advantage of lower interest rate overseas.

Corporate loan segment has been estimated to grow 17 per cent in the current fiscal whereas it is expected to expand 19 per cent in FY 2013-14, as bankers expect the policy environment to ease going ahead.

Retail Loan: Retail loans segment has been estimated to grow at 24 per cent in the current fiscal, registering the highest growth amongst all market segments. For the next financial year, this segment has been projected to grow at an average 23 per cent. Retail loan segment is seen to be increasing its share in overall loan portfolio of banks on back of rising income levels; as indicated by growth in per capita income in the Indian economy.

SME Loan: Small & Medium Enterprises have been resilient during the economic slowdown. Despite expectations of a healthy increase in number of restructured accounts within this segment, bankers project a 20 per cent increase in credit off-take for the current as well as next fiscal.

Agriculture Loan: Agriculture loans have been estimated to grow at 23 per cent this fiscal, buoyed by near normal monsoon. For the next financial year, surveyed banks foresee a growth of 21 per cent in the agriculture loan category, which is likely to get impacted by the change in priority sector classification by the RBI.

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Corporate loan Retail loan SME loan Agriculture loan

Projection on Segment-wise growth in Credit Off-take

FY 2012-13

FY 2013-14


3 Refer Annexure Table 2 - Projections on Segment-wise growth in Credit Off-take

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Projections on growth in Sectoral Credit Outstanding4

In terms of sectoral credit outstanding, the Survey has revealed that Agriculture sector is likely to register a growth rate of 20 per cent in FY 2012-13 and FY 2013-14. However, achieving this kind of growth is likely to be challenged by the revised priority sector guidelines. In case of manufacturing sector, the outstanding credit is likely to grow at 17 per cent due protracted decline in growth of industrial activity (as indicated by the Index of Industrial Production). However, this has been projected to improve to 19 per cent in next fiscal (FY 2013-14).

The growth in credit outstanding for infrastructure loans is likely to be 19 per cent in FY 2012-13 which is expected to go up to 21 per cent next fiscal as the banking sector supplement the huge funding requirement of infrastructure sector, estimated at around USD 1 trillion for the 12th Five Year Plan.

Services sector which account for more than 55 per cent of Indian GDP is expected to see the maximum growth in credit outstanding, projected at 22 per cent during FY 2012-13 and FY 2013-14. While it has become increasingly evident that the services sector would play the most important role to put the Indian economy back on a higher growth trajectory, banking sector is found to be optimistic in supplementing this transition by meeting the financing needs of the sector.

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Agriculture Manufacturing Infrastructure Services

Projection on Growth in Credit Outstanding

FY 2012-13

FY 2013-14


ASSET QUALITY & CAPITALISATION OF BANKS

Asset Quality: Growth & Concentration of NPAs, Provisioning Costs and Restructured Loans

Most of the respondent Banks have witnessed a sharp deterioration in asset quality in the current fiscal, as reported by an increase in their NPAs and restructured loan accounts.

The credit downgrade of big Indian banks is seen as a warning signal of stress on asset quality facing the Indian banking sector. According to the Reserve Bank of India (RBI), the gross NPAs

4 Refer Annexure Table 2 - Projections on Growth in Credit Outstanding

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of the Indian banking system (as a percentage of gross advances) at 3.1 per cent during FY12 (end March 2012) were the highest in the last six years, rising from 2.5 per cent in FY07.

Further, rapid pace of loan restructuring is another major issue, as persistently high inflation and interest rates impact demand and reduce the pricing power of corporates. During the first half of FY 2012-13, the corporate debt restructuring (CDR) cell of RBI has recorded a nearly 50 per cent rise in proposals received for restructuring aggregate debt, from Rs 1.64 lakh crore to Rs 2.46 lakh crore on a year-on-year basis. As per the survey findings, 88 per cent of the respondent banks anticipate a rise in their restructured loan accounts.

In line with the rapid surge in NPAs, banking sector has seen an upward trend with rise in provisioning costs over the past few years. 80 per cent of the respondent banks have projected an increase in NPAs while 76 per cent expect an increase in provisioning costs.

In terms of sectoral concentration of NPAs, majority of the respondent banks have the highest concentration in Industry followed by Agriculture and Services sector. Interestingly, infrastructure sector was found be the least concentrated sector amongst the respondent banks.

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Asset Quality Indicators

Increase inNPAs

Increase inProvisioningCosts

Increase inRestructuredLoanAccounts

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Highest Concentration of NPAs

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Capital Adequacy: Basel III requirements & expected plan to raise Capital

At this juncture, maintaining requisite capital adequacy in a rising NPA scenario is the biggest challenge for Indian banks. Under the Basel III guidelines, as determined by the Reserve Bank of India, Indian banks will have to maintain a minimum common equity ratio of 8 per cent and total capital ratio of 11.5 per cent.

RBI estimates that Indian banks will need around Rs 5 trillion to meet the Basel III targets. The Government, which is the dominant equity holder of PSBs, would have to infuse equity worth Rs 90,000 crore over the next five years in order to retain its shareholding (at 58 per cent) in the public sector banks to meet the Basel norms. Considering the current strain in Government finances, this may put significant pressure on the Government’s fiscal consolidation plan.

According to the RBI, broad estimates suggest that for full implementation of Basel III, public sector banks would require common equity to the tune of Rs 1.4 - 1.5 trillion on top of internal accruals, in addition to Rs 2.65 - 2.75 trillion in form of non-equity capital. Major private sector

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banks would require common equity to the tune of Rs 200-250 billion on top of internal accruals, in addition to Rs 500 - 600 billion in form of non-equity capital.

In case of Public Sector Banks (PSBs), the need for capital infusion by the Government is strongly pitched by majority (75 per cent) of the respondent banks. In addition, some banks are also found to be considering to raise additional Tier I capital by way of raising of perpetual bonds from the market. The shortfall in stipulated total CAR (Capital Adequacy Ratio) is seen to be deteriorating with out requisite capital infusion by the Government as respondent PSBs are expected to average their CAR between 12.8 per cent as on January 1, 2013 and 8.5 per cent as on January 1, 2015. However, in case of private sector banks, the respondent banks are found to be maintaining an average CAR of 12 -16 per cent during the same period. Follow-on Public Offer and Qualified Institutional Placement are found to be the most preferred route to raise additional capital for private banks.

For foreign banks, the Survey has revealed that most of smaller foreign banks are already well capitalized to meet the Basel III targets whereas big foreign banks are expected to meet the capital requirement through infusion of required capital from their respective head office.

GROWTH OUTLOOK

Short-term Growth Outlook: Revision in Credit Rating of major Indian banks

Since the beginning of current fiscal (April 2012), leading credit rating agencies (S&P, Moody’s Fitch, etc) have been raising concerns on the rising level of NPAs and restructured accounts of Indian banks.

According to the Reserve Bank of India, the gross NPAs of the Indian banking system (as a percentage of gross advances) at 3.1 per cent during FY12 (end March 2012) were the highest in the last six years. An even bigger concern has been the growing threat of loans getting restructured as high inflation and interest rates impact demand and reduce the pricing power of the corporates.

Majority of the survey respondents (63 per cent) believe that the leading credit rating agencies would consider to revisit the credit rating of Indian banks from negative to stable by the end first quarter of next fiscal (June 2013). Amongst others, 25 per cent of the respondent banks expect this scenario to take place in the second half of next fiscal (H2 FY 2013-14).

In addition, it is believed that the ratings of banks would depend on bank-specific factors as also on the sovereign rating which acts as a ceiling for the international scale ratings of banks.

Long-term Growth Outlook: Indian banking sector as the third largest globally by 2025

On the longer term outlook of the Indian banking sector, 78 per cent of the surveyed banks foresee the Indian banking sector as the third largest globally by 2025. It is estimated that the Indian banking sector will be able to leverage on the huge potential the domestic market offer. The Indian banking sector is likely to be the fastest growing amongst the emerging economies and could grow faster than China in the long run.

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In the current scenario, increasing the core capitalization level of Indian banks (as per Basel III requirements) is expected to supplement the expansion path of Indian banks catering to the high funding needs of the Indian economy. According to the RBI, broad estimates suggest that under Basel III, public sector banks would require Rs 5 lakh crore to meet the Basel III capital requirement.

It is also expected that the banking sector assets would grow by about 18 – 20 per cent annually assuming an economic growth of about 7 – 8 per cent. Given this expectation, the asset base of the banking sector will enhance significantly from its current size.

EFFECTIVENESS OF MONETARY POLICY INSTRUMENTS

Effectiveness of monetary policy instruments in the current macroeconomic scenario (growth – inflation trade-off)

As per the survey findings, the growth - inflation balance is still precarious. Inflation is expected to remain much higher than the RBI’s comfort level on the back of the pass through of fuel price hikes. Hence the bankers feel that the RBI will be cautious about reducing rates substantially. However, recent policy measures announced by the Government to reduce fiscal deficit and to improve the supply side will provide comfort to the Central Bank to soften its stance going forward.

With the implicit assumption that all three major monetary policy instruments (CRR, Repo rate and SLR) are being used by the RBI to control inflation and promote growth, majority of the respondent Banks feel that repo rate would be the most effective policy tool in the current scenario of growth – inflation trade-off. 58 per cent of surveyed banks see repo rate as the most potent monetary policy instrument followed by 34 per cent viewing CRR cut would be prominent policy tool in present conditions.

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Bankers views on effectiveness of monetary policy instruments

Repo Rate: As the repo rate continues to be the effective policy rate, this is perhaps the most critical tool for policy currently. Bankers have expressed that the impact of repo rates gets translated into the system immediately either increasing or decreasing the cost of funds. Therefore, the repo rate can impact the inflationary trends much faster. Also, the recent policy measures by the government to reduce fiscal deficit and improve the supply side will provide comfort to the RBI to soften its stance on the key policy rate.

Cash Reserve Ratio (CRR): The banking sector feel that the recent cuts in CRR by the Central Bank will significantly help ease the liquidity position in the banking system. However, as liquidity continues to remain relatively tight (at least in spurts), CRR continues to be an important tool for monetary policy and has a better potential impact on the deposit-loan pricing mechanism in the industry. Bankers expect that any further reduction in CRR is likely to infuse liquidity in the system to ensure credit flow to the productive sectors is not hampered.

Statutory Liquidity Ratio (SLR): Banking system generally maintains substantial portion of assets in SLR and decrease by few basis points may not immediately infuse liquidity in the system. Considering that currently a reasonable liquidity buffer is available in the system through surplus SLR, any further SLR reduction may have a relatively muted impact.


Even as it was clear that majority of the Banks see repo rate as the most effective policy tool in the current macroeconomic scenario, few respondents have said that CRR and SLR are effective in managing liquidity and ensuring appropriate levels of liquidity while also making monetary transmission effective whereas the repo rate could be used as an important signaling tool.

As per the Survey findings, it is believed that the RBI is likely to keep liquidity comfortable through a combination of CRR cut and Open Market Operations in the remaining part of the fiscal. While should be understood that the CRR is already close to its historic lows which might limit the extent of CRR cut going ahead whereas the Repo rate could be cut if inflation signals downward movement.

CHANGES IN KEY POLICY RATES & TRANSMISSION EFFECT

Changes in key policy rates through the end of current fiscal

In the above backdrop, 64 per cent of the respondent banks believe that the RBI would cut the repo rate by at least 25 basis points in the remaining part of the current fiscal while the remaining 36 per cent respondents were of the view that the central bank is not expected to change its key policy rate through the end of current fiscal due to inflation concerns.

Among the other monetary policy instruments, majority of the surveyed bankers (82 per cent) expected a reduction of another 25 basis points in the Cash Reserve Ratio by end March 2013 to counter the liquidity deficit in the system. This would be expected to comfort the bankers in aligning their resources to productive sectors of the economy.

The Statutory Liquidity Ratio has been expected to remain unchanged by most of the respondents (84 per cent) except for few foreseeing a reduction of 100 basis points in view of the anticipated tightness in liquidity.

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CRR Repo

Banker's Expectations on Course of Monetary Policy through end March 2013

No change

25bps


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Transmission effect of reduction in RBI’s key policy rate (repo rate) to bank lending & deposit rates in the current scenario

As outlined by the RBI in its Annual Report for 2011-12, in recent years there is significant evidence that the interest rate channels and credit channels of monetary transmission have been working effectively. Policy rate increases in India had a negative effect on output growth with a lag of two quarters and moderating effect on inflation with a lag of three quarters. As banks adjust portfolios, a 100 bps increase in policy rate was found to reduce credit by 2.8 per cent in nominal terms and 2.2 per cent in real terms. As a result, banks are expected to follow policy directions from the RBI through reduction in key policy rates, in bringing the interest rates down.

Therefore, with respect to the effectiveness of the transmission mechanism of reduction in RBI’s key policy rate (repo rate) on bank lending & deposit rates, 75 per cent of the respondent banks believe that there is a strong likelihood by banks of passing the benefits of reduction in repo rate with a corresponding decline in their benchmark prime lending rates. In case of deposit rates, 60 per cent of the respondent banks see a decline in deposit rates corresponding to a rate cut by the Reserve Bank of India.

IMPACT OF KEY REGULATORY REQUIREMENTS ON BANK PROFITABILITY

Key regulatory requirements & impact on profitability

The Survey analysis has revealed that the Basel III Capital requirements of banks is likely to have the highest impact on profitability of the Indian banking sector. Among the other key regulatory requirements, the revised guidelines on Priority Sector Lending and higher provisioning norms for restructured assets would also have a major impact on bank’s profitability as highlighted by the respondent banks.

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Impact of key regulatory requirements on bank profitability

Basel III Capitalrequirements

Revised Guidelines onPriority Sector Lending

Higher Provisioning forRestructured Assets

Management of Intra-Group Transactions andExposures

25% of new bankbranches to be openedin unbanked rural(tier 5& 6) centres


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Revised guidelines on priority sector lending (PSL)

The Survey findings point out that 60 per cent of banks are not satisfied with the revised guidelines on priority sector lending (PSL) and believe that these new norms would not help in better achieving the targets. On the whole the new norms are marginally tougher than the earlier ones and shall put additional stress on achieving priority sector targets.

The respondent Banks were of the view that the reclassification of certain advances as SME instead of agriculture and declassification of indirect financing to agriculture shall put some stress on achieving priority sector targets for agriculture. In addition, while caps on housing loans will not have much impact as the average loan in this category is largely within the set limits, foreign banks with more than 20 branches are likely to face some difficulty.

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Banker’s views on revised Priority Sector Lending guidelines

I Agriculture

Direct Agriculture: Cap of Rs 2 crore on loans to Corporate, partnership firm and co-operatives of farmers directly engaged in agriculture and allied activities, i.e. dairy fishing, animal husbandry, poultry, etc will adversely affect in achieving agriculture targets. Loans to Arthiays (commission agents in rural/semi-urban areas functioning in markets/mandies) for extending credit to farmers is now no longer the part of priority sector which would further impact the growth of priority sector advances.

Indirect Agriculture: Due to change in guidelines, loan to Corporate/partnership firms/institutions/for direct agricultural activities will shift under indirect agriculture category which would precariously place already stressed direct agriculture portfolio. Loans to food and agro based processing units having investment in plant and machinery up to Rs 10 crore shifted from agriculture to Micro & Small Enterprises (MSE). It will adversely affect achievement of indirect agriculture.

II Micro & Small Enterprises

Service enterprises: Loans up to Rs 2 crore only are covered under this segment. Earlier, there was no loan limit under this sector. As rising urbanisation will see greater number of people shifting from agriculture to services, restrictions of this kind will take a toll on the growth of the services sector. Also, for service sector to qualify as PSL the cap is already available on amount of investment in equipments. Introduction of one more cap will restrict flow to such enterprises.

III Foreign Banks

More than 20 Branches: Starting April 2013, export finance will not be treated as a separate category for foreign banks with greater than 20 branches. Branches of foreign banks have never been defined as size criteria. As the Reserve Bank of India note on wholly owned subsidiarization speak about percentage of assets as the key criterion, a level playing field for all foreign bank branches is desired and the definition should continue by virtue of ownership rather than by number of branches.

Less than 20 Branches: For banks with less than 20 branches, network & reach have always been the constraints in fulfilling targets for segments like Agriculture / MSME sectors. The flexibility offered by the new policy will help such banks to lend as per their core competence i.e. sectors of their choice. This will ensure efficient channelization of funds to respective sectors and also have positive impact on credit quality of assets.


CONCLUSION

A robust and thriving banking sector is the backbone of a fast emerging economy like India. Since the global financial crisis the regulatory environment for the banking sector has changed significantly globally. In the Indian context, even as growth, inclusion and stability have been the key focus areas, the current regulatory and policy environment is critical to ensure the banks remain financially sound and profitable.

While the survey establishes that the Indian banking sector has the potential to become the third largest globally by 2025, in the present scenario, majority of the Indian banks are standing at a point of inflection with the impact of regulatory requirements felt on their financial health.

In today’s context, raising core capitalization level in a rising NPA scenario is the biggest challenge for the Indian banking sector. It should also be understood that even as Basel III may help increase the resilience of the banking system, the stringent capital buffers proposed would be detrimental to the interests of developing countries like ours. High buffer requirements as a counter-cyclical measure would translate into higher lending costs and consequently could have an adverse impact on economic growth.

The survey projects a healthy level of credit growth in the next fiscal (20 per cent) which would put tremendous pressure on banks to outpace internal capital generation and maintain the requisite capitalization level as per Basel III regulatory requirement. Therefore, there is a high probability of systemic support by the Government for capital infusions into some state-run banks. However, with already strained government finances, this is expected to put significant pressure on the Government’s fiscal consolidation plan.

The banking sector is also facing tremendous pressure on the asset quality. The Non-Performing Loan (NPL) coverage ratio for Indian banks is the lowest in the Asia-Pacific region. It is also noted that loan classification, especially regarding restructured loans, as well as provisioning requirement practices in India is weak. Therefore, an even bigger concern is the growing threat of loans getting restructured as high inflation and interest rates impact demand and reduce the pricing power of the corporates.

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ANNEXURE TABLES

Annual forecasts for 2012-13 & 2013-14

Table 1: Projections on Key Performance Indicators

S.No. Key Performance Indicators

Actual ForecastFY

2010-11FY

2011-12FY

2012-13FY

2013-141 Credit growth 27 19 17 182 Growth in Deposits 16 14 14 173 Growth in Net Interest Income 29 17 17 194 Growth in PAT 24 23 14 215 Return on Equity 17 16 16 17


Table 2: Projections on Segment-wise growth in Credit Off-take

S.No. Segment-wise growth in

Credit Off-takeForecast

FY 2012-13 FY 2013-141 Corporate loan 17 192 Retail loan 24 233 SME loan 20 204 Agriculture loan 23 21


Table 3: Projections on Growth in Credit Outstanding

S.No. Growth in Credit OutstandingForecast

FY 2012-13 FY 2013-141 Agriculture 20 202 Manufacturing 17 193 Infrastructure 19 214 Services 22 22


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