Report On Indian Banking Sector

Report
On
Indian Banking Sector
May 2009
by
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Contents
Executive Summary 1
1 History of Banking Sector in India 5
1.1 History of SBI and Associates 5
1.2 History of Other (Nationalised, Private and Foreign) Banks 6
1.2.1 Pre Independence (1840 to 1947) 6
1.2.2 Post Independence to Nationalisation (1947 to 1969) 7
1.2.3 Nationalisation to Liberalisation (1969 to 1991) 7
1.2.4 Liberalisation to current date (1991 to 2008) 8
REPORT ON INDIAN BANKING SECTOR
1.3 Various Banking Groups 11

1.4 Regional Distribution of Branches 14
2 Role of Reserve Bank of India 16
2.1 RBI monetary and Credit Policy 16
2.2 Development in FY09 and role of RBI 17
2.3 Liquidity Adjustment Facility (LAF) 18
2.4 Cash Reserve Ratio (CRR) 20
3 Deposits 21
3.1 Sources of Funds for Banks 21
3.2 Distribution of Deposits of Banks 23
3.2.1 Distribution of Deposits by population 23
3.2.2 Distribution of Deposits by Ownership 24
3.3 Deposits mobilisation from household Sector 24
3.4 Type of Deposits 26
3.4.1 CASA Deposits 27
3.4.2 Term Deposits 28
3.5 Bank Group-wise Deposits Performance 30
3.5.1 SBI and Associates 30
3.5.2 Nationalised Banks 31
i
3.5.3 Private Sector Banks 33
3.5.4 Foreign Banks 34
4 Advances 36
4.1 Total Advances and growth for SCBs 36
4.2 Credit offtake in FY09 37
4.3 Sectoral Bank Credit 39
4.4 Retail loans 42
4.5 Lending to Sensitive Sector 43
4.6 Priority Sector lending 44
4.6.1 Priority Sector Lending for PSU and Private Banks 44

4.6.2 Priority Sector Lending for Foreign Banks 45
4.7 Bank Group-wise Performance 46
4.7..4 Foreign Banks 51
4.8 Bank group-wise deposit and advance maturity matching 52
5 Investments 54
5.1 SLR Investments 54
5.2 Non SLR Investments 57
5.3 Bank group-wise Credit and Investment to deposit ratios 59
6 Total Income 62
6.1 Interest on Advances and Investments 62
6.2 Other Income 63
6.2.1 Core Fee Income 63
6.2.2 Non-fee Income 64
7 Total Expenses 67
7.1 Operating Expenses 67
ii
7.1.1 Staff Cost 69
7.1.2 Non-staff Cost 73
8 Spread 75
8.1 Spread for SCBs 75
8.2 Bank Group-Wise Performance 76
9 Profitability 80
9.1 Profitability for SCBs 80
9.2 Bank Group-Wise Performance 81

10 Non-Performing Assets (NPAs) 85
10.1 Trend in NPAs for SCBs 86
10.2 NPAs, Provisions and write back for banking groups 89
10.3 Sector-wise NPA Break-up 93
10.4 Recovery of NPAs 94
10.5 Bank Group-wise Performance 97
10.5.1 PSU Banks 98
10.5.2 Old Private Sector Banks 99
10.5.3 New Private Sector Banks 100
11 Capital Adequacy Ratio (CAR) 102
12 Consolidation: Is it imminent for the Indian banking sector?? 105
13 FY09 Result Analysis 109
14 Outlook on Indian Banking Industry 112
14.1 Advances 112
14.2 Deposits 122
iii
14.3 Investments 128
14.4 Core Fee Income 131
14.5 Net Interest Margins (NIMs) 132
14.6 Non-Performing Assets (NPAs) and Provisioning 139
14.6.1 Restructuring of Assets 145
14.7 Profitability 148
15 Ranking of Individual Banks 149
16 Players 182
16.1 Axis Bank 182
16.2 Bank of Baroda 184

16.3 Bank of india 186
16.4 Canara Bank 188
16.5 Central Bank of india 190
16.6 HDFC Bank 192
16.7 ICICI Bank 194
16.8 IDBI Bank 196
16.10 State bank of India 198
16.11 Syndicate Bank 200
16.12 Union Bank of India 202
iv
Figure Index
1.1 No. of Scheduled Commercial Banks in India 10

1.2 Classification of banks into various groups 11
No. of offices of commercial banks(both scheduled and non-scheduled including
1.3 13
RRBs) over the years
Regional distribution of branches for schedule commercial banks as on March 31,
1.4 14
2008
1.5 Distribution of branches among regions for various bank groups 15
2.1 Changes in policy rate in FY09 to check inflation 17
2.2 Trend in repo and reverse repo rates over the years 18
2.3 Spread between Repo and Reverse repo rates 19

Large LAF injection during Jul to Oct’08 and subsequent absorption from Dec’08
2.4 19
to Mar’09s
2.5 Changes in CRR for Macro economic objective 20
3.1 Break-up of total resources of SCBs as on 31st March 2008 21
3.2 Deposits as a Percentage of total resources for various bank groups 21
3.3 Total deposits and y-o-y growth in deposits of SCBs 22
3.4 Total deposits and y-o-y growth in deposits of SCBs (incl. RRBs) for FY09 22
3.5 Deposits as a percentage of GDP over the years 23
3.6 Percentage Distribution of total deposits by population 23
3.7 Break-up of deposits by ownership 24
3.8 Break-up of financial saving of household sector 25
3.9 Movement in interest rates on saving instruments 25
3.10 Trend in small saving mobilisation 25
3.11 Types of deposits 26
3.12 Proportion of low cost deposits in total deposits of SCBs 27
3.13 Share in incremental CASA deposits by various bank groups 28
3.14 Break-up of term deposits by ownership 28
3.15 Trend in spread between various maturities of deposits for PSBs 29
v
3.16 Break-up of term deposits into short-term and long-term deposits 29
3.17 Total deposits and y-o-y growth in deposits of SBI and Associates 30
3.18 Break-up of deposits and CASA ratio of SBI and Associates 31
3.19 Total deposits and y-o-y growth in deposits of Nationalised banks 31
3.20 Break-up of deposits and CASA ratio of Nationalised Banks 32
3.21 Total deposits and y-o-y growth in deposits of Private Sector Banks 33
3.22 Break-up of deposits and CASA of Private Sector Banks 33
3.23 Total deposits and y-o-y growth in deposits of Foreign Banks 34
3.24 Break-up of deposits and CASA of Foreign Banks 35
4.1 Total advances and y-o-y growth in advances of SCBs 36

4.2 Type-wise advances Break-up for SCBs 36
4.3 Security-wise break-up of total advances for SCBs 37
4.4 Total Credit and y-o-y growth in credit for SCBs (incl. RRBs) for FY09 37
4.5 Break-up of bank credit into various sectors 39
4.6 Lending to sensitive sectors for FY08 43
4.7 Bank group-wise lending to the sensitive sector (as a % of total advances) 43
Priority Sector lending for PSBs and Private Sector Banks (as a % of total
4.8 44
advances)
4.9 Priority Sector lending for Foreign Banks (as a % of total Advances) 45
4.10 Total advances and y-o-y growth in advances of SBI and Associates 46
4.11 Type-wise break-up of total advances for SBI and associates 47
4.12 Security-wise break-up of total advances for SBI and associates 47
4.13 Total advances and y-o-y growth in advances of Nationalised Banks 48
4.14 Type-wise break-up of total advances for Nationalised Banks 48
4.15 Security-wise break-up of total advances for Nationalised Banks 49
4.16 Total advances and y-o-y growth in advances of Private Sector Banks 49
4.17 Type-wise break-up of advances for Private Sector Banks 50
4.18 Security-wise break-up of total advances for Private Sector Banks 50
vi
4.19 Total advances and y-o-y growth in advances of Foreign Banks 51
4.20 Type-wise break-up of total advances for Foreign Banks 51
4.21 Security-wise break-up of total advances for Foreign Banks 52
5.1 Break-up of Investments 54
5.2 SLR Investment and Requirement by SCBs 55
5.3 SLR Investments by SCBs over the years 55
5.4 Mismatch between the CAGR in deposits and advances of SCBs 56
5.5 Credit-deposit and investment-deposit ratio of SCBs 57
5.6 Composition of Non-SLR Investments over the years for SCBs 58
5.7 Credit, Investment to deposit ratio for SBI and Associates 59

5.8 Credit, Investment to deposit ratio for Nationalised Banks 59
5.9 Credit, Investment to deposit ratio for Private Sector Banks 60
5.10 Credit, Investment to deposit ratio for Foreign Banks 60
6.1 Break-up of total income 62
6.2 Break-up of Interest income of SCBs 62
6.3 Trend in profit on sale/revaluation of Investments and 10 year bond yield 65
7.1 Break-up of total expenses 67
7.2 Operating cost as percentage of total assets for SCBs 67
7.3 Operating cost a percentage of total assets for PSBs 68
7.4 Operating cost a percentage of total assets for Private and Foreign Banks 69
7.5 Declining trend in staff cost as a percentage of operating cost for SCBs 69
7.6 Average business per unit of staff cost for various bank groups 70
7.7 Staff cost as a percentage of operating cost for various bank groups 71
7.8 Average business per unit of staff cost for PSBs 72
7.9 Average business per unit of staff cost for Private and Foreign Banks 72
8.1 Net Interest Margin for SCBs (in %) 76
8.2 Net Interest Margin for PSBs (in %) 77
8.3 Net Interest Margin for Private and Foreign Banks (in %) 79
vii
10.1 Classification of Asset into Standard and Non-performing 85
10.2 Trend in Gross NPAs to Gross Advances of SCBs 86
10.3 Trend in Net NPAs to Net Advances of SCBs 87
10.4 Addition and reduction in gross NPAs for SCBs over the years 89
10.5 Addition and reduction in gross NPAs for PSBs 89
10.6 Addition and reduction in gross NPAs for Private and foreign banks 90
10.7 Share of priority sector NPAs in total NPAs 97
Share of advances of PSBs to total banking gross advances and PSBs’ gross NPAs
10.8 98
to total banking gross NPAs
Share of advances of PSBs to total banking net advances and PSBs’ net NPAs to
10.9 98
total banking net NPAs
Share of Old Private Sector Banks to the total banking gross advances and Old
10.10 99
Private Sector Banks’ gross NPAs to total banking gross NPAs
Share of Old Private Sector Banks to the total banking net advances and Old
10.11 99
Private Sector Banks’ net NPAs to total banking net NPAs
Share of New Private Sector Banks to the total banking gross advances and New
10.12 100
Share of New Private Sector Banks to the total banking net advances and New
10.13 100
Share of Foreign Banks to the total banking gross advances and Foreign Banks’
10.14 101
gross NPAs to total banking gross NPAs
Share of Foreign Banks to the total banking net advances and Foreign Banks’ net
10.15 101
NPAs to total banking net NPAs
11.1 Trend in total CRAR, Tier 1 and Tier 2 for SCBs 102
14.1 Industrial production y-o-y growth (in %) 112
14.2 GDP growth and Bank credit growth moves in tandem 115
14.3 Bank credit as a percentage to GDP 117
14.4 Share of various sectors in GDP 117
14.5 Sharp and prompt cut in CRR than earlier slowdowns 119
14.6 Projected sector-wise break-up of bank credit from FY09 to FY11 120
14.7 Average growth and y-o-y growth in credit for SCBs from FY1980 to FY2008 122
viii
14.8 Average growth and y-o-y growth in deposit for SCBs from FY1980 to FY2008 123
14.9 Difference between credit and deposit growth over the years 123
14.10 Share of demand deposits in incremental total deposits for SCBs 124
14.11 Share of saving deposits in incremental total deposits for SCBs 126
14.12 Trend in 10 years G-sec yield 129
14.13 Trend in SLR Investment of SCBs 130
14.14 Benchmark Prime Lending Rate (BPLR - maximum) over the years 132
14.15 Deposit rate of for more than 1 year maturity over the years 132
Spread between BPLR - maximum and deposits rate for more than 1 year
14.16 134
maturity
14.17 Net Interest Margin (NIM) for SCBs over the years 134
14.18 Movements in interest rate on small saving instruments and bank deposit 136
14.19 Trend in BPLR and saving deposit rates 137
14.20 Trend in the spread between BPLR and saving deposit rates 137
14.21 Trend Repo and CRR for FY09 138
14.22 Share of small scale credit in industrial credit over the years 142
15.1 Ranking Parameter 149
ix
Table Index
1.1 List of banks under various banking groups 12

Interest spreads between short-term and long-term deposits as on December
3.1 30
2008 (in %)
3.2 CASA of Nationalised Banks (in %) 32
3.3 CASA of Private Sector Banks (in %) 34
3.4 CASA of Foreign Banks (in %) 35
4.1 Bank group-wise credit offtake for FY08 and FY09 38
4.2 Break-up of bank credit into various sectors 39
4.3 Provisional break-up of non-food credit for FY09 40

4.4 Share of various sector in incremental non-food credit for FY09 40
4.5 Provisional break-up of industrial credit for FY09 41
4.6 Share of various sector in incremental industrial credit for FY09 41
4.7 Bank group-wise provisional sectoral bank credit growth for FY09 42
4.8 Break-up of retail credit for SCBs 42
4.9 Break-up of Priority Sector Lending for PSBs and Private Sector Banks (Rs cr) 45
4.10 Break-up of Priority Sector Lending for Foreign banks (Rs cr) 46
4.11 Maturity-wise break-up of deposits for various bank groups 52
4.12 Maturity-wise break-up of advances for various bank groups 53
4.13 Maturity-mismatch between deposits and advances 53
6.1 Proportion of other income in total income for various bank groups 63
Trend in other income (excluding Profit on Sale/revaluation of investments and
6.2 64
fixed assets) (Rs cr)
6.3 Bank group-wise share in interest and fee income for FY08 64
6.4 Profit on sale and revaluation of investment for various bank groups 66
7.1 Trend in operating cost excluding staff cost 73
7.2 Trend in advertising and publicity cost 73
8.1 Spread of the SCBs over the years (in %) 75
x
8.2 Spread of the PSBs over the years (in %) 76
8.3 Spread of Old Private Sector Banks over the years (in %) 77
8.4 Spread of New Private Sector Banks over the years (in %) 78
8.5 Spread of Foreign Banks over the years (in %) 78
9.1 Statement of Profit for SCBs 80
9.2 Statement of Profit for SBI and Associates 81
9.3 Statement of Profit for Nationalised Banks 82
9.4 Statement of Profit for Private Sector Banks 83
9.5 Statement of Profit for Foreign Banks 84
Provisioning Requirement for non-performing asset depending upon the

10.1 86
classification category
10.2 Gross and Net NPAs of SCBs (Rs cr and in %) 87
10.3 Gross and Net NPAs of various bank groups (Rs cr and in %) 91
10.4 Distribution of banks by the ratio of Net NPAs to Net Advances 93
10.5 Sector-wise classification of NPAs for SCBs and PSBs 93
10.6 Sector-wise classification of NPAs for Private Sector Banks 94
10.7 Financial Assets Securitised by Securitisation and reconstruction companies 95
10.8 NPAs recovered through various Channels 96
10.9 Recovery of direct agriculture advances 96
11.1 Resources raised by banks over the years (Rs cr) 103
11.2 Bank group-wise trend in CRAR ratio over the years (in %) 103
11.3 Distribution of banks by CRAR 104
12.1 List of banks amalgamated since nationalization of banks in India 1969 105
12.2 List of countries and no. of banks operating within a country 106
12.3 Fund infusion by government into PSBs 107
12.4 Government holdings in PSBs 107
13.1 Profit and Loss account for PSBs 109
13.2 Profit and Loss account for Private Sector Banks 110
xi
13.3 CASA ratio various banks in FY 08 & FY 09 111
13.4 Restructured Assets in Rs. cr and in % of total Advances 111
14.1 Sector-wise and Used based growth in industrial production 113
14.2 GDP growth rate across the country 114
14.3 GDP growth and bank credit growth for block of years 116
14.4 Projected credit growth for various banking group (%) 120
14.5 Projected credit growth for various banking group (Rs cr) 120
14.6 thus changing share in total credit in favour of PSU banks 121
Average growth and standard deviation in deposit and credit growth from
14.7 122
FY1980 to FY2008 (in %)
14.8 Trend in incremental total and demand deposits for FY09 (Rs cr) 125
14.9 Trend in incremental total and demand deposits over the years (Rs cr) 125
14.10 Deposit growth for various bank groups (in %) 126
14.11 Projected deposit growth for various banking group (%) 127
14.12 Projected deposit growth for various banking group (Rs cr) 127
14.13 thus changing the share in total deposits in favour of PSBs 127
14.14 Profit on sale/revaluation of investments for SCBs 128
14.15 Trend in Core fee income growth and projection 131
14.16 Cut in BPLR and deposit rates by various banks 133
Speeding up of sub-PLR lending by PSU banks at a lower interest rate to
14.17 135
following sectors
14.18 Projection for NPAs for various bank groups 139
14.19 Sector-wise exposure of industrial credit 140
14.20 Dependence of Indian corporates on borrowed funds 141
14.21 Break-up of bank retail credit for SCBs and expected slippages 143
15.1 Calculation of no. banks included in Ranking Analysis 150
xii
Annexures
Overall Ranking based on various parameters 151

Ranking based on Size 153
Ranking based on no. of branches 155
Ranking based on total business 156
Ranking based on Net profit 157
Ranking based on Profitability 158
Ranking based on Net Interest Margin 160
Ranking based on Return on Assets (ROA) 161
Ranking based on Return on Equity (ROE) 162

Ranking based on CASA Ratio 163
Ranking based on Core Spread 164
Ranking based on Quality 165
Ranking based on Capital Adequacy Ratio 167
Ranking based on Tier 1 Capital Adequacy Ratio 168
Ranking based on Gross NPAs to Gross Advances 169
Ranking based on Net NPAs to Net Advances 170
Ranking based on proportion of Unsecured advances in total advances 171
Ranking based on Growth 172
Ranking based on CAGR in Advances 174
Ranking based on CAGR in deposits 175
Ranking based on CAGR in Net Profit 176
Ranking based Qualitative Factors 177
Ranking based on business per branch 179
Ranking based on business per employee 180
Ranking based on Profit per employee 181
xiii
Executive Summary
Indian Banking Sector is dominated by Public Sector Banks (PSBs) which accounted for 72.6% of
total advances of all Scheduled Commercial Banks excluding RRBs (SCBs) on 31st March 2008.
PSBs have rapidly expanded their foot prints after nationalisation of banks in India. Although
there is a restrictive entry/expansion for private sector banks and foreign banks in India, these
banks have increased their presence and business over last 5 years.
SCBs in India have shown an impressive growth in deposits mobilisation over the years (Total
deposit grown at CAGR of 19.6% from FY03-FY08 and 17.6% from FY88 to FY08). Among the
group of banks, private sector and foreign banks deposits have grown at a higher CAGR of 26.7%
and 22.5%, respectively from FY03 to FY08. Deposit as a percentage to GDP has increased
steadily from 8.7% in FY51 to 67.8% in FY08 mainly due to rapid expansion by PSBs, entry of
private and foreign banks and growing education among people with respect to saving and
banking operations.
Unlike their western counterparts which rely heavily on bulk deposits, banks in India rely on
household sector savings as their primary source of deposits. Deposits from household sector
constituted 57.4% of the total banking deposits in FY07 (Individual and HUF share in total
deposits was 44.5%). This distinct feature of the Indian banks makes them less prone to financial
crisis, as was seen in the western world in mid FY09.
Till FY06, the CASA ratios of banks have been increasing or have remained constant, till FY06.
However, in FY07 and FY08, the CASA ratio for most of the bank groups has declined mainly
due to increased focused on term deposits to fund the high credit growth. Growth in term
deposits of SCBs was at 28.9% and 24.5% in FY07 and FY08 as compared to 17.7% and 20.6%
growth in CASA deposits in the same period.
Banking sector has seen the tremendous growth in credit off take in last five years (CAGR in
advances for SCBs was at 27.4% from FY03 to FY08). Sector recorded credit growth of 33.3% in
FY05 which was highest in last 2 and half decades and credit growth in excess of 30% for three
consecutive years from FY04 to FY07, which is best in the banking sector so far.
Industrial credit accounted for 38.8% of total bank credit followed by services at 24.4%, retail
loans at 22.5% and agriculture & food credit at 14.2% in FY08. Within the industrial credit,
infrastructure accounts for highest share at 23.2%. (9% total bank credit).
Unsecured bank credit as percentage to total credit was at 23.3% in FY08 which has increased
from 10.9% in FY2000. Share of unsecured credit is highest for foreign banks at 52.8% of total
credit.
Total lending to sensitive sector (real estate accounts for 87.4% of sensitive sector lending) has
grown at a CAGR of 46.1% during FY05 to FY08. As against this, the CAGR in total advances
was at 29.1%. Among the group of banks, PSBs have least exposure to sensitive sector lending at
17.1% of total advances, followed by old private sector banks at 18.9%, foreign banks at 26.5%
and new private sector banks at 34.1%.
1
Due to rapid growth in advances, proportion of interest on advances in total interest earned of
the banks has increased to 71.4% in FY08 as compared to 48.2% in FY01. Proportion of interest
on investment has declined. Increase in economic activity and robust primary and secondary
markets have helped the banks to garner larger increase in their fee based incomes. CAGR in core
fee income for SCBs over FY03 to FY08 was at 24.0% (private sector banks 34.6% and foreign
banks 31%).
Operating cost as a percentage to total assets for SCBs has been declining over the years.
Operating cost was at 2.84% of total assets in FY01 which decreased to 1.98% of the total assets
in FY08. Staff cost constitute the major portion of the total operating cost of the bank. It
constituted 51.6% of total operating cost in FY08 as compared to 68.0% in FY01 for SCBs.
Average business per unit of staff cost was highest for foreign banks at Rs183.3, followed by
private banks at 151.8, nationalised banks at 140.4 and SBI and associates at 120.6.
Spread (Return on funds minus cost of the funds) for SCBs decreased from 3.3% in FY06 to
3.0% in FY08, in spite of rapid growth in the credit off take mainly due to higher interest offered
by banks on short-term deposits to attract high volume of deposits. The spread is lowest for PSBs
2.7%, followed by old private sector banks, new private sector banks and foreign banks at 2.9%,
3.2% and 4.8% respectively.
Net profit for SCBs increased at a CAGR of 20.2% from FY03 to FY08. Among the group of
banks, CAGR in profit of SBI and associates was lowest at 14.8% followed by nationalised banks
at 17.7%. CAGR in profit of foreign banks was highest at 29.5% and private banks at 26.7%. The
reason attributed to this could be the already established presence for PSBs and low base effect of
private and foreign banks.
A significant improvement in recovering the NPAs combined with a sharp increase in gross
advances for SCBs led to a sharp decline in the ratio of gross NPAs to gross advances to 2.3% in
FY08 from 12.7% in FY2000. Net NPAs to Net advances declined to 1.0% in FY08 as compared
to 6.8% in FY2000. Excellent performance of high deposit and credit growth, all time low level
NPAs witnessed in the period between FY04 to FY08 which is the best in banking industry so far
is difficult to repeat. The Indian economy is witnessing moderation in growth which will lead to
slowing of credit offtake, moderate growth in deposits and increase in slippages.
Bank credit to grow at a CAGR of 17-19% from FY09 to FY11
CARE Research expects the credit offtake to slow down in next two years. Fresh credit demand
will be hit by slower economic growth due to both recession in developed economies and sluggish
domestic demand. We estimate growth in credit offtake to be around 15-17% for FY10 and 19-
21% for FY11 for SCBs.
Going forward, CARE Research feels that the growth in bank credit offtake would be fuelled by
growth in lending to the infrastructure sector (share of infrastructure in total bank credit will
increase from 9.0% in FY08 to 12% in FY11). Although slower economic growth will delay capex
cycle and overall demand for credit by corporates, incremental offtake from them will remain high
for banks due to lack of funds from non banking channels. We project flat to declining growth for
personal loans and credit card outstandings and moderate growth in home loans (share of retail
credit will decline from 22.5% in FY08 to 18% in FY11).
2
PSBs credit growth will be higher than industry average in FY10 mainly due to government push
for cheap credit and their stronghold in lending to corporates where credit offtake will not see as
big a dent as expected in retail credit. In our view, some of the private sector and foreign banks
will focus more on restructuring their balance sheets and the loan portfolios which are presently
highly skewed towards retail credit. We may see the balance sheet size of some such players
remaining stagnant or marginally declining in FY10. Credit growth for PSBs will be around 18-
19% while private and foreign banks’ credit will grow at 12-14% and 6-8% respectively in FY10.
Deposits to grow at a CAGR of 18-20% from FY09 to FY11
Banks have since FY2000 seen the wide mismatch with credit growth surpassing deposit growth.
However, we feel that deposit growth will be greater than or equal to credit growth in the next
two years. Keeping in mind our projection of credit growth, we expect the deposit growth rate to
hover around 18% to 20% in FY10 & FY11.
Incremental current account deposits will be lower in next two years as sluggish business coupled
with shortage of funds compels corporates to curtail the idle funds kept in banking system. With
slower economic growth the demand deposits will contribute only 7-8% as seen in 1992-93, 1997-
98, 2001-03. Saving deposits/ term deposit mobilization may be less affected due to relatively
declining risk appetite of investors and alternative investment options like equity investments are
turning less lucrative in the present scenario.
Fleet of deposits will continue in favour of PSBs as seen in H2FY09. Global financial crisis have
put the expansion plan of foreign banks in India on a hold. Deposit growth for PSBs will be
around 20-21% while private and foreign banks’ deposits will grow at 12-14% and 7-9%
respectively in FY10.
Lower Treasury gains
We do not expect the treasury gains of FY02-FY05 (constituted around ~7-10% of total income)
period to be repeated in the years to come. Most of the treasury gains were booked in Q3FY09
due to sharp fall in G-sec yield (declined from 9.5% in Jul’08 to 5.1% in Jan’08 i.e. in 6 months
time). We expect the bond yields to remain firm due to higher borrowing by government in next
two years. Also lesser excess investment in SLR portfolio will cap the treasury gains.
NIMs under pressure
Slower economic growth and its adverse effects on incremental credit demand have led banks to
reduce loan yields ahead of deposit rates. Lagged effect of deposit rate cut is expected to trim the
NIM in FY10. Spread between the Benchmark prime lending rate and deposits rate of more than
one year maturity touched its historic low of 3.0% in Nov’08 and is currently hovering at around
3.5% which will also translate into lower NIMs for banks. We believe that the deposit rates offer
little scope for further reduction. However, cut in policy rates (CRR and repo by 400bps and SLR
by 100bps) have decreased the cost of the fund for the banks, which is positive for protecting the
margins for the banks. Lagging effect will not be present in FY11 and the sector will see better
NIMs as compared to FY10.
3
Gross NPAs to gross advances to touch 4.3% by FY11
We believe that gross NPA to gross advances to increase from 2.3% in FY08 to 4.25-4.50% by
the end of FY11 and Net NPA to Net advances to increase from current 1% to 2.7-3.0% by the
end of FY11. Lower proportion of lending to stressed sectors, comparatively lower corporate
leverage, and better risk management will result into lower NPAs in current asset cycle as
compared to past. (FY2000 gross NPA to gross advance were in excess of 15%)
Flat to marginal growth in net profit in FY10
Reduced NIMs and slower growth in advances as compared to last year will reduce the growth in
Net interest income (NII). Lower treasury gains and lower core income due to slower economic
activity will curtail growth in other income significantly. Higher provisioning for NPAs and
increased wages due to revision for PSBs will have negative impact on profitability. CARE
Research believes flat to marginally positive growth in net profit for banking industry in FY10 and
moderate growth of 8-10% for FY11.
4
Chapter 1 History of banking sector in India
Origination of banking in India dates to the last decades of the 18th century with the General
Bank of India, which started in 1786, and the Bank of Hindustan (both of which are now
defunct.) The oldest bank in existence in India is the State Bank of India (SBI), the largest
commercial bank in the country that traces its origins back to June 1806. The history of the
banking sector can be better understood by dividing it into.
1. History of SBI and Associates

2. History of other banks in India (includes Nationalised Banks, Private Banks and
Foreign Banks)
1.1 History of SBI and Associates

¾ The oldest bank in existence in India is the SBI, which originated as the Bank of Calcutta
in June 1806, which almost immediately became the Bank of Bengal in 1809.
¾ Bank of Bengal was one of the three presidency banks, the other two being the Bank of
Bombay (established in 1840) and the Bank of Madras (established in 1843), all three of
which were established under charters from the British East India Company.
¾ For many years, the Presidency banks acted as quasi-central banks, as did their
successors. The three banks merged in 1925 to form the Imperial Bank of India which
started as private shareholders banks, mostly Europeans shareholders.
¾ State Bank of India Act was established in 1955. Pursuant to the provisions of the State
Bank of India Act (1955), the Reserve Bank of India (RBI), which is India's central bank,
acquired a controlling interest (60%) in the Imperial Bank of India. On April 30, 1955 the
Imperial Bank of India was renamed as the State Bank of India. In 2008, the
Government took over the stake held by RBI.
¾ In 1959, the Government passed the State Bank of India (Subsidiary Banks) Act, enabling
the SBI to take over eight former State-associated banks as its subsidiaries.
1. State Bank of Indore
2. State Bank of Bikaner & Jaipur
3. State Bank of Hyderabad
4. State Bank of Mysore
5. State Bank of Patiala
6. State Bank of Travancore
7. State Bank of Saurashtra
Later on in September 2008, State Bank of Saurashtra was merged with the parent bank -
SBI.
5
1.2 History of other banks in India (includes Nationalised Banks,
Private Banks and Foreign Banks)
We further divide history of other banks in India into following groups.
No Year Period Characterised by
1 1840 to Pre Independence Small size, less regulated and bank failures
1947
2 1947 to Post Independence to Slower growth, private sector dominance
1969 Nationalisation and start of regulation
3 1969 to Nationalisation to Nationalised of banks by government, high
1991 Liberalisation regulation, secular growth in business and
expansion & rising inefficiencies
4 1991 to Liberalisation to current De-regulation, entry of private and foreign
2008 date banks and technological advancement
1.2.1 Pre Independence (1840 to 1947)

¾ Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as
a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in
1865 and still functioning today, is the oldest Joint Stock bank in India.
¾ The second entirely Indian joint stock bank was the Oudh Commercial Bank, established
in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank,
established in Lahore in 1895, which has survived to the present and is now one of the
largest banks in India.
¾ The period between 1906 and 1911, saw the establishment of banks inspired by the
Swadeshi movement. The Swadeshi movement inspired local businessmen and political
figures to form banks of and for the Indian community. A number of banks established
then have survived to the present such as Bank of India, Corporation Bank, Indian Bank,
Bank of Baroda, Canara Bank and Central Bank of India.
¾ The period during the First World War (1914-1918) through the end of the Second
World War (1939-1945), and two years thereafter until the independence of India were
challenging for the Indian banking industry. The years of the First World War were
turbulent, and it took its toll with banks simply collapsing despite the Indian economy
gaining indirect boost due to war-related economic activities. At least 94 banks in India
failed between 1913 and 1918 as indicated in the following table:
Year No. of banks failed

1913 12
1914 42
1915 11
1916 13
1917 9
1918 7
6
1.2.2 Post Independence to Nationalisation (1947 to 1969)
The Government of India (GOI) initiated measures to play an active role in the economic life of
the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a
mixed economy. This resulted into greater involvement of the state in different segments of the
economy including banking and finance. The major steps taken to regulate banking include:
¾ In 1948, the RBI, India's central banking authority, was nationalised, and it became an
institution owned by the Government of India.
¾ In 1949, the Banking Regulation Act was enacted which empowered the RBI "to regulate,
control, and inspect the banks in India." The Banking Regulation Act also provided that
no new bank or branch of an existing bank could be opened without a license from the
RBI, and no two banks could have common directors.
1.2.3 Nationalisation to liberalisation (1969 to 1991)

By the 1960s, the Indian banking industry had become an important tool to facilitate the
development of the Indian economy. At the same time, it had emerged as a large employer, and a
debate had been ensued about the possibility to nationalise the banking industry.
On July 19, 1969, major process of nationalisation was carried out. It was the effort of the then
Prime Minister of India, Mrs. Indira Gandhi by whom 14 major commercial banks in the country
were nationalised. The second phase of nationalisation of the Indian Banking Sector was carried
out in 1980 with seven more banks being nationalised.
With the second dose of nationalisation, the GOI controlled around 91% of the banking business
of India. Later on, in the year 1993, the government merged New Bank of India with Punjab
National Bank. It was the only merger between nationalised banks and resulted in the reduction of
the number of nationalised banks from 20 to 19.
A number of questions were raised regarding the procedure adopted by the then government in
suddenly going for the nationalisation of banks. There was no official report, which had gathered
expert opinions and evidence on the need either for social control or for nationalisation of banks.
The chiefs of private banks had not been consulted as to the need and implications of the
proposed measure.
Arguments of government for nationalisation were as follows
¾ Before the nationalisation, the privately-owned banks were operating on the criteria of
profit maximisation and lesser emphasis was placed on the development of rural areas.
Credit and deposits base was confined to large corporates and wealthy depositors.
¾ The nationalised banking set-up would vigorously pursue expansion programmes to

cover rural areas, smaller towns and lower income groups.
¾ To pay special attention to inter-sectoral balances and balanced regional development.
¾ To take away the stranglehold of the few industrial houses on credit and reduce their
control over the community's resources.
7
¾ Ensure stability in the functioning of the credit institutions and inspire more confidence
among the depositors.
¾ Encourage healthy competition between large and small industrial houses.
In summary, the following are the steps taken by the Government of India to regulate the banking
institutions in the country:
¾ 1949: Enactment of Banking Regulation Act.

¾ 1955: Nationalisation of SBI.
¾ 1959: Nationalisation of SBI subsidiaries.
¾ 1961: Insurance cover extended to deposits.
¾ 1969: Nationalisation of 14 major banks.
¾ 1971: Creation of credit guarantee corporation.
¾ 1975: Creation of regional rural banks.
¾ 1980: Nationalisation of seven banks with deposits over Rs.200 crores.
1.2.4 Liberalisation to current date (1991 to 2008)

The policies of nationalisation and social reforms that were supposed to promote a more equal
distribution of funds, also led to inefficiencies in the Indian banking system. To alleviate the
negative effects, some reforms were enacted in the second half of the 1980s. The main policy
changes were the introduction of Treasury Bills, the creation of money markets, and a partial
deregulation of interest rates. Despite the reform attempts, the Indian banking sector had like the
overall economy severe structural problems by the end of the 1980s. By international standards,
the Indian banks were extremely unprofitable despite a rapid growth in deposits. In 1991, GOI
liberalised the economy. The objective of banking sector reforms was in line with the overall goals
of the 1991 economic reforms of opening the economy.
Narsimhan Rao government embarked on a policy of liberalisation by licensing a small number of

private banks. These new banks came to be known as New Generation tech-savvy banks, and
included Global Trust Bank (the first of such new generation banks to be set up), which later
amalgamated with Oriental Bank of Commerce, UTI Bank (now re-named as Axis Bank), ICICI
Bank and HDFC Bank. This move, along with the rapid growth in the economy of India,
revitalised the banking sector in India, which has seen rapid growth with strong contribution from
all the three sectors of banks, namely, government banks, private banks and foreign banks.
¾ Interest rate liberalisation

1. The interest rate structure was too complex with both lending and deposit rates
set by the RBI. The regulation of lending rate for loans in excess of rupees two
lakhs, which accounted for over 90% of total advances, was abolished in October
1994.
2. Banks were allowed to decide and announce Prime Lending Rate (PLR), after
taking into account the cost of the funds and transaction costs.
8
3. From October 1995, regulations relating to fixing of rate of interest for term
deposits with a maturity of more than two years were liberalised. The minimum
maturity was subsequently lowered from two years to 15 days in 1998.
4. Since 2004, the RBI is only regulating and prescribing deposit rates for the savings
deposits and deposits from Non resident Indians For all other deposits above 15
days, banks are free to set their own interest rates.
¾ Privatisation
1. In the year 1994, Private sector banks were permitted to commence operations in
India. Banks were allowed to raise the capital to meet the capital adequacy norms
through capital market route, provided the government holding does not fall
below 51%.
2. FDI/FII limits on investments in shares of private sector banks were raised to

51% in 2001.
3. In 2004, FDI/FII limits on investments in shares of private sector banks was

further relaxed and increased to 74%, with no one FII holding more than 5%
stake without the consent of RBI and FII limit in PSBs was capped at 20%.
4. Foreign banks with restriction on branch opening and operation were allowed to
enter on selective basis in 2004. More liberal entry for foreign banks was
proposed after April 2009.
¾ Entry of foreign banks

RBI announced its policy decision on March 2004 for gradual entry of foreign banks in
India in synchronised manner in two phases. In order to allow the Indian Banks
sufficient time to prepare for global competition, initially the entry of foreign banks in
first phase was more restrictive.
Phase 1 (March 2005 to March 2009)

1. Foreign banks were allowed to establish presence in India and were given an
option to operate through branch presence or set up a 100% Wholly Owned
Subsidiary (WOS).
2. Foreign banks were allowed to open 12 branches a year (the limit was in line with
World Trade Organisation (WTO) commitment). Branch licensing procedure was
kept same as applicable for private banks. More liberal branch opening policy was
adopted in under-banked areas.
3. The limit of 12 branches a year was raised to 20 branches for foreign banks in
March 2006.
4. Acquisition of shares in Indian banks by foreign banks was permitted for banks
which are identified by RBI for restructuring.
9
Phase 2 (April 2009 onwards)
1. Branch expansion: - After reviewing the experience of the first phase, RBI has
proposed to remove the restriction on branch expansion and limited excess to
Indian market and treating them on par with domestic banks to the extent
appropriate.
2. Listing of foreign banks: - After completion of the proposed year of operation
in India, WOS of foreign banks will be allowed to list and dilute the stake in the
manner that at least of 26% of the paid-up capital remains with the resident
Indian.
3. Mergers and acquisitions: - After a review is made with regard to the extent of
penetration of foreign investment in Indian banks and functioning of foreign
banks, foreign banks may be permitted, subject to regulatory approvals and such
conditions as may be prescribed, to enter into merger and acquisition
transactions with any private sector bank in India, subject to the overall
investment limit of 74 per cent.
No. of banks in India have declined over the past 10 years
As depicted in the following graph, the number of SCBs has been declining over the years from
around 300 banks in FY2000 to 165 banks as on date. Several small regional rural banks have
been merged with their parent banks or have closed down.
Fig 1.1 – No. of Scheduled Commercial Banks in India

325
275
No. of reporting SCBs
225
175
125
75
Oct-00
Oct-01
Oct-02
Oct-03
Oct-04
Oct-05
Oct-06
Oct-07
Oct-08
Apr-00
Apr-01
Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Source: RBI and CARE Research
10
1.3 Various Banking Groups
Fig 1.2 – Classification of banks into various groups
Banks in India
Scheduled Commercial Banks Unscheduled Commercial

Banks
Public Sector Private Sector Foreign Regional

Banks Banks Banks Rural Banks
State Bank of India Nationalised Banks

and Associates
Source: CARE Research
The commercial banking structure in India consists of:

¾ Scheduled Commercial Banks in India
¾ Unscheduled Banks in India
Scheduled Banks in India constitute those banks which have been included in the Second
Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this
schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act. The scheduled
commercial banks in India comprise of SBI and its associates, nationalised banks, foreign banks,
private sector banks, co-operative banks and regional rural banks.
Non-scheduled bank in India means a banking company as defined in clause (c) of section 5 of
the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank. SCBs in India can
be divided into five groups.
SBI and its associates
Nationalised banks
Private sector banks
Foreign banks.
Regional Rural Banks (RRBs)
We have done the analysis of first four banking groups and excluded RRBs in our report.
11
Table 1.1 – List of banks under various banking groups
SBI and Associates
1. SBI 5. State Bank of Mysore
2. State Bank of Bikaner and Jaipur 6. State Bank of Patiala
3. State Bank of Hyderabad 7. State Bank of Travancore
4. State Bank of Indore
Nationalised Banks
1. Allahabad Bank 11. Indian Bank
2. Andhra Bank 12. Indian Overseas Bank
3. Bank of Baroda 13. Oriental Bank of Commerce
4. Bank of India 14. Punjab National Bank

5. Bank of Maharashtra 15. Punjab & Sind Bank
6. Canara Bank 16. Syndicate Bank
7. Central Bank of India 17. Union Bank of India
8. Corporation Bank 18. United Bank of India
9. Dena Bank 19. UCO Bank
10. IDBI Bank Ltd. 20. Vijaya Bank
Private Sector Banks

1. Axis Bank 12. Jammu & Kashmir Bank
2. Bank Of Rajasthan 13. Karnataka Bank
3. Catholic Syrian Bank 14. Karur Vysya Bank
4. City Union Bank 15. Kotak Mahindra Bank
5. Development Credit Bank 16. Lakshmi Vilas Bank
6. Dhanalakshmi Bank 17. Nainital Bank
7. Federal Bank 18. Ratnakar Bank
8. HDFC Bank 19. SBI Commercial & International Bank
9. ICICI Bank 20. South Indian Bank
10. IndusInd Bank 21. Tamilnad Mercantile Bank
11. ING Vysya Bank 22. Yes Bank
12
Foreign Banks
1. ABN AMRO Bank 15. DBS Bank
2. Abu Dhabi Commercial Bank 16. Deutsche Bank
3. Antwerp Diamond Bank 17. HSBC
4. Arab Bangladesh Bank 18. JP Morgan Chase Bank
5. Bank Of America 19. Krung Thai Bank
6. Bank Of Bahrain & Kuwait 20. Mashreq Bank
7. Bank Of Ceylon 21. Mizuho Corporate Bank
8. Bank Of Nova Scotia 22. Oman International Bank
9. Bank Of Tokyo-Mitsubishi-UFI 23. Shinhan Bank
10. Barclays Bank 24. Societe Generale
11. BNP Paribas 25. Sonali Bank
12. Calyon Bank 26. Standard Chartered Bank
13. Chinatrust Commercial Bank 27. State Bank of Mauritius
14. Citibank
Fig 1.3 – No. of offices of commercial banks(both scheduled and non-scheduled

including RRBs) over the years
80000 5.0
4.5
75000 4.0
70000 3.5
3.0
Percent
65000 2.5
2.0
60000 1.5
55000 1.0
0.5
50000 0.0
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
No. of Offices Growth % (y-o-y)

The number of offices (branches plus administrative offices) for all SCBs increased from 64,184
in FY1995 to 77,773 in FY2008. The number of offices for SCBs increased at a higher pace
between FY06 and FY08. The branch network increased by 10% between FY06 to FY08 in three
years as compared to 10.6% from FY1995 to FY2005 (i.e. 10 years).
13
1.4 Regional Distribution of Branches
Fig 1.4 – Regional distribution of branches for SCBs as on March 31, 2008
On an overall basis, the branches of the SCBs in India are fairly distributed. The state-owned
banks have to adhere to social objective set by the government. Since nationalisation, PSBs have
increased their presence in rural and semi-urban areas.
Private and foreign banks started operating post 1994. Since the main driver for these banks was
profit maximisation and due to restriction on opening of branches, their branch network is being
concentrated in metro and urban regions.
14
Fig 1.5 – Distribution of branches among regions for various bank groups
As depicted in above graphs, there is a noticeable difference between rural and semi-urban
presence of PSBs, private & foreign banks. SBI and associates and nationalised banks have
around 34% of the branches situated in rural area as compared to 12.5% and 0% for private and
foreign banks.
15
Chapter 2 Role of Reserve Bank of India
Established in 1935, under the Reserve bank of India Act, 1934, RBI is the central bank of the
country. RBI was nationalised in the year 1949. Functions of the RBI can be divided into two.
Monetary functions also known as the central banking functions of the RBI are related to
control and regulation of money and credit, i.e., issue of currency, control of bank credit, control
of foreign exchange operations, banker to the Government and to the money market. Monetary
functions of the RBI are significant as they control and regulate the volume of money and credit
in the country.
Non-monetary functions includes supervision of banks operating India, promotion of sound

banking
2.1 RBI monetary and credit policy

GOI uses various tools for development of economy. Two important tools of macroeconomic
policy are Monetary Policy and Fiscal Policy. Fiscal policy is decided by the GOI through annual
budget by the Finance Ministry. Monetary policy is a subject matter of RBI.
Monetary Policy
The RBI is responsible for formulating and implementing Monetary Policy which is essentially a
stabilisation policy. It is not intended to influence the long-term growth potential of the economy,
but aims at ironing out the fluctuations in the economy also referred to as business cycles. This is
done to minimise fluctuations and ensure a sustainable mix of growth and inflation in the
economy.
The RBI regulates the supply of money and the cost and availability of credit in the economy. It
can increase or decrease the supply of currency as well as interest rate, carry out open market
operations, control credit and vary the reserve requirements. The Monetary Policy aims to
maintain price stability, full employment and economic growth.
Historically, the Monetary Policy is announced twice a year - a slack season policy (April-
September) and a busy season policy (October-March) in accordance with the agricultural cycles.
These cycles also coincide with the halves of the financial year.
The RBI as per the world-wide practice has shifted to market-based instruments for monetary
management from non-market-based instruments like interest rate control. The RBI can influence
the cost of funds and availability of credit in the economy by altering the repo/reverse repo rates,
changing the reserve requirements and engaging in open market operations.
16
2.2 Developments in FY09 and Role of RBI
The RBI’s role in monetary development and price stability can be well understood by the
developments which happened in FY09. We divide the developments in financial markets in
FY09 into two.
From April 2008 to September 2008
Up to the mid of FY09, India continued its dream run of high economic growth. Due to
sustained inflow of foreign capital in India and high commodities and oil prices, inflation rate
touched record highs of 12.91% in August 2008. The RBI reacted to this by increasing the Cash
Reserve Ratio (CRR) by 150 bps from 7.5% to 9.0% and increase in repo rate by 125 bps from
7.75% to 9.0% up to the end of September 2008. This enabled the bank to suck out excess
liquidity in the system, thereby containing inflation.
From September 2008 to March 2009

Near collapse of the world’s financial system and global recession made its impact felt on the
domestic economy in last two quarters of FY09. The domestic economy slowed down
considerably in later half of the FY09. Movement in inflation was southward due to world-wide
slowdown and correction in commodities prices. In order to check the domestic slowdown RBI,
aided by declining inflation, slashed the CRR, SLR and repo rates sharply by 400 bps, 100 bps and
400 bps, respectively over a period of 6 months from Aug’08 to Jan’09.
Fig 2.1 – Changes in policy rate in FY09 to check inflation

14
13
12
High inflation:
11 CRR, repo increased
10 by 150 and 125 bps
Inflation Rate (%)
9 to suck the liquidity

8
7
6
5 Lower inflation and ease in
4 liquidity: CRR, repo and SLR
reduced by 400, 350 and 100
3
bps to check growth
2
1
-
Jun-08
Jun-07
Jan-09
Jan-08
Aug-08
Aug-07
Apr-09
Apr-07
May-07
Jul-07
Sep-07
Dec-07
Feb-08
Apr-08
May-08
Jul-08
Sep-08
Dec-08
Feb-09
Oct-08
Nov-08
Oct-07
Nov-07
Mar-09
Mar-08
17
2.3 Liquidity Adjustment Facility (LAF)
LAF is used by RBI for managing the day-to-day liquidity in the banking system. LAF operations
are carried out twice in a day. LAF is carried out with the help of two key rates viz Repo rate and
Reverse repo rate. The term repo stands for repurchase agreement. Repo rate is the rate that RBI
charges the banks when they borrow from it or the rate at which RBI lends to the banks. Repo
operations increase liquidity in the system. Reverse repo rate is the rate that RBI offers the banks
for parking their funds with it or the rate at which RBI borrows from the banks. Reverse repo
operations suck out liquidity from the system.
Fig 2.2 – Trend in repo and reverse repo rates over the years
9.5
8.5
7.5
Percent
6.5
5.5
4.5
3.5
2.5
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Repo rate Reverse Repo
RBI uses the LAF to inject or absorb the liquidity into the banking system. Increasing repo rate
from 7.75% in May 2008 to 9.0% in September 2008 was done to increase the cost of credit and
to tighten the liquidity in the system due to increasing inflation. However, falling inflation and fear
of economic slowdown prompted RBI to reduce the repo and reverse repo rates to bring down
the cost of the credit. Yearly trend since FY01 shows that, repo and reverse repo rates are either
increasing or decreasing in the given financial year, with the exception of FY09. High inflation
due to over-heating of the economy in the first half resulted in RBI increasing the rates. Global
financial crisis in mid FY09 and fear of slowdown supported the rate reduction.
18
Fig 2.3 – Spread between Repo and Reverse repo rates
3.5
3.0
2.5
Spread (%)
2.0
1.5
1.0
0.5
-
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
The spread between the repo and reverse repo also signals RBI’s intention of cheaper/costlier
credit. Deceasing spread from July 2003 till September 2006 suggests the cheaper credit policy
from RBI to push economic growth. The spread was at it lowest level of 1.0% from April 2005 to
September 2006. The increasing spread from May 2008 to September 2008 suggests the tightening
of credit due to higher inflation and overheating of the economy. However from September 2008
onwards, the RBI has adopted cheaper credit policy and thereby has reduced the spread between
the repo and reverse repo from 3.0% in September 2008 to 1.5% in February 2009.
Fig 2.4 – Large LAF injection during Jul to Oct’08 and subsequent absorption from
Dec’08 to Mar’09s
Average daily
1200000 absorption of Rs.
56594 cr in Apr'09
700000
200000
Rs cr
Jun-07
Jun-08
Jan-08
Jan-09
Sep-07
Oct-07
Feb-08
Sep-08
Oct-08
Jul-08
Aug-08
Apr-07
May-07
Jul-07
Aug-07
Nov-07
Dec-07
May-08
Nov-08
Dec-08
Feb-09
Mar-08
Apr-08
Mar-09
Apr-09
-300000
-800000
Average daily
infusion of Rs.
-1300000 42791cr in Sept'08
19
The bankruptcy/sell out/ restructuring of some of the world’s largest financial institutions
brought pressures on the domestic money and foreign exchange markets, in conjunction with
temporary local factors such as advance tax outflows. In order to alleviate these pressures, the
RBI initiated a series of measures. The average daily net outstanding liquidity injection under LAF
was Rs.42,591 crore during September 2008 as compared with Rs.22,560 crore in the previous
month. Liquidity conditions eased from November 2008. The LAF shifted from net injection
mode to net absorption mode. The average daily net outstanding liquidity absorption under LAF
was Rs.22,294 crore during December 2008. Lesser avenues of lending due to economic
downturn had made banks to park excess funds with RBI under reverse repo. Daily abruption
under reverse repo crossed Rs. 1,00,000 crore in April 2009. RBI has been discouraging reverse
repo in order to compel the banks to lend more. RBI has cancelled the secondary liquidity
adjustment facility (evening reverse repo auctions) effective from May 2009 and reduced the
reverse repo rate to 3.75%.
2.4 Cash Reserve Ratio (CRR)

All commercial banks are required to keep a certain amount of its deposits in cash with RBI. This
percentage is called the CRR which can also be effectively used to manage liquidity, inflation and
cost of credit in the banking system by RBI. Higher CRR will increase the cost of the fund with
the bank and in turn will make the credit costlier for borrower and vice-versa.
Fig 2.5 – Changes in CRR for Macro economic objective

9
CRR at record high of
8.5 9.0%, last seen in
8 Mar'00 to check
soaring inflation.
7.5
7
percent
6.5 sharp cut in CRR (400

bps in 5 months) to
6
address liquidty crunch
5.5
5
4.5
4
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
20
Chapter 3 Deposits
3.1 Sources of Funds for Banks
Deposits are traditionally the main source of funding for banks. As shown below, deposits as a
percentage to total resources of the SCBs were at 76.7% as at 31st March 2008.
Fig 3.1 – Break-up of total resources of SCBs as on 31st March 2008

However, reliance on deposits as a primary source of funds has decreased over the years for
SCBs. Within the categories of banks, PSBs have higher proportion of deposits in their total
resources as compared to private and foreign banks. The reliance on deposits as resources by
Foreign banks was the least at 52.5% as on 31st March 2008, whereas, deposits as a percentage to
total resources of Nationalised banks and SBI and associate banks were high at 79.9% and 76.5%,
respectively on the same date.
Fig 3.2 – Deposits as a Percentage of total resources for various bank groups
90
85
80
75
Percent
70
65
60
55
50
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08
SBI and Associates Nationalised Banks Private Sector Banks

SCBs Foreign Banks
21
Fig 3.3 – Total deposits and y-o-y growth in deposits of SCBs
3,500,000 26
24.6
3,000,000 24
23.1 22
2,500,000 17.8
20
Percent
16.6
Rs. cr
2,000,000 17.2 16.2 18

12.7 16
1,500,000 14.0
14
1,000,000
12
500,000 10
FY01
FY02 FY03 FY04 FY05 FY06 FY07 FY08
Total Deposits % y-o-y growth
SCBs in India have shown an impressive growth in deposits mobilisation over the years. Total
deposits with SCBs have grown from Rs.9,00,307 crores in FY2000 to Rs.33,20,054 crores in
FY08. Total deposits with SCBs have grown at a CAGR of 19.6% in the last five years (from
FY03 to FY08) and at a CAGR of 17.4% in the last 20 years ended FY08. Among the group of
banks, private sector and foreign banks deposits have grown at a CAGR of 26.7% and 22.5%,
respectively, in the last five years, chiefly due to lower base effect of these banks.
Deposit growth in FY09
Deposits for SCBs (including RRBs) grew at 19.8% in FY09 as against growth of 22.4% in FY08.
Fig 3.4 – Total deposits and y-o-y growth in deposits for SCBs (incl. RRBs) in FY09
3,900,000 30
3,800,000 28
3,700,000 26
3,600,000
3,500,000 24
3,400,000 22
Percent
Rs Cr
3,300,000 20
3,200,000 18
3,100,000
3,000,000 16
2,900,000 14
2,800,000 12
Jan-09
Jun-08
Dec-08
Feb-09
Sep-08
Oct-08
Jul-08
Aug-08
Nov-08
Apr-08
Mar-09
May-08
Total deposit for SCBs (including RRBs) y-o-y growth(%)

22
Fig 3.5 – Deposits as a percentage of GDP over the years
70 67.8
65 63.0
58.9
60
54.4 54.4
55 52.1
Percent
45.8
50 48.4
45 41.7
40.8
39.2
40
35
30
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
Steady increase in deposits as a percentage of GDP shows the reducing dependence on parallel
economy and increased penetration of banks into the financial system. It has increased from just
8.7% of GDP in FY51 to 67.8% of GDP in FY08. Rapid expansion of branches by PSBs over the
years, entry of private and foreign banks, growing education among the people for savings and
banking operations are the key reasons for the same.
3.2 Distribution of deposits of SCBs
3.2.1 Distribution of deposits by population
Fig 3.6 – Percentage Distribution of total deposits by population

80 77.3
65.7
70
60
50
Percent
40
30 19.6
20 13.3
10
14.7 9.4
0
Rural Semi-urban Urban+metro
As shown above, the growth in the deposits for banks have primarily came from urban and metro
regions. Deposits from urban and metro region increased at a CAGR of 21.9% from FY01 to
FY08. Share of deposits from urban and metro region have increased from 65.7% to 77.3% from
23
FY01 to FY08. Rapid urbanisation, increase in income level of the people in urban and metro
region due to boom in sectors such as IT and financial services and increased penetration by
private and foreign banks are the key reasons for the same. Despite increased presence in rural
India by PSBs over the years, share in deposits of rural and semi-urban regions has actually
decreased from 19.6% and 14.7% to 13.3% and 9.4%, respectively during the same period.
Deposits from semi-urban and rural India grew at CAGR of 12.7% and 11.7%, respectively.
Growth in deposits from rural region is the lowest among the three.
3.2.2 Distribution of deposits by Ownership

Fig 3.7 – Break-up of deposits by ownership
Banks collect deposits from household and corporate sector. Banks in India rely on household
sector savings as their primary source of deposits. Deposits from households constituted 57.4%
of the total banking deposits in FY07 (Individual and HUF share in total deposits was 44.5%).
This is in sharp contrast to banks in the western world which rely heavily on bulk deposits from
corporates and High Net worth Individuals (HNIs). This distinct feature of the Indian banks
makes them less prone to financial crisis, as was seen in the western world in mid FY09. The next
highest contributor to the bank deposits was the government at 14.5% which includes deposits by
public sector undertakings at 4.6% of the total deposits.
3.3 Deposits mobilisation from household sector
Deposits of household sector with banks have increased at a CAGR of 30.1% from FY04 to
FY08 as compared to the CAGR of 17.9% in gross financial saving of household sector in the
same period. Banks have increased their share in household sector savings from 37.4% in FY04 to
55.3% in FY08.
24
Share of Small scale savings in household sector has declined from 19.5% in FY05 to 5.1% in
FY07 and to -3.7% in FY08. Investment in government securities (7.5% in FY04 to -2% in FY08)
and share of provident/pension funds (13.6% in FY04 to 8.2% in FY08) has also decreased over
the years. This can be mainly attributed to lower interest rate provided on the above stated
traditional saving instruments as compared to bank deposits and the growing importance of bank
tax-saving deposits, mutual funds (1.2% in FY04 to 7.7% in FY08) and insurance (13.7% in FY04
to 17.5% in FY08) as tax-saving instruments.
Fig 3.8 – Break-up of financial saving of household sector

60
50
40
Percent
30
20
10
0
-10 FY04 FY05 FY06 FY07 FY08
Deposits with Banks Investment in Government securities

Investment in Small Savings Insurance Funds
Provident and Pension Funds Mutual Funds (Other than UTI)
In FY07 and FY08, the receipts under small saving schemes showed a negative growth of 10.6%
and 20.1%, respectively. As shown above, the interest rate provided by banks have increased since
FY04 whereas interest rate on small saving has been kept constant since FY04 at 8%.
Fig 3.9 – Movement in interest rates Fig 3.10 – Trend in small saving mobilisation
on saving instruments
.
10
200000 35
9
8 25
Percent
7 125000
15
P ercent
R s. cr
6
5 50000 5
4 -5
-25000
Jun'08
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY 03
FY 04
FY 05
FY 06
FY 07
FY 08
-15
-100000 -25
Interest rate on small saving instruments
Maximum Interest on Fixed deposits Receipts y-o-y growth
25
3.4 Types of Deposits
Fig 3.11 – Types of deposits
Deposits with Banks
Demand (CASA) Deposits Term Deposits
Current Saving Short Term Long Term

Deposits Deposits (< 1 year) (> 1 year)
Current deposits: These are deposits maintained for the purpose of meeting day-to-day
requirement of the businesses. Banks generally do not pay any interest on current account
deposits.
Saving deposits: These deposits are maintained by households. Interest rate on saving deposits
are administered by RBI and are currently kept at 3.5% since 2001 (brought down from 4.5%)
Current and saving account deposits together are known as demand deposits or low-cost deposits
and they do not have any maturity period.
Term deposits: Also known as fixed deposits these are payable at the end of fixed maturity
period decided at the time of opening the deposit account. Banks provide fixed deposits for the
period ranging from seven days to five years. Interest rate on domestic term deposits have been
de-regulated since October 1997, thus banks are free to decide on the interest rate to be offered
on term deposits.
Banks in India are also allowed to offer differential rates of interest on wholesale domestic term
deposits of Rs.15 lakhs and above i.e. the interest rate offered on the wholesale domestic term
deposits can differ from those offered on the retail domestic term deposits.
26
3.4.1 CASA deposits
Current Account and Saving Account (CASA) deposits (also known as demand deposits) are low
cost and have no maturity period. High proportion of CASA deposits in total deposits reduces
the average cost of deposits and in turn the cost of funds for the bank.
Over the years, the CASA ratios of banks have been increasing or have remained constant, till
FY06. However, in FY07 and FY08, the CASA ratio for most of the bank groups has declined.
To tap the high credit demand growth, the banks have been offering attractive interest on term
deposits, thereby reducing the reliance on CASA deposits. The CASA deposits have grown by
17.7% and 20.6% in FY07 and FY08, respectively.
Fig 3.12 – Proportion of low cost deposits in total deposits of SCBs

45
40 38.6
36.6 37.0 36.5 35.7
34.0 34.0 34.4
35
30
Percent
23.7 24.2 25.1 23.4 22.4

25 20.7 21.3 22.3
20
15 13.2 12.7 12.1 12.9 12.8 13.5 13.1 13.3
10
5
% Current A/c Deposits % Saving Deposits CASA Ratio
The CASA ratio for SCBs has increased from 34% in FY01 to reach 38.6% in FY06, but declined
to 35.7% in FY08.
Trend in incremental CASA deposits

As shown below, the share of incremental CASA deposits has seen major change over the years.
Nationalised banks grabbed 50.4% share in incremental CASA deposits of SCBs in FY01. In
FY06, they garnered 47.0% share in incremental CASA deposits and within two years in FY08,
their share sharply dropped to just 29.6% in FY08. The private sector banks have been able to
increase their share in incremental CASA deposits from 15.3% in FY01 to 28.1% in FY08.
27
Fig 3.13 – Share in incremental CASA deposits by various bank groups
50
40
Percent
30
20
10
0
SBI and Associates Nationalised Banks Private Sector Banks Foreign Banks
3.4.2 Term deposits
Fig 3.14 – Break-up of term deposits by ownership
Household sector is the primary contributor to the term deposits of the banks. It constituted
47.9% of the total term deposits for FY07 as against 49.1% for FY06. Term deposits from non-
residents constituted 6.7% for FY07 (8.3% for FY06).
In order to match higher credit demands, banks have increased their focus on term deposits in
FY07 and FY08 as it was difficult to fund high credit demand solely with the growth in current
and saving deposits. Banks have offered attractive interest on the deposits with tenure of 1.5 years
or less. Depositors were more inclined to park the funds in short-term deposits as spread between
28
the long-term and short-term deposits had narrowed. This has changed the term deposit mix in
favor of low-tenure deposits.
Fig 3.15 – Trend in spread between various maturities of deposit for PSBs
1.0 0.75
0.75
0.8
0.50
0.5 0.50
0.35
0.3
Percent
- -
(0.15)
Mar'06
Mar'07
Mar'08
Jun'08
Oct'08
(0.3)
(0.25)
(0.5) (0.50)
(0.8)
(0.85)
(1.0)
spread between 1 year and 1 to 3 years deposit
spread between 1 year and 3 or more years deposit
Fig 3.16 – Break-up of term deposits into short-term and long-term deposits
80
70
60 71.1
68.9 64.8
65.2 61.9 60.6 60.5 62.6
50
Percent
40
30 38.1 39.4 39.5
34.8 35.2 37.4
20 28.9 31.1
10
0
Short term Long term

Share of deposits with less than one-year maturity in total term deposits increased continuously
from 28.9% in FY00 to 39.5% in FY06 and thereafter decreasing to 37.4 in FY07. As against this,
long-term deposits after showing continuous decline from FY2000 to FY06, however increased
from 60.5% to 62.5% in FY07.
The increase could mainly be attributed to higher interest rate provided by banks on deposits
ranging from 1 year to 1.5 years of maturity. Banks, particularly private sector banks had come out
with innovative term deposit products such as 400 days deposits, deposits for 1 year and 15 days
etc. Due to this, the share of deposits with 1 to 2 years of maturity increased sharply from 26.5%
in FY06 to 32.7% in FY07.
29
The spread between short-term and long-term deposits have narrowed over the years, particularly
since FY07 onwards. In December 2008, the spread between the short-term and long-term
deposits was either negative or zero for most of the banks. This has altered the maturity profile of
term deposits significantly.
Table 3.1 – Interest spreads between short-term and long-term deposits as on December
2008 (in %)
Name 1 to 1.5 yrs 3 yrs to 5 yrs Spread 5 yrs and above Spread
SBI 9.5 9.0 -0.5 9.0 -0.5
ICICI Bank 10.5 9.5 -1.0 9.5 -1.0
HDFC Bank 9.5 9.0 -0.5 9.0 -0.5
Economic slowdown post December 2008 has altered the scenario of negative spread. Banks are
no longer hungry to garner high deposits to fuel the credit offtake. As on March’09, the spread
between short–term and long-term deposit rate was positive, ranging between 100 bps to 150bps.
3.5 Bank group-wise deposit performance

Total deposits of SCBs grew at 23.1%. Term deposits registered a growth of 24.5% which was
higher than the growth in demand deposits (20.5%) in FY08.
3.5.1 SBI and Associates
Fig 3.17 – Total deposits and y-o-y growth in deposits of SBI and Associates
800,000 25
700,000 21.8 22.2
600,000 16.8 20
Percent
500,000
Rs. cr
11.4 16.8 15
400,000 12.5
300,000 10.7 10
200,000 7.3
100,000 5
30
Fig 3.18 – Break-up of deposits and CASA ratio of SBI and Associates
100% 55
50
80%
43.4 42.9 42.0 45
39.3 39.1
60% 36.5 37.0
Percent
36.6 40
40% 35
30
20%
25
0% 20
% Current A/c Deposits % Saving Deposits % Term Deposits CASA Ratio
The total deposits of SBI and associates grew at a CAGR of 14.6% from FY03 to FY08, lowest
among the group of banks, while the industry CAGR was at 19.6%. Deposits touched at
Rs.7,73,875 crores in FY08 from Rs.6,33,476 crores in FY07, registering a growth of 22.2%.
Low-cost deposits constituted 42.0% of the total deposits, down by 90bps in FY08. The
proportion of low-cost deposits has increased from 36.6% in FY2000 to 43.4% in FY06.
However the same is showing a declining trend since last two years mainly due to increase in term
deposits mobilisation to fund the high growth.
3.5.2 Nationalised Banks
Fig 3.19 – Total deposits and y-o-y growth in deposits of Nationalised banks
30
1,600,000
26.0
1,400,000 25
1,200,000 17.2 18.1 20

Percent
16.0
Rs. cr
1,000,000
13.8 12.9 11.4 15.3 15
800,000
10
600,000
400,000 5
31
Fig 3.20 – Break-up of deposits and CASA ratio of Nationalised Banks
100% 55
50
80%
45
60% 36.2 37.0 38.2
Percent
35.5 36.8 40
35.4 35.4 33.7
40% 35
30
20%
25
0% 20
Total deposits of Nationalised banks grew at a CAGR of 18.5% from FY03 to FY08. Deposits
touched at Rs.16,06,995 crores in FY08 from Rs.13,60,724 crores in FY07, registering a growth of
18.1%. The growth rate in FY08 was lower than that of FY07 (26.0%), which was the highest in
the decade and y-o-y deposit growth in other years was in the range of 11% to 19%.
Low-cost deposits constituted 33.7% in FY08 down sharply from 38.2% in FY06. Growth in the
term deposits was 31.6% and 21.2% in FY07 and FY08, respectively, as against this; the growth
rate in demand deposits was 16.8% and 12.4%, respectively.
Table 3.2 – CASA of Nationalised Banks (in %)

Top 5 banks FY08 FY07 Bottom 5 banks FY08 FY07
Punjab National Bank 43.0 46.2 IDBI Ltd. 16.6 25.4
Bank Of Maharashtra 42.2 43.2 UCO Bank 25.7 29.2
Dena Bank 39.2 44.5 Vijaya Bank 27.3 30.8
United Bank Of India 38.6 42.0 Oriental Bank Of Commerce 27.9 30.3
Punjab & Sind Bank 36.3 45.7 Bank Of India 30.6 32.2
Among the nationalised banks, CASA ratio of IDBI Bank declined sharply from 25.4% in FY07
to 16.6% in FY08, followed by Central Bank of India (CASA declined by 590bps). Out of the 20
nationalised banks, 19 banks showed a declined in CASA ratio in FY08 baring Union Bank of
India, who’s CASA ratio remained constant at 34.9%. Nationalised banks have also resorted to
term deposit for funding high credit demand as well as faces intense competition from private and
foreign banks for cornering higher share in demand deposits.
32
3.5.3 Private Sector Banks
Fig 3.21 – Total deposits and y-o-y growth in deposits of Private Sector Banks
36.2 40
650,000
35
550,000 29.8 28.8
30
450,000 24.0 22.1 22.3
Percent
25
Rs. cr
20.2 17.2
350,000 20
250,000 15
150,000 10
50,000 5

Fig 3.22 – Break-up of deposits and CASA of Private Sector Banks
100% 55
50
80%
45
60%
Percent
40
32.8
40% 30.5 35
29.9 30.4 29.8
30
20% 24.0 23.9 23.9
25
0% 20
Total deposits of Private sector banks grew at a CAGR of 26.7% from FY03 to FY08, highest
among all the banking groups. Deposits touched at Rs.6,75,073 crores as on 31st March 2008
from Rs.5,51,987 crores as on 31st March 2007. Deposits grew by 36.2%, 28.8% and 22.3% in the
years FY06, FY07 and FY08, respectively. CASA ratio for Private sector banks has remained low
as compared to other banking groups over the years. This is because these banks does not have
wide branch network, which is essential for garnering CASA deposits and moreover, innovative
products such as flexi deposits (which allow customer to maintain the fixed deposits which can be
withdrawn as and when need arises) introduced by the private banks also diverted more funds to
such fixed deposit accounts.
33
Low cost deposits constituted 32.8% in FY08 (highest in last 13 years), which has increased from
29.8% in FY07. CASA ratio expanded by 300 bps as against which the CASA ratio for PSBs have
declined. Private sector banks have increased the number of branches over the last 2 to 3 years
and have been able to garner a larger share in current accounts from corporate and corporate
salary accounts from business houses. Growth in demand deposits in FY08 was at 34.5% which is
twice that of growth in term deposits which stood at 17.1%.
Table 3.3 – CASA of Private Sector Banks (in %)

HDFC Bank 54.5 57.7 Yes Bank 8.5 5.8
Axis Bank 45.7 39.9 Indusind Bank 15.7 14.9
Jammu & Kashmir Bank 39.2 37.0 City Union Bank 20.9 24.3
Ratnakar Bank 38.3 37.8 Lakshmi Vilas Bank 21.7 22.0
ING Vysya Bank 31.5 28.9 Karnataka Bank 22.1 23.4
3.5.4 Foreign Banks
Fig 3.23 – Total deposits and y-o-y growth in deposits of Foreign Banks
200,000 32.6 35
31.7
175,000 26.7 30
150,000
25
125,000 20.0
Percent
Rs. cr
100,000 20
15.6
75,000 15
50,000 7.8
9.0 7.4
10
25,000
0 5
34
Fig 3.24 – Break-up of deposits and CASA of Foreign Banks
100% 55
48.0 50.5
44.7 50
80%
42.9 43.2
45
60%
Percent
40
32.5 33.8
40% 35
29.6
30
20%
25
0% 20
Total deposits of foreign banks grew at a CAGR of 22.5% from FY03 to FY08, as against 19.6%
growth of the industry. Deposits touched at Rs.1,91,114 crores in FY08 from Rs.59,190 crores in
FY01. Deposits grew by 31.7%, 32.6% and 26.7% in the years FY06, FY07 and FY08,
respectively.
CASA ratio for foreign banks is highest among all the banking groups (44.7% in FY08).
Requirement of keeping minimum balance in saving account is high for foreign banks.
Table 3.4 – CASA of Foreign Banks (in %)

Arab Bangladesh Bank 90.4 80.2 DBS Bank 3.1 2.1
Mashreq Bank 89.7 48.4 Barclays Bank 5.2 0.8
Antwerp Diamond Bank 87.0 81.8 Bank Of Nova Scotia 5.8 7.2
Sonali Bank 81.4 83.0 Societe Generale 8.5 3.9
Deutsche Bank 69.5 74.4 State Bank Of Mauritius 12.5 15.3
35
Chapter 4 Advances
4.1 Total Advances and growth in advances for SCBs
Advances for SCBs grew at a CAGR of 27.4% during FY03 to FY08
Fig 4.1 – Total advances and y-o-y growth in advances of SCBs

2,550,000 33.3 31.8 35
30.6
30
2,150,000 25.0
22.8 25
1,750,000 20.0 18.5
16.8 20
Percent
Rs Cr
1,350,000 14.5
15
950,000
10
550,000
5
150,000 0
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08
Total Advances Y-o-Y Growth (%)
Fig 4.2 –Type-wise break-up of total advances for SCBs

70
60 55.9 57.7 58.0
54.5 54.4 47.6 54.0
49.8 49.0
50
41.8 43.1
36.1 38.0
Percent
40 35.8 44.5 37.2 36.0 35.9

30
20
9.7 9.6 8.3 8.0 7.9 8.0 6.8
10 6.3
6.1
0
Bills Purchased & Discounted Cash Credits, Overdrafts & Loans Term Loans
The total advances of SCBs grew by 25.0% in FY08 as compared to 30.6% in FY07. The total
lending of SCBs as a whole grew at a CAGR of 27.4% from FY03 to FY08.
The share of term loans in total advances has constantly increased over the years from 35.8% in
FY2000 to 58.0% in FY08. The higher percentage of term loan signifies better interest rate spread
for the bank. As a result, the share of short-term lending has decreased to 35.9% in FY08 from
36
54.5% in FY2000. The reason for the high share of term loan is increased disbursement to
infrastructure projects over the years which require long term finance and the merger of domestic
financial institutions which typically provide long term infrastructure finance like IDBI with IDBI
Bank and ICICI with ICICI Bank.
Fig 4.3 – Security-wise break-up of total advances for SCBs

100
10.9 14.1 13.6 13.3 14.6 17.7
90 20.0 20.4 23.1
8.9 8.3 8.4 7.4 6.5
80 5.9 5.8 5.2 4.4
70
60
Percent
50
40 80.2 77.7 78.0 79.4 78.9 76.4 74.2 74.4 72.5
30
20
10
0
Secured By Tangible Assets Covered By Bank/ Government Guarantees Unsecured
Share of unsecured advances have increased over the years from 10.9% in FY2000 to 23.1% in
FY08.
4.2 Credit offtake in FY09
During FY09, the growth in credit offtake was at 17.3%, lower than 22.3% for FY08.
Fig 4.4 – Total Credit and y-o-y growth in credit for SCBs (incl. RRBs) for FY09
2,900,000 30
2,800,000 28
2,700,000 26
2,600,000 24
22
Percent
2,500,000
Rs Cr
20
2,400,000 18
2,300,000 16
2,200,000 14
2,100,000 12
Jun-08
Jan-09
Dec-08
May-08
Aug-08
Feb-09
Jul-08
Sep-08
Oct-08
Apr-08
Nov-08
Mar-09
Total Credit for SCBs (Including RRBs) y-o-y growth(%)

37
A closer analysis reveals that credit offtake in FY09 can be divided into two periods viz,
• High credit offtake period (April to September/October 2008)
• Slower credit offtake period (After October 2008)
High credit offtake period (April to September/October 2008)

Credit offtake in H1FY09 increased by 25.2% over H1FY08. The main reasons were :
¾ Relatively high GDP growth rate of 9.3% up to August 2008 resulting in high demand for
credit by corporates.
¾ Sharp increase in credit offtake by oil marketing companies of Rs.36,208 crore during
April-October 2008 as compared with a decline of Rs.1,146 crore in the corresponding
period of the previous year compelled by high crude prices.
¾ Substitution of other sources of finance with bank finance by corporates reflected by

sharp increase in bank resources to the commercial sector (30.4% y-o-y growth upto
Q3FY09) in spite of a an overall flat flow of financial resources to the commercial sector
Slower credit offtake (After October 2008)

The demand for credit moderated from October 2008 onwards, reflecting the slowdown of the
economy in general and the industrial sector in particular. The credit offtake increased by 8.5% in
H2FY09 as compared to 15.9% H2FY08. Decline in commodity prices and drawdown of
inventories brought down working capital requirements by the corporates The demand for credit
by oil marketing companies also moderated due to softening of crude oil prices. In addition,
substantially lower credit expansion by private and foreign banks also muted the overall flow of
bank credit during the period.
Table 4.1 – Bank group-wise credit offtake for FY08 and FY09
y-o-y growth (%) in Credit
Particulars FY08 FY09
Public sector banks (PSBs) 22.5 20.4
Private sector banks 19.9 10.9
Foreign banks 28.5 4.0
Scheduled commercial banks (including RRBs) 22.3 17.3
Credit offtake for PSBs was above the industry average at 20.4%. Credit offtake for private and
foreign banks was at 10.9% and 4.0% for FY09 as compared to 19.9% and 28.5% in FY08
respectively indicating the effects of slowdown.
38
4.3 Sectoral Bank Credit
Fig 4.5 – Break-up of bank credit into various sectors

Deployment of gross bank credit among various sectors remained more or less the same in FY08
as it was in FY07. The industry (small, medium and large) accounts for the largest share in the
bank credit at 38.8% for FY08, followed by services which accounts at 24.4% of bank credit. Fair
spread of credit among the various sectors reduces concentration risk for banks.
Table 4.2 – Break-up of bank credit into various sectors for FY07 and FY08
% of gross bank credit
FY06 FY07 FY08
Food Credit 15.3 2.5 2.0

Non-food Credit 97.2 97.5 98.0
Agriculture and allied 12.0 12.5 12.2
Industry 38.1 37.7 38.8
Services 22.1 22.6 24.3
: of which real estate 1.8 2.4 2.8
Retail Housing loans 12.8 12.5 11.4
Share in gross bank credit for Agriculture and Industry have remained more or less same in last 3
years i.e. from FY06 to FY08. Share of services have increased from 22.1% to 24.3% during the
same period while share of housing loans have reduced. Share of real estate loans have increased
from 1.8% in FY06 to 2.8% in FY08
39
Among the Industry, Infrastructure accounts for highest share at 23.2% for FY08. Credit to
infrastructure has increased from Rs.790 bn in FY05 to Rs.2,023 bn in FY08, registering the
CAGR of 36.4%. Basic metals & metal products and textile accounted for 12.8% and 11.0%,
respectively, of the total industry credit in FY08.
Table 4.3 – Provisional break-up of non-food credit for FY09

As on Feb’07 As on Feb’08 AS on Feb’09*
% of % of
Particulars Rs crore total Rs crore total Rs crore % of total
Non-food Gross Bank Credit 1,715,328 100.0 2,086,381 100.0 2,492,685 100.0
Agriculture and Allied Activities 210,998 12.3 245,011 11.7 297,753 11.9
Industry 658,741 38.4 826,560 39.6 1,039,821 41.7
Retail Loans 453,164 26.4 511,833 24.5 555,392 22.3
Services 392,424 22.9 502,977 24.1 599,719 24.1
Source: RBI and CARE Research (*Feb’09 numbers are provisional)
Provisional data released by RBI shows change in the mix of non-food credit. Share of industry in
non-food credit has increased marginally from 39.6% in February 2008 to 41.7% in February
2009. As against this, share of Retail loans in non-food credit have decreased from 24.5% in
February 2008 to 22.3% in February 2009.
Table 4.4 – Share of various sectors in incremental non-food credit for FY09
As on Feb’08 As on Feb'09*
Particulars Rs crore % of total Rs crore % of total
Non-food Gross Bank Credit 371,053 100.0 406,304 100.0
Agriculture and Allied Activities 34,013 9.2 52,742 13.0
Industry 167,819 45.2 213,261 52.5
Retail Loans 58,669 15.8 43,559 10.7
Services 110,553 29.8 96,742 26.1
Data on sectoral deployment of gross bank credit available up to Feb’09 showed that 52.5 % of
incremental non-food credit (y-o-y) was absorbed by industry as compared with 45.2 % in the
corresponding period of the previous year. Agriculture and allied activities also absorbed 13% of
incremental credit as against 9.2% of incremental credit in previous year. Share in incremental
credit for retail loans dropped to 10.7% as against 15.8% in last year.
40
Table 4.5 – Provisional break-up of industrial credit for FY09
February 2007 February 2008 February 2009*
Particulars Rs crore % of total Rs crore % of total Rs crore % of total
Industry 658,741 100.0 826,560 100.0 1,039,821 100.0
Industry (excluding infra) 524,367 30.6 636,470 30.5 782,961 31.4
Food Processing 36,945 5.6 48,665 5.9 53,855 5.2
Textiles 75,333 11.4 92,195 11.2 103,732 10.0
Paper & Paper Products 10,889 1.7 13,359 1.6 16,491 1.6
Petroleum & Coal Products 33,417 5.1 40,829 4.9 72,762 7.0
Chemicals and Chemical Products 53,933 8.2 61,370 7.4 73,269 7.0
Rubber, Plastic & their Products 8,546 1.3 9,901 1.2 13,269 1.3
Iron and Steel 61,605 9.4 73,266 8.9 100,383 9.7
Other Metal & Metal Products 20,175 3.1 23,809 2.9 30,111 2.9
Engineering 40,361 6.1 50,984 6.2 66,868 6.4
Vehicles & Transport Equipment 21,011 3.2 28,348 3.4 35,505 3.4
Gems & Jewellery 22,715 3.4 24,788 3.0 27,242 2.6
Construction 18,210 2.8 24,066 2.9 38,207 3.7

Infrastructure 134,374 20.4 190,090 23.0 256,860 24.7
Table 4.6 – Share of various sectors in incremental industrial credit for FY09
Feb'08 Feb'09
Rs % of Rs % of
Particulars crore total crore total
Industry 167,819 100.0 213,261 100.0
Food Processing 11,720 7.0 5,190 2.4
Textiles 16,862 10.0 11,537 5.4
Paper & Paper Products 2,470 1.5 3,132 1.5
Petroleum, Coal Products & Nuclear Fuels 7,412 4.4 31,933 15.0
Chemicals and Chemical Products 7,437 4.4 11,899 5.6
Rubber, Plastic & their Products 1,355 0.8 3,368 1.6
Iron and Steel 11,661 6.9 27,117 12.7
Other Metal & Metal Products 3,634 2.2 6,302 3.0
Engineering 10,623 6.3 15,884 7.4
Vehicles and Transport Equipments 7,337 4.4 7,157 3.4
Gems & Jewellery 2,073 1.2 2,454 1.2
Construction 5,856 3.5 14,141 6.6
Infrastructure 55,716 33.2 66,770 31.3
The expansion of incremental non-food credit to industry was led by infrastructure, petroleum,
coal products & nuclear fuels, iron & steel, engineering, construction and chemical & chemical
products industries. As against this, the share of textile and vehicles & transport equipment
declined in incremental credit.
41
Table 4.7 – Bank group-wise provisional sectoral bank credit growth for FY09
Particulars PSBs Private Banks Foreign Banks
Feb'08 Feb'09 Feb'08 Feb'09 Feb'08 Feb'09
Non-food Gross Bank Credit 22.3 23.9 19.0 9.1 28.8 1.6
1. Agriculture and Allied Activities 19.3 19.2 (1.3) 39.0 NA NA
2. Industry 23.2 31.0 35.2 7.4 35.0 6.5
3. Personal Loans 15.6 11.6 8.5 7.4 14.5 (8.1)
of which: Housing 13.2 10.0 13.5 4.9 (2.1) (4.4)
4. Services 28.6 24.4 28.5 4.5 41.2 6.9
of which: Real Estate Loans 47.9 79.1 6.9 13.9 (36.0) 40.5
of which: NBFC 53.0 44.8 14.0 38.1 64.0 20.8
Small Enterprises 49.0 36.7 209.5 23.2 190.4 59.5
Significant variations have been observed in the flow of credit to different sectors by the three
broad bank groups during FY09. Credit growth for PSBs at 23.9% was not only the highest
among all banking groups and but also higher than that achieved in FY08. The private and foreign
bank’s credit growth slowed down to 9.1% and 1.6% as against 19.0% and 28.8% in previous
year. However, credit growth to personal loans and services decelerated by all three banking
groups. Amongst services, credit to real estate accelerated significantly, while that to small
enterprises decelerated. Credit growth by PSBs to industry accelerated in FY09.
4.4 Retail Loans
Retail loans constituted 23.1% of total bank credit as on 31st march 2008. With in retail loans,
housing loans accounted for the largest share at 44.3%, followed by personal loans at 34.7%. Auto
loans, credit card receivables and consumer durables constituted 5.4%, 4.8% and 0.8% of retail
loans respectively as on 31st March 2008.
Table 4.8 – Break-up of retail credit for SCBs (including RRBs)

FY05 FY06 FY07 FY08 CAGR
(FY05
% of % of % of % of to
Rs cr Rs cr Rs cr Rs cr
total total total total FY08)
Housing Loans 134,276 50.4 179,116 47.7 224,481 46.0 252,932 44.3 23.5
Consumer Durables 3,810 1.4 4,469 1.2 7,296 1.5 4,802 0.8 8.0
Credit Card
Receivables 8,405 3.2 12,434 3.3 18,317 3.8 27,437 4.8 48.3
Auto Loans 35,043 13.1 61,369 16.3 82,562 16.9 87,998 15.4 35.9
Other Personal Loans 85,077 31.9 118,351 31.5 155,204 31.8 197,879 34.7 32.5
Total 266,611 100.0 375,739 100.0 487,860 100.0 571,048 23.1 28.9
y-o-y growth 40.9% 29.8% 17.1%
In spite of bank credit growth of 25%, retail loans grew by 17.1% in FY08. Consumer durable
loans declined by 34.2% in FY08 as against the growth of 63.3% in FY07. Growth in housing and
auto loans moderated to 12.7% and 6.6% in FY08 compared to 25.3% and 34.5% growth in
FY07. Credit card receivables and other personal loans grew by 49.8% and 37.5% in FY08.
42
4.5 Lending to the sensitive sector
RBI classifies lending to capital market, real estate and commodities markets as sensitive-sector
lending. Total lending to sensitive sector has grown at a CAGR of 46.1% from Rs.1,683 bn to
Rs.5,110 bn during FY05 to FY08 as against this, the CAGR growth in total advances was at
29.1%.
Fig 4.6 – Lending to sensitive sectors for FY08

Real estate loans accounted for largest share at 87.4% of total sensitive sector lending followed by
capital market at 12.3%.
Fig 4.7 – Bank group-wise lending to the sensitive sector (as a % of total advances)
40
35.1 34.1
32.4
35 31.3
30
29.5
Percent
25 27.9
26.5
24.6 19.1
20 16.0 18.9
13.9
15 16.7 17.1
15.5
10
10.3
5
FY05 FY06 FY07 FY08
Public sector bank New Private sector bank

Old Private sector bank Foreign bank
43
Among the group of banks, PSBs have least exposure to sensitive sector lending at 17.1% of total
advances. The exposure of new private sector banks to sensitive sector advances is twice that of
the PSBs and was at 34.1% of total advances in FY08. Old private sector and foreign bank
exposure was at 18.9% and 26.5%, respectively, in FY08.
4.6 Priority sector lending
RBI classifies lending to certain sectors of the economy as a priority sector lending. RBI has over
the years changed the definition of what constitute priority sector depending upon the needs and
structural changes in the economy. Priority sector includes agriculture, small enterprises sector,
micro credit, housing and education. Target for priority sector as a whole and sub-targets for
banking groups are set and revised by RBI from time to time and are calculated as a percentage to
adjusted net bank credit.
4.6.1 Public and Private Sector Banks

Target for priority sector lending for PSBs and private sector banks is kept at 40% of Net bank
credit. Private sector banks have met their overall priority sector lending target. In fact for FY08,
priority sector lending was at 47.5% of net bank credit as against the stipulated target of 40%.
Priority sector lending by PSBs marginally fell short of the target of 40% by 30bps in the FY07
but jumped to 44.6% in FY08.
Fig 4.8 – Priority Sector lending for PSBs and Private Sector Banks (as a % of total
advances)
48 47.5
46
43.6 44.6
44 42.8 42.7
42.8
42
40.3
40
39.7
38
FY05 FY06 FY07 FY08
Public sector banks Private sector banks Target
44
Table 4.9 –Break-up of Priority Sector Lending for PSBs and Private Sector Banks (Rs cr)
Rupees in crores PSBs Private sector banks
2005 2006 2007 2008 2005 2006 2007 2008
Agriculture 109,917 154,900 202,614 248,685 21,636 36,185 52,034 57,702
% of Net bank credit 15.3 15.2 15.4 17.4 13.5 13.5 12.7 15.4
Target 18% 18%
Micro and Small Enterprises 67,800 82,492 102,550 148,651 8,592 10,447 13,136 46,069
Target 10% 10%
Other Priority Sector 125,114 164,473 206,661 211,627 38,797 58,243 76,919 59,452
Priority sector advances 307,046 409,748 521,180 608,963 69,886 106,586 143,768 163,223
% to net bank credit 42.8 40.3 39.7 44.6 43.6 42.8 42.7 47.5
4.6.2 Foreign Banks

Foreign banks lending to the priority sector have been above the target stipulated by RBI since
FY05. For FY08, lending to priority sector as a percentage to net bank credit stood at 39.5% as
against the target of 32%.
Fig 4.9 – Priority Sector lending for Foreign Banks (as a % of total Advances )
40
39.5
39
38
37
36 35.3
35 34.6
34
33
33.4
32
31
FY05 FY06 FY07 FY08
Foreign banks Target
45
Table 4.10 – Break-up of Priority Sector Lending for Foreign banks (Rs cr)
Foreign banks
2005 2006 2007 2008
Export credit 12,339 17,326 20,711 29,007
% of Net bank credit 18.3 19.6 18.3 22.8
Target 12%
Micro and Small Enterprises 6,907 8,430 11,637 15,489
% of Net bank credit 10.2 9.5 10.3 12.2
Target 10%
Priority sector advances 23,843 30,439 37,835 50,301
% to net bank credit 35.3 34.6 33.4 39.5
Foreign banks are being stipulated a target of 12% for export credit and do not have any target
for lending to agriculture. In lieu of advances to weaker section, foreign banks are obliged to lend
to small scale industry to the tune of 10% of their net bank credit.
4.7 Bank group-wise Advances performance
Fig 4.10 – Total advances and y-o-y growth in advances of SBI and Associates
35
575,000 30.5
29.8 30
500,000 29.1
23.1
425,000 25
19.0
16.6 16.5 20
Percent
Rs Cr
350,000 15.0
275,000 15
9.4
200,000 10
125,000 5
50,000 0
46
Fig 4.11 – Type-wise break-up of total advances for SBI and Associates
70
60 58.3 56.4 51.5 55.2
55.1 52.0 53.9 54.9
45.3
50
39.2 38.3 37.7 37.5 37.4
Percent
40 32.9 35.3 45.2

32.5
30
20
9.1 10.8 9.6 9.3 9.5 9.6 8.4
10 7.7
7.5
0
The total advances of SBI and associates grew by 23.1% in FY08 as compared to 29.8% in FY07.
The total lending of the group as a whole grew at a CAGR of 25.7% from FY03 to FY08. Share
of SBI and associates in total lending of SCBs has been on a declining trend from 24.5% in FY06
to 24.35% in FY07 and 23.97% in FY08.
The share of term loans in total advances has constantly increased over the years from 32.5% in
FY2000 to 55.2% in FY08. The higher percentage of term loan signifies better interest rate spread
for the bank. As a result, the share of short-term lending has decreased to 44.8% in FY08 from
67.5% in FY2000.
Fig 4.12 – Security-wise break-up of total advances for SBI and Associates
100 5.8 11.4 12.3 12.4 15.4
90 8.3 20.9 21.0 21.4 23.3
7.6 6.3 7.2
80 7.4
4.4 6.9 5.6 4.3
70
60
Percent
50
40 86.0 81.0 81.4 80.4 77.3 74.7 72.2 73.0 72.4
30
20
10
0
Unsecured advances as a percentage of total advances were at 5.8%, around half of the industry
unsecured advances which stood at 10.9% in FY2000. The proportion of unsecured advances for
47
SBI and associates crossed the industry level of 23.1% in FY08 and stood at 23.3%.
Fig 4.13 – Total advances and y-o-y growth in advances of Nationalised Banks
45
1,200,000
38.1 40
1,050,000
35
29.0 30.4
900,000 25.7 30
25
Percent
Rs Cr
750,000 18.5 19.6

18.1
600,000 13.9 14.5 20
15
450,000
10
300,000 5
150,000 0
Fig 4.14 – Type-wise break-up of total advances for Nationalised Banks
60 55.4 56.0 56.1 53.9 55.6

48.5 52.7 54.9
51.2
50
42.2 41.3 39.3 39.1
40 37.2 37.2 37.3 39.3
45.0
Percent
30
20
10 7.4 6.8 6.7 6.7 6.5 6.6 6.0 5.8

5.3
0
Nationalised banks total advances grew by 25.7% in FY08 to reach Rs12,03,782 crores as
compared to 30.4% growth in FY07 with a CAGR growth of 27.3% from FY03 to FY08.
Nationalised banks share in total deposits of SCBs stood at 48.6% in FY08 as against 48.3% in
FY07.
Following the industry trend, the share of long-term loans (term loans) in total advances increased
from 37.2% in FY2000 to 58% in FY08. Share of short-term deposits have decreased from 62.8%
to 44.4% in the same period.
48
Fig 4.15 – Security-wise break-up of total advances for Nationalised Banks
100
9.7 11.5 12.9 12.9 13.3 15.1
90 17.8 17.3 20.0
8.7 8.5 7.2 6.5
80 9.9 7.3 6.5 6.2 5.3
70
60
Percent
50
40 81.6 80.0 77.2 79.9 80.1 77.7 75.7 76.5 74.7
30
20
10
0

Unsecured advances as a proportion of total advances for nationalised banks have always
remained less as compared to that of the industry. Share of unsecured loans in total loans were at
9.7% in FY2000 and increased to 20.0% in FY08.
Fig 4.16 – Total advances and y-o-y growth in advances of Private Sector Banks
71.1 80
530,000
70
450,000
60
370,000 50
41.4
Percent
Rs Cr
290,000 30.5 29.9 40

32.5 25.0
22.1 30
210,000 18.3 23.7
20
130,000 10
50,000 0
49
Fig 4.17 – Type-wise break-up of advances for Private Sector Banks
80
65.0 68.4 70.3 69.5
70 64.0 65.5
60.5
60
52.3 51.3
50
Percent
40 32.5
29.5 30.5 27.9 26.6
30 25.7 25.7 24.8 25.2
20 18.2 16.2
10 8.9 8.0 8.3 8.8 5.9 4.9
5.3
0
Total advances of Private sector banks grew at a CAGR of 30.7% from FY03 to FY08. The share
of all SCBs in total advances stood at 20.9% in FY08.
Private Sector banks have changed the mix in favor of term loans significantly over the period.
Among the group of banks, Private sector banks have highest share of term loans in its total
advances (69.5% as on FY08), which has increased from 29.5% in FY2000. Share of short-term
loans have declined significantly from 70.5% in FY2000 to 30.5% in FY08.
Fig 4.18 – Security-wise break-up of total advances for Private Sector Banks
100
11.4 14.1 8.3 8.1 9.8 13.9
90 5.8 6.4 16.8 18.6 20.8
5.2
11.9 8.3 4.4 3.3
80 2.9 2.8
70
60
Percent
50
40 85.9 85.5 85.1 81.7 80.0
76.7 77.6 78.5 76.4
30
20
10
0

Unsecured advances of Private sector banks are pegged at 20.8% for FY08, which is below the
industry unsecured advances at 23.1%.
50
4.7.4 Foreign Banks
Fig 4.19 – Total advances and y-o-y growth in advances of Foreign Banks
170,000 35
29.5 29.5
150,000 27.5 30
24.5
130,000 20.7 20.7 25
110,000 20
Percent
Rs Cr
16.0
90,000 13.1 15
70,000 7.3 10
50,000 5
30,000 0

Fig 4.20 – Type-wise break-up of total advances for Foreign Banks

60
48.8 46.1 48.7 47.9 45.0 49.2 48.0 49.3 48.9
50
40 44.3 40.9 42.2

42.1 41.0 41.6 41.3
Percent
37.6
30 38.1
20
13.1 11.8 13.6 11.1 10.6 10.0 9.8 9.1
10 9.8
0
Total advances of foreign banks grew at a CAGR of 25.3% from FY03 to FY08 to touch
Rs1,61,133 crores in FY08. Share of term loans in total advances was at 48.9% for FY08, which
has remained more or less constant in last 5 years.
51
Fig 4.21 – Security-wise break-up of total advances for Foreign Banks
100
90
35.9 38.8 34.9 32.6 34.0 36.4
80 42.3 45.7
52.8
70
60 8.1 12.0 11.3 7.3 5.6
9.3
Percent
4.9 3.6
50
3.9
40
30 56.1 56.2 58.7 57.9
51.9 53.1 52.7 50.8
20 43.2
10
0

Share of unsecured advances has always been higher for foreign banks. The exposure to
unsecured loans was as high as 52.8% of total advances, more than double of that of the industry.
4.8 Bank group-wise Deposit -Advances Maturity Matching

Table 4.11 – Maturity-wise break-up of deposits for various bank groups
SBI and Nationalise Foreign Private
Associates d Banks Banks Banks SCBs
Deposits 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008
Total 100 100 100 100 100 100 100 100 100 100
1 - 14 days 10.6 10.1 7.6 6.8 24.2 23.5 9.5 7.4 9.6 8.7
15 - 28 days 1.3 1.5 3.6 3.2 6.1 9.1 4.2 4.0 3.3 3.3
29 days to 3 months(M) 6.4 6.1 9.5 9.2 14.4 16.8 13.3 13.1 9.8 9.7
Over 3 M to 6 M 6.3 6.7 8.8 9.5 9.6 7.7 12.0 12.7 8.9 9.4
Over 6 M to 1 year 11.9 11.0 15.6 19.4 9.7 7.6 18.1 18.4 14.9 16.5
Up to 1 year 36.5 35.5 45.1 48.1 64.0 64.7 57.1 55.6 46.6 47.6
Over 1 year to 3 years 28.5 23.2 29.2 28.0 35.6 33.3 36.4 34.6 30.8 28.5
Over 3 years to 5 years 18.7 15.9 7.7 7.7 0.4 0.4 3.9 3.8 9.1 8.4
Over 5 years 16.4 25.4 18.0 16.2 0.0 1.6 2.6 6.0 13.5 15.4
Over 1 year 63.5 64.5 54.9 51.9 36.0 35.3 42.9 44.4 53.4 52.4
52
Table 4.12 – Maturity-wise break-up of advances for various bank groups
SBI and Nationalise Foreign Private
Associates d Banks Banks Banks SCBs
Deposits 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008
Total 100 100 100 100 100 100 100 100 100 100
1 - 14 days 14.4 15.2 10.7 8.7 17.1 12.9 5.6 5.9 10.9 9.9
15 - 28 days 1.6 2.6 3.3 3.1 7.0 7.0 1.3 1.8 2.7 3.0
29 days to 3 months(M) 4.8 4.2 8.3 10.0 14.4 13.8 6.4 7.2 7.4 8.3
Over 3 M to 6 M 4.5 3.8 7.5 7.8 8.3 9.2 7.3 7.0 6.8 6.8
Over 6 M to 1 year 5.5 6.9 10.1 10.9 5.4 6.8 12.0 13.1 9.1 10.2
Up to 1 year 30.8 32.7 39.8 40.7 52.2 49.6 32.6 35.0 36.9 38.1
Over 1 year to 3 years 40.4 37.2 29.5 31.3 31.2 34.4 39.3 34.7 34.3 33.6
Over 3 years to 5 years 10.5 11.4 13.6 11.1 6.1 6.6 11.8 12.0 12.0 11.1
Over 5 years 18.3 18.7 17.1 17.0 10.5 9.4 16.3 18.3 16.8 17.2
Over 1 year 69.2 67.3 60.2 59.3 47.8 50.4 67.4 65.0 63.1 61.9
Table 4.13 – Maturity-mismatch between deposits and advances

Private
SBI and Asso Nationalised Foreign banks SCBs
2007 2008 2007 2008 2007 2008 2007 2008 2007 2008
Mismatch % % % % % % % % % %
1 - 14 days -3.8 -5.1 -3.1 -1.9 7.1 10.6 3.9 1.6 -1.3 -1.3
15 - 28 days -0.3 -1.1 0.3 0.0 -0.9 2.1 2.9 2.2 0.6 0.3
29 days to 3 M 1.6 2.0 1.2 -0.8 0.0 3.1 6.8 5.8 2.4 1.4
Over 3 months to 6M 1.7 2.9 1.3 1.7 1.3 -1.5 4.7 5.7 2.1 2.6
Over 6 months to 1 yr 6.4 4.1 5.5 8.4 4.3 0.8 6.1 5.2 5.9 6.4
upto 1 year 5.7 2.8 5.3 7.4 11.8 15.1 24.5 20.6 9.7 9.5
Over one year to 3 yrs -11.9 -14.0 -0.3 -3.3 4.4 -1.0 -2.9 -0.1 -3.5 -5.1
Over 3 years to 5 yrs 8.1 4.5 -5.9 -3.3 -5.7 -6.3 -7.9 -8.2 -2.9 -2.7
Over 5 years -2.0 6.7 1.0 -0.7 -10.5 -7.8 -13.7 -12.2 -3.3 -1.7
Over 1 year -5.7 -2.8 -5.3 -7.4 -11.8 -15.1 -24.5 -20.6 -9.7 -9.5
Private sector banks has highest mismatch
The above table shows the mismatch between the maturities patterns of deposits and loans for
the various bank groups. For all SCBs taken together, banks have higher proportion of short-term
deposits compared to short-term advances. As on March 31, 2008,, the banks have 47.6% of its
total deposits as short-term deposits as against this, short-term loans and advances were 38.1%.
This shortfall is used to fund long-term loans and advances. We believe that the mismatch to a
certain extent is needed for the banks to generate higher Net interest margin. High mismatch may
create asset-liability mismatch problem especially when the banks find it difficult to roll over the
low-cost deposits.
The mismatch is highest in case of private sector banks which is as high as 20.6% shortfall
between short-term deposits and short-term loans. The mismatch is lowest in case of SBI and its
associate at 2.8% for FY08.
53
Chapter 5 Investments
Investment of a bank can be divided as follows
Fig 5.1 – Break-up of Investments
Investments
SLR Investments Non – SLR Investments
Government and other

Commercial papers, shares,

approved securities bonds and debenture issued
by corporate
5.1 SLR Investments

The Banking Regulation Act, 1949 requires the banks to invest a prescribed minimum of their net
demand and time liabilities in Government and other approved securities. The ratio of investment
in government and other approved securities to Net demand and time liabilities of a bank is know
as Statutory Liquidity Ratio (SLR).
As a part of financial reforms and to tap the growing need of credit of the economy, the SLR
requirement for banks was gradually reduced to 25% in October 1997 from its peak of 38.5% in
February 1992. SLR requirements were kept at 25% from October 1997 till November 2008.
After 10 years, on November 2, 2008, the RBI reduced the SLR requirement by 100 bps to 24%.
This was mainly done due to the liquidity crunch faced by the banking sector and the economy as
a whole.
54
Fig 5.2 – SLR Investment and Requirement by SCBs
42
40
38 SLR cut by 100 bps
after 10 years to counter
36
liquidity crunch and
34 support growing credit
Percent
32 demand
30
28
26
24
22
20
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
SLR Investments SLR requirement

Fig 5.3 – SLR Investments by SCBs over the years
42
40
Period of high credit
38
growth reduced the
36 SLR invest by banks
to fund credit offtake
34
Per cent
32
30
Period of slowdown and
28 low credit offtake forced
26 banks to park the funds in
investments
24
22
20
Sep-98
Sep-99
Sep-00
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Mar-98
Mar-99
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
55
Investment in SLR by SCBs has increased from 30.9% as in March 1999 to 40.6% as in May 2004.
The increase in investments in government securities can be attributed to :
1. The period from FY1999 to FY03 witness reduced credit demand due to industrial
slowdown in India. This led the banks to park more funds in government securities
which are considered to be safe. Also interest rates have declined during the same
period, which offered banks high yields on investments.
2. From March 1996 onwards, Banks were required to maintain 8% of their risk-
weighted assets as capital. The period of industrial slowdown increased the risk of
high Non Performing Assets (NPA) levels for banks. The need for increase in capital
to meet the capital adequacy norms, coupled with the increased risk environment,
made the banks more risk averse. Investments in government securities which carry
0% risk weights for capital adequacy became safe and obvious choice for banks.
The period of industry slowdown (FY1999 to FY03) was followed by a period of high economic
growth and a sharp pick-up in credit. During the last five years (From FY03 to FY08), the total
advances by SCBs grew at CAGR of 27.4% as against CAGR growth of 17.9% during the
previous five years i.e. from FY1998 to FY03.
Fig 5.4 –Mismatch between the CAGR in deposits and advances of SCBs
50 Gap funded by restricting and

45 liquiditating SLR and Non SLR
Investments
40
35
30 27.4
Percent
25 19.6
17.9
20 16
15
10
5
0
Deposits Advances Deposits Advances
CAGR FY98 to FY03 CAGR FY03 to FY08
56
Fig 5.5 – Credit-deposit and investment-deposit ratio of SCBs
80
74.61
73.46
70.07
70
62.63
60 54.53
53.69 54.82
Percent
49.82
50 51.13 50.95
48.89
46.62 47.33
40
40.03
35.25 35.43
30
20
Credit - Deposit ratio Investment-deposit ratio

During the period FY03 to FY08, high credit demand was coupled with lower growth in overall
deposits. During this period, the sovereign yield also hardened significantly. Factors such as
robust credit growth as compared to deposits growth and hardened sovereign yield led to
significant adjustment in investment portfolio. Banks resorted to restricting fresh SLR investment
and at also liquidation of the SLR investment to fund credit growth.
5.2 Non-SLR Investments

Non-SLR investments by SCBs comprise of commercial papers and shares, debenture/bonds
issued by public sector undertakings and by the private corporate sector and units of mutual
funds.
57
Fig 5.6 – Composition of Non-SLR Investments over the years for SCBs
90
80
70
60
Per cent
50
40
30
20
10
0
FY02 FY03 FY04 FY05 FY06 FY07 FY08 Oct'08
Bonds/debentures Commercial Paper Shares Units of Mutual Funds
There has been a significant change in the composition of Non-SLR investments. Investments in
fixed rate instruments (bonds and debentures) have declined over the years from 81.7% of total
non-SLR investment in FY02 to 49.1% in FY08 and further to 47.5% in October 2008. The
other three heads viz. commercial papers, shares and mutual funds have increased their
proportion in total non-SLR investments. Investment in commercial papers, shares and mutual
funds have increased from 7.2%, 6.6% and 4.5% of total non-SLR investment in FY02 to 14.3%,
25.7% and 12.5%, respectively, in October 2008.
58
5.3 Bank Group-wise Credit-Deposit ratio, Investment-Deposit ratio
and (Credit + Investment)/Deposit ratio
Fig 5.7 – Credit, Investment to deposit ratio for SBI and Associates
120
110
110.0 109.6 110.8
100 108.2 107.9
105.5
98.5 99.7
90
80 76.2 76.7
Percent
70 68.5
57.1 57.2 56.3
60 52.9
50.4
50
50.9 51.6
48.2 46.9 48.4

40 41.4
30 33.4 34.1
20
Credit - Deposit ratio Investment-deposit ratio (Credit + Investment) - Deposit ratio
Fig 5.8 – Credit, Investment to deposit ratio for Nationalised Banks

120
110
100 106.9 105.9 103.7 103.5
90 99.1 99.5
91.6 94.6
80 71.7
Percent
68.0 70.4
70
61.2
60 51.2 52.3 51.9
48.3
50
47.6
40 43.5 46.8 45.7
43.3 37.8
30 33.3 31.9
20
59
Fig 5.9 – Credit, Investment to deposit ratio for Private Sector Banks
140
120 127.1
118.1 115.0 115.2 114.0 118.0
113.9
100
Percent
95.2
75.1 76.8
80 70.3 73.0
68.7 66.6
63.4
60
49.8 58.4
51.5 50.5
40 45.4 44.7 42.1 38.9 41.2
20
Fig 5.10 – Credit, Investment to deposit ratio for Foreign Banks

160
140
133.1 134.1 136.8 131.8 131.2 136.1
120 129.8 127.4
Percent
100
87.2 85.8 84.3
83.8
75.4 75.3 75.5
80 72.6
60
60.4 54.4 58.9 51.9
49.6 46.1 47.4 51.8
40
20
Robust economic growth and massive capital expenditure both by government and private sector
has resulted in higher demand for credit. The ratio of Credit + Investment divided by total
deposit has surpassed 100% in FY02 and has increased to 110% for FY08. This means that banks
have lend more than the total deposits collected even after keeping the statutory investment aside.
Credit growth has been funded through non deposit borrowings. The borrowing rates for banks
were lower during the same period which gave banks better spread for funding advances through
borrowed funds.
60
The ratio of Credit + Investment divided by total deposit was highest for foreign banks at 136%,
followed by private sector banks 118%. Private and foreign banks have more resorted to
borrowed funds for funding credit requirement mainly because of
¾ Aggressive approach adopted by the private and foreign banks to increase their overall
business.
¾ Private and foreign banks have fewer branches as compared to PSBs. Branch network
which is essential for garnering high deposits.
¾ Credit offtake is driven by the service quality in terms of ease and timely disbursement of
credit which is better than the PSBs.
¾ These banks concentrated on retail credit more as compared to PSBs, where service
became the key reason for choice of a bank.
61
Chapter 6 Total Income
Total income of a bank can be divided as follows
Fig 6.1 – Break-up of total income
Total Income
Interest Income Other Income
Core Income Non-core

Income
6.1 Interest on Advances and Investments
Income of the bank can be divided into two broad categories: Interest income and other income.
Interest income comes from four sources:
1. Interest on advances
2. Interest on investments
3. Interest on money with RBI and other inter-bank lending
4. Others
Fig 6.2 – Break-up of Interest income of SCBs

75
70 71.4
65 65.9
60
58.9
55
Percent
50 48.2 52.3
46.7 48.7 48.6
45 42.3
45.2 44.4 45.7
40 43.9
35.8
35
30 29.3
25.5
25
Interest/Discount On Advances/Bills Income On Investments
62
In the recent years, the banks have liquidated and reduced the share of investments in its total
asset base keeping it close to the statutory minimum level which has got reflected in the falling
trend of interest income from investments. Share of interest on investments have reduced in favor
of interest on advances as banks have invested less funds in investment to fund credit growth.
Share of interest income on advances and bills have increased from 48.6% in FY04 to 71.4% in
FY08 as against this, share of income on investment has reduced from 45.7% in FY04 to 25.5%
in FY08.
6.2 Other Income
Table 6.1 – Proportion of other income in total income for various bank groups (in %)
SBI & Nationalised Private Sector Foreign

Year SCBs Associates Banks Banks Banks
FY01 13.0 13.6 11.2 12.6 21.0

FY02 15.9 13.4 14.5 20.5 25.2
FY03 18.3 16.4 16.7 22.9 25.5
FY04 21.6 21.0 20.0 23.0 30.9
FY05 18.1 17.7 16.2 19.5 29.7
FY06 16.0 16.2 12.3 18.7 30.4
FY07 14.1 12.2 10.5 17.9 27.8
FY08 16.1 14.4 12.3 19.2 30.1
The proportion of other income in total income is highest for foreign banks at 30.1% for FY08,
whereas the industry average for the same year is at 16.1%. For private banks it stood at 19.2% of
total income. The proportion is higher for these banks because of the expertise developed by
them to provide fee-based services and advance technologies employed by them to do the same.
Other income can be divided broadly into two categories.

6.2.1 Fee income
Fee income, which includes bank charges, draft charges, fees for cash management, corporate
bank accounts services, card income and fees, processing fees, depository services, commission
and brokerage, fees from sale of third-party products e.g. mutual funds and insurance products,
forex management service charges and other fees generated due to normal banking activities. Core
fee income has no correlation with interest rate but is correlated to credit growth and economic
activity. Banks have over the years increased their concentration on core fee-based income to
improve the bottom line. Since last few years, increase in economic activity and good primary and
secondary securities markets have helped the banks to garner large increase in their core fee-based
incomes from depository and other related services.
63
Table 6.2 – Trend in other income (excluding Profit on sale/revaluation of investments
and fixed assets) (Rs Cr)

FY01 13,961 4,660 5,470 1,659 2,171
FY02 14,666 4,986 5,694 1,765 2,220
FY03 17,354 5,329 6,187 3,259 2,580
FY04 20,422 5,991 6,916 4,113 3,401
FY05 25,995 7,020 8,884 5,675 4,416
FY06 33,282 8,832 10,274 8,195 5,981
FY07 40,808 9,258 12,716 10,954 7,879
FY08 50,201 10,287 15,442 14,159 10,314
CAGR
(FY03-FY08) 23.7 14.1 20.1 34.1 31.9
Fee income for SCBs grew at a CAGR of 23.7% from FY03 to FY08 as compared to CAGR of
17.1% in total interest earned. Private and foreign banks' fee income grew at a faster rate than the
industry average.
Table 6.3 – Bank group-wise share in interest and fee income for FY08
Share in Interest income Share in Fee income

SBI and Associates 22.8 20.5
Nationalised Banks 46.4 30.8
Private Sector Banks 23.0 28.2
Foreign Banks 7.9 20.5
Total (SCBs) 100.0 100.0
Private and foreign banks were increasingly focused on fee-based services due to high margins in
these activities. Advance technology and early entry into the service segments such as forex
management, NRI services, sale of third party products, credit and debit cards gives them an edge
over PSBs to garner high share.
6.2.2 Non-fee income
Non- fee income includes one-time or extra ordinary item like profit/loss on sale of investments
and fixed assets. Profit on sale and revaluation of fixed assets constitutes small proportion of total
non-fee based income.
64
Profit on sale/revaluation of Investments
One of the major components of other income is profit on sale/revaluation of investments held
by banks. Profit and loss on investments is related to the interest rate movements in the economy
as also to the excess investment held by banks over the SLR requirements.
Fig 6.3 – Trend in profit on sale/revaluation of Investments and 10 year bond yield
falling interest rate

25000 increased the trading 12
profits
20000 10.2 10
7.97
15000 7.3 7.53 8
6.65
Rs cr
6.13 7.93
Percent
10000 6
5.15
5000 4
0 2
-5000 0
Profit on sale/revaluation on Investments 10 Year bond yield
There is an inverse relationship between the bond price and interest rate. When interest rate falls,
the bond price increases and vice-versa. From FY02 to FY04, the benchmark yield on 10-year
bonds has actually decreased from 7.3% in FY02 to 5.15% in FY04. Banks SLR investments
during these periods have also increased to 40% of their total deposits as against the stipulated
SLR requirement of 25%. Re-pricing and trading in upward bond price and softening interest rate
scenario, increased the profit from sales and revaluation of investments.
The trend reversed from FY05 onwards, where interest rate began to rise and fall in bond prices
reduced the profit from investments. Banks also started liquidating their investments to fund high
credit growth during the period of falling bond prices. Profit from sale/revaluation of investment
turned negative in FY07, when bond yield touched a high of 7.97%.
As shown in the table below, banks groups made decent profit from sale and revaluation of
investments in FY03 and FY04. Profit declined across the board for all banks as interest rates
hardened.
65
Table 6.4 – Profit on sale and revaluation of investment for various bank groups (Rs cr)

FY01 3,164.4 694.6 1,676.9 441.5 351.3
FY02 9,334.1 1,014.9 4,807.2 2,487.4 1,024.6
FY03 14,254.2 2,670.0 7,082.1 3,999.0 503.1
FY04 19,279.5 4,927.8 10,243.5 3,497.2 611.0
FY05 8,396.9 2,461.5 5,809.3 703.0 (576.9)
FY06 1,899.4 693.2 1,984.4 (112.1) (666.1)
FY07 (2,395.1) (1,471.5) 52.3 59.8 (1,035.7)
FY08 8,901.0 1,519.0 4,614.0 2,631.0 134.0
66
Chapter 7 Total Expenses
Total expenses of bank can be divided as follows.
Fig 7.1 – Break-up of total expenses
Total Expenses
Interest Expenses Operating Cost

Staff Cost Other

Operating Cost
7.1 Operating cost

Operating cost can be divided into two: staff cost and other operating cost (non-staff cost). We
have analysed staff coast and non-staff cost separately. The operating cost as a percentage of total
assets for SCBs has been declining over the years.
Fig 7.2 – Operating cost as a percentage of total assets for SCBs
2.9
2.7 2.84
2.5
Percent
2.3 2.38
2.35 2.37
2.32 2.30
2.1
2.12 1.98
1.9
1.7
1.5
Operating cost was at 2.84% of total assets in FY01 which decreased to 1.98% of the total assets
in FY08.
67
Public Sector Banks (PSBs)
As shown below, operating cost as a percentage to total assets for the PSBs declined sharply over
the years. Major decline was evident in last two years. For SBI and associates, operating cost as a
percentage to total assets was at 2.9% in FY01 which reduced over the years to 2.4% in FY06 and
declined sharply further to 1.9% in FY08.
Nationalised banks have also followed the same trend over the years. Operating cost as a
percentage to total asset declined from 2.3% in FY05 to 1.6% in FY08. The main reason
attributed for this sharp decline is the higher growth in deposits and advances as compared to
increase in the number of employees or branches. As the PSBs had established presence,
increased business came without corresponding equal increase in employees or branches. Also,
PSBs adopted newer technologies and computerisation of branches also helped in reducing cost.
Fig 7.3 – Operating cost as a percentage of total assets for PSBs

2.9 2.93
2.7 2.90
2.54
2.47
2.5 2.36 2.39
2.28
Percent
2.3
2.23 2.32 2.28 2.07 2.13
2.1 2.21
1.9 1.87
1.84
1.7
1.62
1.5
SBI and Associates Nationalised Banks
Private and Foreign Banks
The ratio of operating cost to total assets for private sector and foreign banks have more or less
remained at the same level over the years. In fact for Private sector banks, the ratio has increased
from 2.0% in FY01 to 2.4% in FY08. Initial years of operations, rapid branch expansion and high
initial investment in technology has kept the ratio constant or increasing for these banks.
68
Fig 7.4 – Operating cost as a percentage of total assets for Private Sector and Foreign
Banks
4.0
3.5 3.37 3.32

3.17 3.27
3.05 3.24
2.97
3.0 2.85
Percent
2.5
2.40
2.41
2.0 2.24 2.33
2.18
2.08
2.04
1.80
1.5
Private Sector Banks Foreign Banks
7.1.1 Staff cost

Staff cost constitute the major portion of the total operating cost of the bank. The banks in
efforts to increase the profitability, need to control the staff cost not only because it forms the
major portion of the operating cost but also due to the fact that interest cost are driven more by
macro-economic factors. However the proportion of staff expense is higher in case of PSBs as
compared to private or foreign banks.
Fig 7.5 – Declining trend in staff cost as a percentage of operating cost for SCBs
80.0
70.0
68.0
60.0 64.7 62.1 60.2 58.8 56.5
50.0 54.5 51.6
Per cent
40.0
30.0
20.0
10.0
0.0
Staff cost (% of operating cost)
Staff cost as a proportion to the operating cost was as high as 68% in FY01. Over the years, the
ratio has decreased to 51.6% in FY08. This can be attributed to the computerisation of banks over
the years and also due to rapid growth of private and foreign banks which use advanced
technology and with lower staff base.
Staff cost analysis cannot be done in isolation as staff cost are generally linked to bank’s size and
69
presence across the regions. We therefore believe that staff cost should be viewed along with the
total business generated by the bank. We have compared the ratio of average business to staff cost
across the bank groups to do meaningful analysis into staff cost.
Fig 7.6 – Average business per unit of staff cost for various bank-groups
250
195.4
200 183.3
161.9
151.8
150 140.4
120.6 119.2
Rs
96.9
100
50
0
FY07 FY08
In terms of Average business per unit of staff cost, the foreign banks followed by private sector
banks were clearly the out performers both in FY07 and also in FY08.
Reason which could be attributed to this are:

¾ Higher fee-based income as against higher asset-based income for PSBs, which can also
be correlated to the table above where operating costs as a percentage of total costs are
higher
¾ High investment in technology, which reduces the staff requirement for these banks.
¾ Business is operated through agency model, in which business is generated through

agents which are not on pay roll of the company. Commissions to agents are generally
lower as compared to employee cost.
¾ Private and foreign banks does not have wide branch network in rural India, where
availability and understanding of technology among the customers is limited, so staff
requirement is high.
¾ Use of new technology like Internet and phone banking and also ATM and electronic
cards reduce the staff requirement. For e.g. ATM requires only security personnel and
customers can do many banking operations all the time. This reduces pressure on branch
staff.
¾ Lesser social responsibility as compared to PSBs for e.g. operates fewer branches in rural
area as these branches get lesser business for the bank.
70
Bank group-wise performance
Fig 7.7 – Staff cost as a percentage of operating cost for various bank-groups
75
65
Percent
55
45
35
25
Staff cost as a percentage to operating cost has decreased from 73% and 76%, respectively, in
FY01 to 60.6% and 61.7%, respectively, in FY08, for SBI and associates and nationalised banks,
respectively. This can be attributed to the Voluntary Retirement Scheme (VRS) launched by PSBs
in FY01 and also advanced technology adopted by these banks.
For foreign banks, contrary to the trend, the proportion has actually increased. It has gone up
from 31.8% in FY01 to 39.9% in FY08. Foreign banks actually started operating in India on low
penetration model, by targeting HNI and corporate clients which requires less staff to service as
compared to retail clients. Also foreign banks were using the agent model in all possible areas of
business like loans, deposits, cards and other services. Foreign banks have started increasing their
branch network to tap more business which has relatively increased the proportion of staff cost
Average business generated by PSBs per unit of staff cost is increasing over the years. Average
business/staff cost increased from Rs.72.4 and Rs.70.9 in FY02 to Rs.120.6 and Rs.140.4 for
FY08 for SBI and associates and nationalised banks, respectively.
PSBs have over the years rationalised their staff requirement. During FY01, a VRS for staff was
introduced in PSBs with a view to downsizing the staff strength and bringing down the operating
cost. The VRS was implemented in 26 out of 27 PSBs and more than 1 lakh staff members were
relieved, entailing an expenditure of Rs.11,885 crore. The banks have amortised this expenses
over five years.
71
Staff expenses for PSBs have increased at CAGR of 11.8% from FY1997 to FY2000 (pre VRS
period), as against this, the CAGR in staff cost was merely at 2.2% during the next four years
from FY01 to FY04. These banks have adopted the use of technologically-advanced banking
products in recent years like ATM, use of cards, core banking, internet and phone banking, which
has reduced the incremental staff requirement compared to the increase in the size of the bank.
Fig 7.8 – Average business per unit of staff cost for PSBs
155
140 140.4
125 119.2
110 99.2 120.6
Rs
95 83.9
75.9 80.1 96.9
80 70.9
65 79.8 79.9
73.9 73.8
72.4
50
Private and Foreign Banks
Average business per unit of staff cost for private banks have actually declined in FY08 to 151.8
from 161.9 in FY07, mainly due to the fact that, banks under these groups are under expansion
mode and new branches or additional staff will take a bit long to generate substantial business.
Fig 7.9 – Average business per unit of staff cost for Private Sector and Foreign Banks
280 263.4
245.1
240 229.7 228.4
195.4
200 177.1
183.3
Rs
160
165.6
156.6 161.9
152.1 149.8 152.2 151.8
120
80
72
7.1.2 Non-Staff cost
Operating cost excluding staff cost has increased at a CAGR of 21.1% from Rs143.9bn in FY02
to Rs374.1 bn in FY08 for SCBs. Within the sub-heads, the expenditure on advertisement and
publicity has shown the highest CAGR growth of 34% in the last five years.
Table 7.1 – Trend in Operating cost excluding staff costs (Rs cr)
Financial Nationalised Private Sector Foreign
Year SCBs SBI Banks Banks Banks
FY01 10,927.9 2,897.4 4,140.8 1,769.2 2,120.6
FY02 11,884.0 2,727.3 4,618.3 2,267.9 2,270.6
FY03 14,386.3 3,015.0 5,403.6 3,755.8 2,211.9
FY04 17,320.1 3,764.0 6,163.2 4,840.3 2,552.7
FY05 20,656.7 4,367.8 7,504.1 5,732.1 3,052.7
FY06 25,740.1 5,094.9 8,835.3 7,961.0 3,849.0

FY07 30,158.4 5,516.5 9,935.0 10,046.7 4,660.2
FY08 37,408.0 6,698.0 11,337.0 13,157.0 6,225.0
CAGR 21.1 17.3 16.0 28.5 23.0
Non-staff operating cost has increased at a CAGR of 21.1% for SCBs during FY03 to FY08. The
CAGR growth for PSBs was lower as compared with private and foreign banks.
Private and foreign banks have adopted low-staff and high-technologically driven model for
growth. They use agent model in place of staff, so agency commission are included in other
operating cost. This was the prime reason for high share and high growth of non-staff cost in
total operating cost.
Table 7.2 – Trend in Advertising and Publicity cost (as a % of total operating cost)
Nationalised Private Sector Foreign
Year SCBs SBI Banks Banks Banks
FY01 1.0 0.3 0.3 2.9 5.7
FY02 0.9 0.3 0.4 2.0 4.3
FY03 1.1 0.4 0.5 2.3 4.1
FY04 1.4 0.7 0.7 2.6 5.2
FY05 1.6 0.6 0.9 3.0 6.3
FY06 2.3 0.8 1.0 2.9 10.4
FY07 2.3 0.7 1.2 2.6 9.1
FY08 2.3 1.2 1.2 2.4 6.8
73
Among the sub-heads of other operating cost, it is important to look at the advertisement and
publicity cost. Overall the banks have increased spend on advertisement and publicity from 1% of
total operating cost in FY01 to 2.3% in FY08. However within the bank groups, the PSBs have
increased their spends on advertisement. Foreign and private banks used advertisement, telephone
and other media devices to reach to the customers. Therefore the share of advertisement
expenditure is as high as 6.8% of operating cost for foreign banks in FY08.
However, the proportion of advertisement cost in total operating cost has decreased both for
private and foreign banks mainly due to the benefit of economies of scale. Advertisement is a
fixed-cost item unlike other variable and semi-variable cost and does not increase as the size of
the business increases. Share of advertisement in total operating cost has decreased from 2.9% in
FY06 to 2.4% in FY08 for private banks and 10.4% in FY06 to 6.8% in FY08 for foreign banks.
74
Chapter 8 Spread and Net interest Margin (NIM)
Spread of the bank is defined as the difference between the Return on investments and advances
and Cost of the funds. Return and cost can be defined as under :
Cost of Deposits (%) = Interest Paid on Deposits/Deposits.*100

Cost of Borrowings (%) = Interest Paid on Borrowings/Borrowings*100.
Cost of Funds (%)= (Interest Paid on Deposits + Interest Paid on Borrowings) / (Deposits +
Borrowings)*100
Return on Advances (%) = Interest Earned on Advances /Advances*100
Return on Investments (%)= Interest Earned on Investments /Investments*100
Return on Funds = (Interest earned on Advances + Interest earned on Investments)/(Advances
+ Investments)*100
Gross Spread = Return on Funds – Cost of Funds
Net interest Margin (NIM) = (Interest earned - Interest paid) / Average Total Assets
Spread determines the Profitability of a bank and can be improved by either cutting down the cost
of the funds i.e. cost of deposits and borrowings or by increasing the return on funds i.e. return
on the advances and investments made by the bank. Cost of deposits has a larger bearing over the
cost of funds as deposits constitute the larger proportion of total funds of a bank.
8.1 Spread and NIM for SCBs

Table 8.1 – Spread of SCBs over the years (in %)
No. Particulars FY04 FY05 FY06 FY07 FY08
1 Cost of Deposits 4.9 4.2 4.1 4.4 5.4
2 Cost of Borrowings 2.5 1.7 3.0 3.3 3.7
3 Cost of Funds 4.8 4.0 4.0 4.3 5.3
4 Return on Advances 8.1 7.1 7.2 7.9 8.9
5 Return on Investments 8.2 7.6 7.7 6.9 6.7
6 Return on Funds 8.2 7.1 7.4 7.6 8.2
7 Spread (6-3) 3.4 3.1 3.3 3.2 3.0
In spite of rapid growth in the credit off take, spread for SCBs decreased from 3.3% in FY06 to
3.0% in FY08, mainly due to the following reasons
1. Cost of the deposits increased by 130 bps from FY06 to FY08. In order to meet high credit
demand banks offered higher interest rate across the maturity and especially on short term
deposits to increase deposit base. Thus, even after high credit growth, spread declined as high
growth in credit came at higher cost to the banks.
2. Return on investment decreased by 100 bps due to softening of interest rate. Due to lower
return on investments, return on funds increased by merely 80 bps from FY6 to FY08, despite an
increase in return on advances by 170 bps during the same period.
75
Fig 8.1 – Net Interest Margin for SCBs (in %)
3.20
3.08 3.08
3.10 3.04
2.99
3.00
2.91
2.90
Percent
2.80
2.70
2.61
2.60
2.50
2.40
2.30
FY03 FY04 FY05 FY06 FY07 FY08
Net interest margin is directly correlated with the spread. In the period of high spread from FY04
to FY06, the NIM was above 3.0% level. In the period of declining spread (3.3% in FY06 to 3.0%
in FY08), NIM also declined from 3.04% in FY06 to 2.6% in FY08.
8.2 Bank group-wise performance

Table 8.2 – Spread of PSBs over the years (in %)
1 Cost of Deposits 5.1 4.4 4.3 4.5 5.4
3 Cost of Funds 5.0 4.2 4.2 4.4 5.3
6 Return on Funds 8.2 6.9 7.5 7.5 8.0
7 Spread (6-3) 3.2 2.8 3.3 3.1 2.7
PSBs had their spreads below the industry average at 2.7% for FY08. The spread is lowest
among the various banking groups. Cost of the funds increased by 90 bps as compared to just 50
bps increase in the return on the funds. There was an improvement in return on advances
(increased by 90bps y-o-y) in FY08 but the return on investment dipped by 30 bps. Over the last
three years, spread has declined from 3.3% in FY06 to 2.7% in FY08, mainly due to increase in
cost of funds from 4.2% to 5.3% and simultaneous decline in return on investment from 8.2%
to 6.8% during the same period.
76
Fig 8.2 – Net Interest Margin for PSBs (in %)
3.55
3.29 3.27
3.35 3.16
3.22
3.13
3.15 2.98 3.00
2.90 2.92
2.95 2.85
Percent
2.75
2.49
2.55
2.33
2.35
2.15
1.95
1.75
NIM for SBI and Associates and Nationalised banks declined from 3.22% and 2.92% in FY06 to
2.49% and 2.33% in FY08 respectively in the period of following spread from 3.3% to 2.7%.
Old Private Sector Banks

Table 8.3 – Spread of Old Private Sector Banks over the years (in %)
1 Cost of Deposits 5.4 4.6 4.5 4.9 5.7
3 Cost of Funds 5.3 4.6 4.5 4.8 5.7
6 Return on Funds 8.5 8.0 7.7 8.0 8.6
7 Spread (6-3) 3.1 3.4 3.2 3.2 2.9
The Spread of old private sector banks was marginally below the industry average at 2.9%.
However, contraction in spread was lower for old private sector banks in the last three years as
compared to PSBs. The spread of old private sector banks declined by 30 bps from FY05 to
FY08 as compared to 60 bps decline in PSBs.
77
New Private Sector Banks
Table 8.4 – Spread of New Private Sector Banks over the years (in %)
1 Cost of Deposits 4.2 3.4 3.6 4.7 5.9
3 Cost of Funds 3.7 3.0 3.5 4.5 5.5
6 Return on Funds 7.7 7.3 6.6 7.4 8.7
7 Spread (6-3) 4.0 4.3 3.1 2.9 3.2
Foreign Banks
Table 8.5 – Spread of Foreign Banks over the years (in %)

1 Cost of Deposits 3.6 3.0 2.8 3.1 3.8
3 Cost of Funds 3.8 3.1 3.2 3.5 4.0
6 Return on Funds 8.4 7.3 7.6 8.2 8.7
7 Spread (6-3) 4.6 4.2 4.3 4.7 4.8
The spread for both new private sector banks (3.2%) and also for foreign banks (4.8%) is higher
than the industry average of 3.0%. Foreign banks have highest spread, mainly due to low-cost
deposits and also due to lending to the sectors where returns on advances are generally higher.
Both new private sector banks and foreign banks have been able to increase their return on
advances along with the corresponding increase in cost of funds. Contrary to the trend in the
industry, new private sector banks could increase the return on investments.
78
Fig 8.3 – Net Interest Margin for Private and Foreign Banks (in %)
4.75 4.36 4.33
4.25 4.05
3.73
3.75 3.54
3.42
Percent
3.25
2.74 2.77 2.69
2.75 2.51
2.42
2.25 2.05
1.75
1.25
Movement in NIMs was same as in the spread for private and foreign banks. Contrary to industry
trend, NIM for foreign banks actually increased from 4.05% in FY06 to 4.33% in FY08
79
Chapter 9 Profitability
9.1 Scheduled Commercial Banks (SCBs)
Table 9.1 – Statement of profit for SCBs (Rs cr)
CAGR
Particulars FY03 FY04 FY05 FY06 FY07 FY08 (FY03-
FY08)
Interest earned 140,545 144,028 155,801 185,388 237,271 309,568 17.1
Interest on advances 68,474 70,051 81,408 109,190 156,246 221,151 26.4
Interest on Investments 62,348 65,798 65,868 66,368 69,597 79,050 4.9
Interest on balance with
RBI/others 9,723 8,180 8,525 9,830 11,428 9,367 (0.7)
Interest Expended 93,520 87,567 89,079 107,161 143,965 207,999 17.3
Interest on deposits 82,621 77,605 77,255 89,742 120,261 179,661 16.8
Interest on RBI/bank
borrowings 2,622 2,487 2,899 6,129 8,634 10,867 32.9

Others 8,277 7,475 8,926 11,290 15,071 17,471 16.1
Net Interest Income (NII) 47,025 56,462 66,722 78,227 93,306 101,569 16.7
Other Income 31,575 39,724 34,426 35,368 38,929 59,316 13.4
of which, commission and
brokerage 10,567 11,825 14,794 18,641 24,208 30,901 23.9
Operating expenses 38,007 43,515 50,136 59,201 66,319 77,213 15.2
of which, staff cost 23,621 26,195 29,479 33,461 36,160 39,805 11.0
Operating profit 40,593 52,671 51,012 54,394 65,916 83,672 15.6
provisions and contingencies 23,567 30,400 30,065 29,812 34,714 40,939 11.7
Net Profit 17,025 22,271 20,947 24,582 31,202 42,733 20.2
Interest earned by SCBs as a whole increased at a CAGR of 17.1% to reach Rs.3,09,568 crores in
FY08 from Rs.1,40,545 crores in FY03. Interest on advances registered a high CAGR of 26.4%,
while Interest on investments showed the moderate growth of 4.9% and interest on balance with
RBI and others remained more or less constant during the same period. The primary reason for
lower growth in interest from investments and balance with RBI & others, was due to lower SLR
investment and lower balance kept by banks with RBI due to high growth in advances.
Interest expended on deposits grew at a CAGR of 16.8% as against the CAGR of 26.4% for
advances. Banks have liquidated the investments portfolio to fund the credit growth, because of
which there is a mismatch. However, the interest on borrowing registered a whopping CAGR of
32.9%. Banks have borrowed money for expansion and for meeting capital adequacy requirement.
The NII grew from Rs.47,025 crore in FY03 to Rs.101,569 crore in FY08, registering a CAGR of
16.7%
Other income grew at a CAGR of 13.4% from FY03 to FY08, lesser than the growth in Net
interest income. Within the other income, commission and brokerages registered a high growth of
23.9%. High growth of core fee income boosted the other income for banks across the board.
Operating expenses (15.2%) and provisions and contingencies (11.7%) for banks showed a
moderate growth as compared to growth in NII and other income which resulted in Net profit,
registering CAGR of 20.2% from FY03 to FY08.
80
9.2 Bank Group-wise performance
Table 9.2 – Statement of profit for SBI and Associates (Rs cr)
CAGR
FY08)
Interest earned 40,869 40,956 44,051 49,301 56,339 70,427 11.5
Interest on Investments 19,918 20,903 21,333 19,089 16,512 16,916 (3.2)
RBI/others 4,953 3,803 3,799 4,694 3,679 2,157 (15.3)
borrowings 225 203 520 1,554 2,366 3,231 70.4

Others 918 1,165 1,046 1,198 2,854 2,990 26.7
Other Income 7,998 10,919 9,480 9,526 7,799 11,817 8.1
brokerage 3,957 4,205 4,793 5,310 6,661 7,926 14.9
Net Profit 4,512 5,619 5,676 5,956 6,572 9,005 14.8
SBI and Associates benefited the least from the rapid economic growth and consequent increase
in credit offtake. The reason attributed to this could be the already established presence in the
market as compared to other growing banks. NII registered a CAGR of 10.6% over FY03 to
FY08, lowest among all banking groups. However provision and contingencies grew at a CAGR
of mere 4.7%, reflecting lower provisions and better recovery of loans during the period. As a
result, the Net profit grew at a CAGR of 14.8% (whereas, operating profit grew at a CAGR of
9.2%) from FY03 to FY08.
81
Table 9.3 – Statement of profit for Nationalised Banks (Rs cr)

CAGR
FY08)
Interest earned 66,324 68,540 76,314 88,574 111,769 143,597 16.7
RBI/others 3,043 2,587 2,944 2,904 4,065 3,698 4.0
borrowings 573 545 660 1,307 1,740 2,189 30.7
Others 1,516 1,639 3,956 6,434 7,313 7,774 38.7
Other Income 13,273 17,172 14,713 12,379 13,072 20,098 8.7
brokerage 3,336 3,605 4,218 4,818 5,860 7,074 16.2
Net Profit 7,784 10,928 9,756 10,582 13,580 17,586 17.7
On the similar line of SBI and Associates, the growth for Nationalised Banks was below the
industry level. Interest on advance showed an impressive CAGR of 25.3% from FY03 to FY08.
CAGR in NII was at 12.4% from FY03 to FY08 as compared to industry growth of 16.7%.
Interest on borrowings and other interest payment increased considerably at a CAGR of 30.7%
and 38.7%, respectively. Growth in the staff cost was lower than the industry average as the
incremental business came at lesser or equal man power. Provision and contingencies grew at a
CAGR of 7.6%, resulting in Net profit CAGR of 17.7%
82
Table 9.4 – Statement of profit for Private Sector Banks (Rs cr)
CAGR
FY08)
Interest earned 24,379 25,542 26,265 35,223 51,145 71,129 23.9
RBI/others 1,287 1,248 1,093 1,271 2,039 1,825 7.2
borrowings 472 646 649 1,533 2,156 2,807 42.8
Others 5,680 4,387 3,543 3,405 4,417 6,023 1.2
Other Income 7,232 7,612 6,367 8,091 11,121 16,869 18.5
brokerage 1,891 2,383 3,628 5,640 7,897 10,545 41.0
Net Profit 2,913 3,481 3,533 4,975 6,465 9,518 26.7
Interest earned for Private Sector Banks increased at a CAGR of 23.9% from FY03 to FY08.
Interest on advances registered CAGR of 29.9%, while CAGR of Interest on investments was
almost half at 14.3% during the same period. Interest on deposits grew by 26.1%. Interest on
RBI/bank borrowing grew more rapidly at 42.8% as private banks had resorted to RBI and other
borrowing to fund the high credit demand.
Unlike PSBs, the growth in Interest expended was lower than the growth in Interest earned. As a
result, NII showed a healthy growth of 31.4%, almost double of the industry average and best
within the banking groups. The growth in other income was lower at 18.5%, however commission
and brokerage grew at a CAGR of 41.0%. CAGR in provisions and contingencies was also lower
at 18.1%. Net profit showed a CAGR of 26.7%.
83
9.2.4 Foreign Banks
Table 9.5 – Statement of profit for Foreign Banks (Rs cr)

CAGR
(FY03-
Particulars FY03 FY04 FY05 FY06 FY07 FY08 FY08)
Interest earned 8,973 8,990 9,170 12,291 18,019 24,417 22.2
RBI/others 440 541 689 961 1,645 1,688 30.8
borrowings 1,351 1,093 1,070 1,734 2,371 2,641 14.3
Others 164 284 380 254 486 684 33.1
Other Income 3,071 4,022 3,866 5,371 6,937 10,531 27.9
brokerage 1,382 1,632 2,154 2,872 3,789 5,357 31.1
Net Profit 1,817 2,243 1,982 3,069 4,585 6,612 29.5
Interest earned for foreign banks increased at a CAGR of 22.2% from FY03 to FY08. Interest on
advances registered CAGR of 23.9%, while CAGR of Interest on investments was at 17.4%
during the same period. Interest on deposits grew merely by 15.4%. Interest on RBI/bank
borrowing grew by 14.3%. NII registered a CAGR of 28.7%, higher than industry average.
CAGR in other income was among the best in the industry at 31.1% during FY03 to FY08.
Operating expenses and provision and contingencies showed a CAGR growth of 26.1% and
31.0%. CAGRs in operating expenses and provisions & contingencies were not as low as other
banking groups. However, other income as a percentage of total income is high for foreign banks
which showed the industry-best CAGR growth. Net profit for the foreign banks showed a CAGR
of 29.5%, which is best among the banking group.
84
Chapter 10 Non Performing Assets (NPAs)
The level of Non-performing Assets (NPAs) is recognised as a critical indicator for assessing
banks’ credit risk, asset quality and efficiency in allocation of resources to productive sectors. As
per asset classification norms prescribed by the RBI (last updated in July 2008), loan asset of any
bank can be classified as either performing or non-performing asset. Non-performing asset can be
further classified as substandard, doubtful and loss assets.
Fig 10.1 – Classification of Non performing assets
Assets
Performing Assets (pay interest Non-performing Assets

and installments regularly) (outstanding for more than 90

days)
Substandard Outstanding for more than 90 days but less than

Assets 15 months
Doubtful Outstanding for more than 15 months

Assets
Loss Assets Loss has been identified by bank or

internal/external auditor
Banks have switched over to 90 days delinquency norm (from 180 days earlier) from March 2004
onwards, making NPA provisioning requirement stricter. Classification into substandard, doubtful
and loss asset is primary for making provision in profit and loss account. Banks are required to
make the provision for non-performing assets depending upon the classification category in
which it falls.
85
Table 10.1 –Provision Requirement for non-performing assets depending upon the
classification category
Asset Explanation Provision
Category (%)
Loss To be written off from books 100
For Secured portion
Doubtful up to 1 year of advance has remained in doubtful category 20
up to 1 to 3 years of advance has remained in doubtful category 30
more than 3 years of advance has remained in doubtful category 100
Sub General provision without making any allowance for ECGC guarantee 10
standard cover and securities available
Direct advances to agriculture and SME 0.25
Residential housing loans beyond Rs.20 lakhs 1

Advance to sectors like personal loans, credit card receivables, capital 2
Standard
market exposures, commercial real estate loans, advances to non-
deposit taking NBFC
Other advances (not included above) 0.4
Banks have shown continuous improvement in asset quality over the years.
10.1 Trend in NPAs for Scheduled Commercial Banks (SCBs)
Fig 10.2 – Trend in Gross NPAs to Gross Advances of SCBs

14
12.7
12 11.4
10.4
10
8.8
Percent
8
7.2
6 5.2
4 5.5 3.3
4.9 4.6 2.5 2.3
4.0
2 3.3
2.5 1.8 1.5 1.3
0
% to Gross Advances % Total Assets
86
Fig 10.3 – Trend in Net NPAs to Net Advances of SCBs
8
7 6.8
6.2
6 5.5
5
Percent
4.4
4
2.9
3
1.9
2 2.7
2.5 1.2
2.3 1.0 1.0
1 1.9
1.2 0.6
0.9 0.7 0.6
0
% to Net Advances % Total Assets
A significant improvement in recovering the NPAs combined with a sharp increase in gross
advances for SCBs led to a sharp decline in the ratio of gross NPAs to gross advances to 2.3% in
FY2008 from 12.3% in FY2000.
The NPA levels were high due to various reasons such as lack of proper legal procedure for
recovery, industrial inefficiency, willful default by borrowers, operating inefficiencies at bank level
and lack of stringent credit risk appraisal mechanism.
Table 10.2 –Gross and Net NPAs of SCBs (Rs cr and in %)

Gross NPAs Net NPAs
% to
Gross Gross % Net % to Net %
Year Advances Amount Advances Assets Advances Amount Advances Assets
FY00 4,75,113 60,408 12.7 5.5 4,44,292 30,073 6.8 2.7
FY01 5,58,766 63,741 11.4 4.9 5,26,328 32,461 6.2 2.5
FY02 6,80,958 70,861 10.4 4.6 6,45,859 35,554 5.5 2.3
FY03 7,78,043 68,717 8.8 4.0 7,40,473 32,671 4.4 1.9
FY04 9,02,026 64,785 7.2 3.3 8,62,643 24,615 2.9 1.2
FY05 11,52,682 59,373 5.2 2.5 11,15,663 21,754 1.9 0.9
FY06 15,51,491 51,097 3.3 1.8 15,16,812 18,543 1.2 0.7
FY07 20,12,510 50,486 2.5 1.5 19,81,237 20,101 1.0 0.6
FY08 25,07,885 56,435 2.3 1.3 24,77,039 24,734 1.0 0.6
87
Banks have over the years made a substantial improvement in asset quality. The factors
responsible for decline in NPAs as a percentage of advances are as follows.
¾ Over the years, banks’ management, RBI and central government have adopted cautious
approach towards high level of NPAs. RBI and central government have taken several
steps to contain the NPA levels. Stricter provisioning requirement for NPAs and gradually
increasing capital adequacy norms to match international practice have made banks more
prudent and cautious in lending. Changed NPA assets classification norms have ensured
early detection of NPAs and thereby quicker remedial actions.
¾ The Indian economy passed through the boom phase of economic cycle during FY04 to
FY08. There was a widespread increase in the demand for products and services across the
various sectors. High level of capacity utilisation, better pricing power due to high demand
and lower interest rates increased the ability of the borrower to service debts.
¾ The credit appraisal mechanism employed by banks has improved over the years with
banks using improved risk assessment procedures and newer techniques including
statistical models for assessing viability of projects.
¾ Banks (baring few private sector and foreign banks) do not have their loan portfolio
concentrated for a particular advance type. Banks have also increased their retail portfolio,
which provides diversification not only for type of credit but also due to large borrowers’
base. Retail loan per loan account is usual lower than the commercial credit.
¾ The growth in the economy was accompanied by high off take in credit for funding
expansion plans of companies and high spending by government on infrastructure.
Advances and total assets increased rapidly over the period from FY03 to FY08. With
incremental rate of NPAs being lower than incremental rate of credit, the NPAs as a
percentage of bank credit declined.
¾ Government took several measures to increase the recovery of NPAs. This includes
setting up of Lok adalats, Debt recovery tribunals, asset reconstruction companies and
corporate debt restructuring mechanism. This has resulted in higher recovery rate of
NPAs.
88
10.2 NPAs, Provisions and Write-back for banking groups
Fig 10.4 – Addition and reduction in gross NPAs for SCBs over the years
Addition to gross
NPAs higher than
37500 reductiion, 1st time in
last 6 years
30000
22500
Rs Cr
15000
7500
0
Additions Reductions
Reduction in gross NPAs out paced the addition made to gross NPAs for SCBs taken together
from FY02 to FY07. Reduction was highest in FY06 for SCBs at Rs.7,309 crores Addition made
was high than the reduction for the first time in FY2008 since the last six years. The increase in
provision was mainly attributed to the sharp increase in provisioning requirement for new private
sector banks. The provision amount for new private sector banks was at Rs.6,412 crores (up
67.4% y-o-y as against this, gross advance was up 27.9% y-o-y) in FY08, as compared to Rs.3,830
crores in FY07 and Rs.2,358 crores in FY06.
Fig 10.5 – Addition and reduction in gross NPAs for PSBs

3500
2500
1500
500
Rs cr
-500 FY05 FY06 FY07 FY08

-1500
-2500
-3500
-4500
Nationalised Banks SBI and Associates
89
Fig 10.6 – Addition and reduction in gross NPAs for Private and Foreign Banks
4000 Sharp increase in excess

provision for new private
sector banks
3000
2000
Rs cr
1000
-1000
-2000
Old Private Sector Banks New Private Sector Banks Foreign Banks
For FY08, addition to gross NPAs was negative for both nationalised and old private sector
banks. New private sector banks took the worst hit on their asset quality and made a net addition
of Rs.6,375 crores in two years (FY07 and FY08), as compared to net recovery and write back of
Rs. 236 crores in FY05 and FY06 taken together. In FY08, out of total net addition to gross
NPAs of Rs.6,137 crores, new private sector banks account for 67.5% at Rs.4,140 crores while the
share in gross advances for new private sector banks was just at 16.4% for FY08. Foreign banks
also took hit on their asset quality with net addition to gross NPAs standing at Rs.624 crores as
compared to Rs.420 crores in FY07. The net addition to gross NPAs was negative at Rs.722
crores for FY05 and FY06 taken together.
SBI and Associates’ addition to gross NPAs increased from Rs.6,264 crores in FY07 to Rs.9,476
crores in FY08 (up 51.2% y-o-y). SBI and Associates’ net addition to gross NPA was at Rs.2,801
crores for FY08 as compared to net addition of Rs.136 crores in FY07.
90
Table 10.3 –Gross and Net NPAs of various bank groups (Rs cr and in %)
Gross NPAs Net NPAs
% to
FY00 379,461 53,033 14.0 6.0 352,714 26,187 7.4 2.9
FY01 442,134 54,672 12.4 5.3 415,207 27,977 6.7 2.7
FY02 509,368 56,473 11.1 4.9 480,681 27,958 5.8 2.4
FY03 577,813 54,090 9.4 4.2 549,351 24,867 4.5 1.9
FY04 661,975 51,538 7.8 3.5 631,383 18,860 3.0 1.3
FY05 877,825 48,399 5.5 2.7 848,912 16,904 2.0 1.0
FY06 1,134,724 41,358 3.6 2.1 1,106,288 14,566 1.3 0.7

FY07 1,464,493 38,968 2.7 1.6 1,440,146 15,145 1.1 0.6
FY08 1,819,074 40,595 2.2 1.3 1,797,504 17,836 1.0 0.6
Old Private Sector Banks
FY00 35,404 3,815 10.8 5.2 33,879 2,393 7.1 3.3
FY01 39,738 4,346 10.9 5.1 37,973 2,771 7.3 3.3
FY02 44,057 4,851 11.0 5.2 42,286 3,013 7.1 3.2
FY03 51,329 4,550 8.9 4.3 49,436 2,740 5.5 2.6
FY04 57,908 4,393 7.6 3.6 55,648 2,140 3.8 1.8
FY05 70,412 4,200 6.0 3.1 67,742 1,859 2.7 1.4
FY06 85,154 3,759 4.4 2.5 82,957 1,375 1.7 0.9
FY07 94,872 2,969 3.1 1.8 92,887 891 1.0 0.6
FY08 113,404 2,557 2.3 1.3 111,670 740 0.7 0.4
New Private Sector Banks
FY00 22,816 946 4.1 1.6 22,156 638 2.9 1.1
FY01 31,499 1,617 5.1 2.1 30,086 929 3.1 1.2
FY02 76,901 6,811 8.9 3.9 74,187 3,663 4.9 2.1
FY03 94,718 7,232 7.6 3.8 89,515 4,142 4.6 2.2
FY04 119,511 5,961 5.0 2.4 115,106 2,717 2.4 1.1
FY05 127,420 4,582 3.6 1.6 123,655 2,353 1.9 0.8
FY06 232,536 4,052 1.7 1.0 230,005 1,796 0.8 0.4
FY07 325,273 6,287 1.9 1.1 321,865 3,137 1.0 0.5
FY08 412,441 10,426 2.5 1.4 406,733 4,907 1.2 0.7
91
Table 10.3 –Gross and Net NPAs of SCBs (Rs cr)..contd
Gross NPAs Net NPAs
% to
Foreign Banks
FY00 37,432 2,614 7.0 3.2 35,543 855 2.4 1.0
FY01 45,395 3,106 6.8 3.0 43,063 785 1.8 0.8
FY02 50,631 2,726 5.4 2.4 48,705 920 1.9 0.8
FY03 54,184 2,845 5.3 2.4 52,171 921 1.8 0.8
FY04 62,632 2,894 4.6 2.1 60,506 898 1.5 0.7
FY05 77,026 2,192 2.8 1.4 75,354 639 0.8 0.4
FY06 98,965 1,928 1.9 1.0 97,562 808 0.8 0.4

FY07 127,872 2,263 1.8 0.8 126,339 927 0.7 0.3
FY08 162,966 2,857 1.8 0.8 161,133 1,250 0.8 0.3
PSBs have reduced their NPAs in percentage terms over the years. Gross NPAs to gross advances
were at 14% in FY2000, which has been reduced to 2.2% in FY08. The same trend can be
observed for gross NPAs to total assets and for Net NPAs. From FY02 onwards till FY07, the
gross NPAs have actually declined in absolute terms (from Rs.56,473 crores to Rs.38,968 crores).
However in FY08, the gross NPA increased to Rs.40,595 crores.
Old private sector banks have shown a tremendous improvement in NPA levels. Not only in
terms of percentage to advances but also in absolute terms, they have decreased since FY02. Net
NPAs decreased from Rs. 3,013 crores in FY02 to Rs.740 crores in FY08. Faster recovery
mechanism and sound credit quality assessment procedure followed by these banks have resulted
in lower NPA levels.
However, the new private sector banks and foreign banks NPA levels have actually increased in
recent years. Net NPA to advances have increased for new private sector banks from 0.8% in
FY06 to 1.2% in FY08. For foreign banks also, there is an increase in Net NPA in absolute terms
however the Net NPAs to Advances remained constant at 0.8% in the last two years (FY07 and
FY08).
92
Table 10.4 –Distribution of banks by ratio of Net NPAs to Net Advances
Bank Group FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08
Public Sector Banks (PSBs) 27 27 27 27 28 28 28 28
Up to 2 per cent 1 0 4 11 19 23 27 28
Above 2 and up to 5 per cent 5 9 14 13 7 5 1 0
Above 10 per cent 5 3 2 0 0 0 0 0
Old Private Sector Banks 23 22 21 20 20 20 17 15
Up to 2 per cent 1 2 2 2 4 11 15 15
Above 10 per cent 7 5 2 2 0 0 0 0
New Private Sector Banks 8 8 9 10 9 8 8 8
Up to 2 per cent 1 1 3 4 5 6 7 7

Above 10 per cent 0 0 1 1 0 0 0 0
Foreign Banks 42 40 36 33 31 29 29 28
Up to 2 per cent 21 21 20 22 23 25 27 25
Above 10 per cent 11 14 8 6 4 4 1 0
Out of the total of 79 reporting banks, 75 banks had the ratio of Net NPAs to net advances
below 2% at the end of FY08 (compared to 24 banks out of 100 as on 31st March 2001). All the
PSBs and old private sector banks had a ratio below the 2% level (as compared to only one each
out of 27 and 23 public and old private sector banks as on 31st March 2001.) Three banks, one
new private sector and two foreign banks had ratio between 2% to 5% and only one foreign bank
had ratio above 5%.
10.3 Sector-wise NPA break-up

NPAs of banks can be classified into two broader categories. Priority sector NPAs and non-
priority sector NPAs. NPAs from agriculture, small-scales industries and other loans classified as
priority lending together constitute priority sector NPAs.
Table 10.5 –Sector-wise classification of NPAs for SCBs and PSBs (Rs cr)
Sector All SCBs Public Sector Banks (PSBs)
A. Priority Sector 24,658 25,838 28,705 22,374 22,954 25,287
i) Agriculture 6,718 7,367 9,735 6,203 6,506 8,268
ii) SSI 7,725 6,488 6,456 6,917 5,843 5,805
iii) Others 10,215 11,983 12,514 9,253 10,604 11,214
B. Public Sector 345 493 299 340 490 299
C. Non-Priority Sector 24,205 21,510 23,721 18,664 15,158 14,163
Total (A+B+C) 49,208 47,841 52,725 41,378 38,602 39,749
93
Table 10.6 –Sector-wise classification of NPAs for Private Sector Banks (Rs cr)
Sector Old private Sector Banks New private Sector Banks
A. Priority Sector 1,632 1,416 1,632 1,416 1,632 1,416
i) Agriculture 265 249 265 249 265 249
ii) SSI 656 490 656 490 656 490
iii) Others 711 677 711 677 711 677
B. Public Sector 1 - 1 - 1 -
C. Non-Priority Sector 2,078 1,553 2,078 1,553 2,078 1,553
Total (A+B+C) 3,711 2,969 3,711 2,969 3,711 2,969
Agriculture NPAs for all SCBs increased sharply by 32.1% in FY08, to near Rs.100 bn. As
compared to this, the y-o-y increase in total and priority sector NPAs was at 10.2% and 11.1%,
respectively. NPAs from agriculture for new private sector banks doubled to Rs.12.2 bn in FY08
as against Rs.6.1 bn in FY07. NPAs from non-priority sector showed a negative growth for PSBs
and old private sector banks in FY08. However due to sharp increase in NPAs from non-priority
sector (73% y-o-y) for new private sector banks, the overall NPAs from non-priority sector
increased by 10.3% to Rs.237 bn in FY08.
10.4 Recovery of NPAs

The problem of a huge backlog of NPAs impinged severely on banks performance and their
profitability. In order to regulate and control the NPAs and quicken the recovery, the GOI has set
up Debt Recovery Tribunals (DRTs) and Debt Appellate Tribunals under the "Recovery of Debts
Due to Banks and Financial Institutions Act, 1993". As a corollary to this and to speed up the
process of recovery from NPAs, the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 was introduced.
Recovery of Debts Due to Banks and Financial Institutions Act, 1993

The civil courts are burdened with diverse types of cases. Recovery of dues due to banks and
financial institutions is not given any priority by the civil courts. The banks and financial
institutions like any other litigants have to go through a process of pursuing the cases for recovery
through civil courts for unduly long periods. As on September 1990, there were more than 15
lakhs cases pending with various courts involving debt of around Rs.60 bn.
Considering the gravity of the problem of high NPA levels of banks coupled with considerable
difficulties experienced by banks in recovering loans and enforcement of securities charge with
them, there was a need for special authority to deal with the cases of debt recovery.
Both Narasimham committee and Tiwari committee in their report to the Ministry of Finance
recommended the setting up of special legislation and special tribunals to expedite the recovery
process in the financial sector. Thus came The Recovery of Debts Due to Banks and Financial
Institutions Act, 1993.
The Act provides for establishment of DRTs and Debt Appellate Tribunals to entertain and
decide on cases of debt recovery of banks and financial institutions. Civil courts have been barred
from taking up the cases of debt recovery.
94
SARFAESI Act, 2002
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 (SARFAESI) empowers Banks/Financial Institutions to recover their NPAs without
the intervention of the Court. The Act provides three alternative methods for recovery of NPAs,
namely,
¾ Securitisation (the Act provides for the legal framework for Securitisation of assets)
¾ Asset Reconstruction (Transfer of NPAs to asset reconstruction company, which will then
dispose of those assets and realise the proceeds)
¾ Enforcement of Security without the intervention of the Court
Asset Reconstruction Corporation of India (ARCIL) is the first Asset Reconstruction Company in
the country to commence business of resolution of NPAs upon acquisition from Indian banks
and financial institutions. It commenced business immediately after the enactment of the
Securitisation Act, 2002.
The RBI has so far issued Certificate of Registration (CoR) to 11 Securitisation

Companies/Reconstruction Companies (SCs/RCs), of which six have commenced their
operations till June 2008. To enhance the possibility of banks realising better value for their NPAs
through the expertise and resources of foreign institutions with international experience in
management of stressed assets, the GOI permitted FDI up to 49 per cent in the equity capital of
SCs/RCs registered with the RBI.
Table 10.7 –Financial Assets Securitised by Securitisation and Reconstruction companies

June 2007 June 2008 y-o-y growth (%)
Book Value of Assets acquired 28,544 41,414 45.1
Security Receipts issued 7,436 10,658 43.3
Amount of Security Receipts redeemed 660 1,299 96.8
The NPAs acquired by the SCs/RCs grew by 45.1% on y-o-y basis. Security receipts redeemed
doubled to Rs.1,299 crores from Rs.660 crores.
Among the various channels of recovery available to banks for dealing with bad loans, the
SARFAESI Act and the DRTs have been the most effective in terms of the amount recovered.
95
Table 10.8 – NPAs recovered through various channels (Rs cr)
Channel No. of cases referred Amount involved (Rs cr)
Lok Adalats 185,395 181,547 160,368 186,535 801 1,102 758 2,142
DRTs 4,744 3,524 4,028 3,728 14,317 6,123 9,156 5,819
SARFAESI Act 39,288 38,969 60,178 83,942 13,224 9,831 9,058 7,263
Channel Recovered (Rs cr) % recovered
Lok Adalats 113 223 113 223 14.1 20.2 14.0 8.2
DRTs 2,688 4,710 2,688 4,710 18.8 76.9 37.8 51.9
SARFAESI Act 2,391 3,423 2,391 3,423 18.1 34.8 41.4 61.0

Cases referred under the SARFAESI Act have increased 39,288 in FY05 to 83,942 in FY08.
However, total amount involved has been showing declining trend over the years. The total
amount involved decreased from Rs.13,224 crores in FY05 to Rs.7,263 crores in FY08. The
amount recovered as a percentage to the amount involved is lowest for Lok Adalats and highest
under SARFAESI Act.
Table 10.9 – Recovery of direct agriculture advances (Rs cr)

Year Demand Recovery Over dues % recovery
FY03 28,940 21,011 7,929 72.6
FY04 33,544 25,002 8,542 74.5
FY05 45,454 35,733 9,721 78.6
FY06 46,567 37,298 9,269 80.1
FY07 73,802 58,840 14,958 79.7
Recovery rate of direct agriculture advances has been increasing over the years from 72.6% in
FY03 to 80.1% in FY06. However for FY07, the recovery rate declined to 79.1%.
96
Fig 10.7 – Share of priority sector NPAs in total NPAs
70 63.6
59.5
60 54.1
47.5 49.1 54.0 54.4
50 50.1
43.5 45.3 47.7 52.3
40
Percent
42.1 44.0
40.9
30 23.4 20.0
20 15.8
11.4 8.9
10
0
FY04 FY05 FY06 FY07 FY08
Public Sector Banks Old Private Sector Banks
New Private Sector Banks SCBs
Share of NPAs from priority sector is increasing over the years. Share of priority sector NPAs
increased from 43.5% in FY04 to 54.4% in FY08 as against this, NPAs from non-priority sector
has declined. Share of priority sector NPAs in total NPAs is highest for PSBs at 63.6% and lowest
for new private sector banks at 20%.
10.5 Bank group-wise performance

Asset quality for each of the banking group has improved since FY1999-2000. Comparison of
performance over the years within a banking group will not show any outperforming bank group.
We believe that, we need to look into the trend in share of individual banking group in total
advances and NPAs of SCBs in order to evaluate which bank group has been an out-performer in
terms of asset quality improvement.
97
10.5.1 Public Sector Banks (PSBs)
Fig 10.8 – Share of advances of PSBs to total banking gross advances and PSBs’ gross
NPAs to total banking gross NPAs
88 87.8
86 85.8
84
81.5
82 80.9
79.7 79.6
Percent
80 78.7
79.9 77.2
78 79.1
76
74 74.8 76.2 72.5
74.3 73.4
72 73.1 71.9
72.8
70
Share in Gross Advances Share in Gross NPAs

Fig 10.9 – Share of advances of PSBs to total banking net advances and PSBs’ net NPAs to
total banking net NPAs
88 87.1
86 86.2
84
82
Percent
80 78.6 77.7 78.6

78 79.4 76.1 76.6
78.9 72.7
76
74 76.1 72.6
74.4 74.2 72.9
72 73.2 75.3
72.1
70
Share in Net Advances Share in Net NPAs
For PSBs, the gap between the share in advances and share in NPAs is closing in, implying a
favorable asset profile. In FY2000, the share of gross NPAs in total NPAs of all SCBs was at
87.8%, as against this, share in gross advances was at 79.9%. However over the years, share in
NPAs have reduced at a faster rate as compared to advances. The share in NPAs, were always
been higher than the share in advances. Contrary to the trend, in FY08, the share is total
advances of SCBs were higher at 72.5% as compared to share in gross NPAs which stood at
71.9%. Share in gross NPAs, declined sharply from 77.2% in FY07 to 71.9% in FY08, as against
this, the share in gross advances declined only marginally from 72.8% to 72.5%. Similar trend
can be observed in Net advances and Net NPAs.
98
10.5.2 Old Private Sector Banks
Fig 10.10 – Share of Old Private Sector Banks to the total banking gross advances and Old
8
7.5
7.1 7.1 7.4
6.8 6.8
7 6.6
6.8
Percent
6.5 6.6
6 6.3 6.4 5.9
6.1
5.5
5 4.5
4.7
4.5
4

Fig 10.11 – Share of Old Private Sector Banks to the total banking net advances and Old
10
8.5 8.4 8.7 8.5
9 8.5
8.0
8 7.4
7 7.6
Percent
7.2
6 6.5 6.7 6.5 4.7
5 6.1 5.5 4.5
4
4.4
3
3.0
2
Similar to PSBs, share of old private sector banks in gross NPAs has drastically come down in
two years from 7.4% in FY06 to 4.5% in FY08 and share in net NPAs came down from 7.4% in
FY06 to 3.0% in FY08. Share in advances also reduced but at a lower rate.
99
10.5.3 New Private Sector Banks
Fig 10.12 – Share of New Private Sector Banks to the total banking gross advances and
New Private Sector Banks’ gross NPAs to total banking gross NPAs
20 18.5
18 16.2
16 15.0
16.4
14 12.2 9.2
11.3 11.1
12
Percent
12.5
10
9.6 10.5
8 5.6 13.2
6 4.8 7.7 7.9
4
1.6
2
2.5
0

Fig 10.13 – Share of New Private Sector Banks to the total banking net advances and New
20 19.8
18 16.2
15.2
16
12.7 13.3 16.4
14 11.5 11.1 15.6
12
Percent
10 12.1
10.3 11.0 10.8
8 5.7 9.7
6 5.0
4 2.1 2.9
2
0
There is a sharp increase in the share of the new private sector banks in total banking NPAs in
FY07 and FY08. Share in gross NPAs increased from 7.9% in FY06 to 18.5% in FY08.
Compared to this share in gross advances increased marginally from 15.0% in FY06 to 16.4% in
FY08. Similar trend can be observed in Net NPAs and Net advances. .
100
10.5.4 Foreign Banks
Fig 10.14 – Share of Foreign Banks to the total banking gross advances and Foreign
Banks’ gross NPAs to total banking gross NPAs
10
9
7.9 8.1
8 7.4
7.0 6.9 6.7
7 6.4 6.5
6.4
Percent
6
5
4.9 5.1
4 4.3 4.5 4.5
3.8 4.1 3.8
3 3.7
2

Fig 10.15 – Share of Foreign Banks to the total banking net advances and Foreign Banks’
net NPAs to total banking net NPAs
9 8.2
8.0
8 7.5
7.0 7.0 6.8
6.4 6.4 6.5
7
6
Percent
4.6 5.1
5 4.4
4 3.6
2.8 2.9
2.8 2.4 2.6
3
2
1
The difference in share in advances and share in NPAs has been narrowed down. Share in gross
advances and gross NPAs were at 7.9% and 4.3%, respectively (Difference 3.6%) in FY2000.
Share in gross advances and gross NPAs stood at 6.5% and 5.1%, respectively, (Difference 1.4%)
in FY08. NPA for foreign banks have increased over the years especially from FY06 to FY08.
101
Chapter 11 Capital Adequacy Ratio (CAR)
A sound and efficient banking system is essential for maintaining the financial stability in an
economy. Therefore, considerable emphasis has been placed on strengthening the capital base of
the banking sector over the years. The RBI defines and monitors Capital Adequacy Ratio (CAR)
in an endeavor to maintain a minimum acceptable ratio that emboldens its confidence in the
banking system. The CAR also referred to as Capital to Risk-weighted Assets Ratio (CRAR) is a
measure of capacity of the banking system to absorb any unexpected losses and protect the
depositors. CAR is calculated as a ratio of capital to risk weighted assets of the bank.
Each asset (loans + investments) of a bank has its unique risk profile and have to be bucketed
into different risk classes in order to determine the level of capital required to be set aside for a
particular asset risk class. The risk categorisation is done on the basis of risk weights with
weights ranging from 0% for a risk free asset to 150% for a highly risky asset. The risk weight is
defined as percentage of capital that is required to be set aside with 100% risk weight equating a
9% of assets set aside as capital , giving a capital adequacy ratio of 9%.
For example, investment in SLR securities (risk free asset) attracts 0% risk weight (i.e. bank need
not set aside any capital against the same); whereas loans to sensitive sectors like commodities
and capital markets attract relatively higher risk weight of 125 % (banks have to set 11.25 % of
capital against the same). RBI administers the risk weight of asset classes and brings the changes
in them as per the changes in risk associated with it.
The Capital of any bank consists Tier 1 (equity capital) and Tier 2 (debt) capitals. Tier I capital is
a core capital and includes Shareholders’ capital and retained earnings. Tier 2 capital includes that
part of capital of the bank which is funded through debt.
Fig 11.1 – Trend in total CRAR, Tier 1 and Tier 2 for SCBs
14
12 12.8 13.0
12.3 12.3
10
Percent
8 9.3 9.1
8.4 8.3
6
4
4.4 4.0 3.9
2
3.1
0
FY05 FY06 FY07 FY08
Tier 1 Tier 2 CRAR
The trend in improvement in CAR continued in FY08. CRAR ratio for all SCBs taken together
improved from 12.3% in FY07 to 13.0% in FY08, reflecting relatively higher growth rate in
capital funds maintained by the banks as compared with the growth in the risk weighted assets.
102
CAR for all the SCBs taken together was significantly above the stipulated minimum of 9% under
BASEL II norms. There is a significant improvement in Tier 1 CAR which increased from 8.3%
in FY07 to 9.1% in FY08 while there was a marginal decline in Tier 2 CAR which declined from
4.0% in FY07 to 3.9% in FY08. The increase in Tier 1 CAR was on account of raising of
resources by banks from capital market for ensuring the compliance with Basel II norms.
Table 11.1 – Resources raised by banks over the years (Rs cr)
Public Private Sector Grand
Sector Banks Banks Total Total
Rs in crore Equity Debt Equity Debt Equity Debt
FY05 3,336 - 4,108 1,478 7,444 1,478 8,922
FY06 5,413 - 5,654 - 11,067 - 11,067
FY07 782 - 284 - 1,066 - 1,066
FY08 17,552 - 12,403 500 29,955 500 30,455
During FY08, SCBs, both the public and private banks, raised significantly higher resources from
the primary capital market as compared with the previous year. Total resource mobilisation by
banks through public issues (excluding offer for sale) in the domestic capital market amounted to
Rs.30,455 crores during FY08 as against Rs.1,066 crores during FY07. This can be attributed to
the good performance of secondary capital market which allows banks to raise higher amount
for less dilution of equity (growth in Bankex for FY06, FY07, FY08 were at 36.8%, 24.3% and
18.0%, respectively), need to raise the funds for the compliance of Basel II norms, higher risk
weight for sensitive sectors.
Banks raised around Rs.29,955 crores from equity, which resulted in increase of Tier 1 CAR
from 8.3% to 9.1%. Tier 1 CAR ratio was way above the stipulated CAR under Basel II norms
which is at 6%. Out of six issues, five were equity issues, of which two were floated by PSBs for
Rs.17,552 crores and four issues by private sector banks (including one debt issue) for Rs.12,903
crores.
Table 11.2 – Bank group-wise trend in CAR over the years (in %)
Bank Groups FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08
All SCBs 11.1 11.4 12.0 12.7 12.9 12.8 12.3 12.3 13.0
Public Sector Banks (PSBs) 10.7 11.2 11.8 12.6 13.2 12.9 12.2 12.4 12.5
Nationalised Banks 10.1 10.2 10.9 12.2 13.1 13.2 12.3 12.4 12.1
SBI and Associates 11.6 12.7 13.3 13.4 13.4 12.4 11.9 12.3 13.2
Old Private Sector Banks 12.4 11.9 12.5 12.8 13.7 12.5 11.7 12.1 14.1
New Private Sector Banks 13.4 11.5 12.3 11.3 10.2 12.1 12.6 12.0 14.4
Foreign Banks 11.9 12.6 12.9 15.2 15.0 14.0 13.0 12.4 13.1
103
New private sector banks has highest CAR of 14.4%. Only nationalised banks had CRAR of
12.1% which is below the industry average of 13.0%. CAR for the FY03 was at 12.7%. This
marginally decreased to 12.3% in FY07 and stood at 13.0% in FY08. This in our view suggests
that, banks have adequately funded their risk assets in the years over significant growth in loans.
Table 11.3 – Distribution of banks by CRAR
FY07 FY98
Bank Group (in %) <4 4 -9 9-10 10-12 12 > <4 4 -9 9-10 10-12 12 >
Nationalised Banks - - - 8 12 - - - 11 9
State Bank Group - - - 3 5 - - - 2 6
Old Private Sector
Banks 1 - 2 5 9 - - 1 3 11
New Private Sector

Banks - - - 4 4 - - - 2 6
Foreign Banks - - - 7 22 - - 1 3 24
Total 1 - 2 27 52 - - 2 21 56
At the individual bank level, all the banks had their CAR above the prescribed limit of 9.0% as on
31st March 2008. Out of total of 79 banks, 56 banks have the CAR of 12% and above. Only
nationalised banks have higher proportion of banks falling in 10% to 12% of CAR category (11
out of 20 banks).
104
Chapter 12 Consolidation: Is it imminent for the Indian Banking Sector??
Merger and Acquisition (M&A) is not a new phenomenon for Indian banking sector as it took
place even before independence. Since Nationalisation of banks in India, 33 banks/financial
institution have been amalgamated. Out of these 25 mergers were of private banks with PSBs and
8 were between private sector banks.
Table 12.1 – List of banks amalgamated since nationalisation of banks in India in 1969
No. Name of Transferor Bank/Institution Name of Transferee Bank/Institution Year

1 Bank of Bihar Ltd. State Bank of India 1969
2 National Bank of Lahore Ltd. State Bank of India 1970
3 Miraj State Bank Ltd. Union Bank of India 1985
4 Lakshmi Commercial Bank Ltd. Canara Bank 1985
5 Bank of Cochin Ltd. State Bank of India 1985
6 Hindustan Commercial Bank Ltd. Punjab National Bank 1986

7 Traders Bank Ltd. Bank of Baroda 1988
8 United Industrial Bank Ltd. Allahabad Bank 1989
9 Bank of Tamilnadu Ltd. Indian Overseas Bank 1990
10 Bank of Thanjavur Ltd. Indian Bank 1990
11 Parur Central Bank Ltd. Bank of India 1990
12 Purbanchal Bank Ltd. Central Bank of India 1990
13 New Bank of India Punjab National Bank 1993
14 Kashi Nath Seth Bank Ltd. State Bank of India 1996
15 Bari Doab Bank Ltd. Oriental Bank of Commerce 1997
16 Punjab Co-operative Bank Ltd. Oriental Bank of Commerce 1997
17 Bareilly Corporation Bank Ltd. Bank of Baroda 1999
18 Sikkim Bank Ltd. Union Bank of India 1999
19 Times Bank Ltd. HDFC Bank Ltd. 2000
20 Bank of Madura Ltd. ICICI Bank Ltd. 2001
21 ICICI Ltd. ICICI Bank Ltd. 2002
22 Benares State Bank Ltd. Bank of Baroda 2002
23 Nedungadi Bank Ltd. Punjab National Bank 2003
24 South Gujarat Local Area Bank Ltd. Bank of Baroda 2004
25 Global Trust Bank Ltd. Oriental Bank of Commerce 2004
26 IDBI Ltd. IDBI Bank Ltd 2005
27 Bank of Punjab Ltd. Centurion Bank Ltd. 2005
28 Ganesh Bank of Kurundwad Ltd. Federal Bank Ltd. 2006
29 United Western Bank Ltd. IDBI Bank Ltd. 2006
30 Bharat Overseas Bank Ltd. Indian Overseas Bank 2007
31 Sangli Bank Ltd. ICICI Bank Ltd. 2007
32 Lord Krishna Bank Ltd. Centurion Bank of Punjab Ltd. 2007
33 Centurion Bank of Punjab Ltd. HDFC Bank Ltd. 2008
105
However the M&A activity which has taken place so far in India was mainly policy driven. For
example banks were amalgamated or merged with larger banks for public interest (merger of
private banks with public banks post independence), to protect the interest of depositors, weaker
or financially distressed banks were merged with sound and financially health banks. Merger of
United Western bank with IDBI bank and Global Trust Bank with Oriental Bank of Commerce
are the examples of policy driven mergers.
There is a need for market driven merger which will be based on business and commercial
consideration in the Indian banking sector. There would be a need to build large size banks which
can compete globally and also foreign banks entering into the India would like to explore the
inorganic route for growth. Globally banks have been merged with each other to create large size
banks since year 2001. Following is the list of no. of banks in each country which has reduced
over the years.
Table 12.2 – List of countries and no. of banks operating within a country
Country 2001 2005 Variation in %

Advanced Economies
Greece 44 21 -52.3
Korea 20 13 -35.0
France 444 294 -33.8
Germany 304 251 -17.4
UK 398 333 -16.3
Denmark 190 161 -15.3
Singapore 128 110 -14.1
Japan 234 215 -8.1
US 8,075 7,515 -6.9
Italy 830 784 -5.5
Spain 285 272 -4.6
Emerging Economies
South Africa 59 34 -42.4
Israel 26 15 -42.3
Poland 69 54 -21.7
Peru 15 12 -20.0
Egypt 53 43 -18.9
Argentina 86 71 -17.4
India 100 88 -12.0
Brazil 180 161 -10.6
Mexico 32 29 -9.4
Chile 27 26 -3.7
Philippines 42 41 -2.4
106
Consolidation of small PSBs in India
CARE Research believes that merger of small banks with the large banks is inevitable in years to
come due to following reasons
¾ Capital constraints
The GoI has over the years has infused capital in PSBs in order to support their growth.
Government has also allowed raising of capital through various new instruments such as
perpetual preference shares (eligible for tier 1 capital) to increase the capital base of the
bank.
In February 2009, GoI infused funds into 3 PSBs in order to increase their capital base as
the CAR of these PSBs was lower than 12% as on September 2008.
Table 12.3 – Fund infusion by government into PSBs

Name Rs Cr
Central Bank of India 1,400

Vijaya Bank 1,200
UCO Bank 1,200
However, as per the report on currency and finance released by RBI in H1FY09, PSBs will
need Rs.3,70,000 crore in capital for expansion over next 5 years. However, the ability of
the government to fund such huge capital requirements is suspect. This is because the GoI
has to ensure the adequate funds for social and infrastructure project and also faces
constraints in raising funds placed by Fiscal Responsibility and Budgetary Management
(FRBM) Act in rasing of funds.
¾ Floor on GOI holding will limit fund raising option

As per the regulatory requirement, government holding in PSBs should remain at or
above 51%. Expansion by banks in which government’s holding is close to the mandatory
51% level will require fund infusion from government. This will limit their option of
raising funds to meet expansion needs and could hinder their growth in coming years.
Table 12.4 – Government holding in PSBs

No Name Mar'09 No Name Mar'09
1 United Bank Of India 100 11 Punjab National Bank 57.8
2 Central Bank Of India 80.2 12 Corporation Bank 57.2
3 Indian Bank 80 13 Union Bank Of India 55.4
4 Bank Of Maharashtra 76.8 14 Allahabad Bank 55.2
5 Canara Bank 73.2 15 Vijaya Bank 53.9
6 Syndicate Bank 66.5 16 Bank Of Baroda 53.8
7 Bank Of India 64.5 17 IDBI Bank 52.7
8 UCO Bank 63.6 18 Andhra Bank 51.6
9 Indian Overseas Bank 61.2 19 Dena Bank 51.2
10 State Bank of India 59.4 20 Oriental Bank Of Commerce 51.1
Source: Capital Line
107
PSBs which are close to the required lower level of government stake and concentrated
presence in particular region will see its merger with other PSB as an important option if it
wants to sustain the growth seen in past.
¾ Increasing NPAs will put further pressure on CAR

Banks’ NPAs are rising after H1FY09 as economic growth has moderated. CARE
Research believes that NPAs will be higher for small size banks in percentage terms. This
will put further pressure on capital adequacy ratio of the bank.
108
Chapter 13 FY09 Result Analysis
..beat the slowdown: NII grew by 25.3% and Net profit by 29.0%
Table 13.1 – Profit and Loss account for PSBs
Profit and loss account

Particulars FY08 FY09 % chg
Interest Earned 191,486 246,543 28.8
Interest Expended 134,891 175,766 30.3
Net Interest income 56,595 70,777 25.1
Other income 29,799 38,397 28.9
Staff cost 24,909 30,162 21.1
other operating Expenses 16,371 19,154 17.0
Provisions 11,916 15,944 33.8

Operating Profit 33,198 43,913 32.3
Taxes 9,377 13,222 41.0
Net Profit 23,821 30,691 28.8
We have analysed results of 16 out 20 nationalised banks, State bank of India and its 6 subsidiaries
which have already declared their results on or before 15th May 2009.
Interest income for the PSBs grew at 28.8% in FY09. As against this, interest expended grew at a
higher rate of 30.3% in FY09. Lending rates were aggressively cut by PSBs ahead of cut in deposit
rates which resulted in lower growth in net interest Income (grew by 25.3%). Other income
jumped 28.8% for the FY09 mainly due to higher treasury gains booked by the banks in the
H2FY09. Staff cost and other operating cost grew at a slower rate 21.1% and 17.2% respectively.
Provisions jumped by 33.1% due to higher delinquencies expected by banks and provisions for
restructuring. Net profit for the PSBs grew at a healthy rate of 29% in FY09.
109
Private Sector Banks
NII grew by 29.5%, however Net Profit grew by 15% due to high provisioning and lower
growth in other income
Table 13.2 – Profit and Loss account for Private Sector Banks
Profit and loss account

Particulars FY08 FY09 % chg
Interest Earned 57,963 71,357 23.1
Interest Expended 39,701 47,715 20.2
Net Interest income 18,262 23,642 29.5
Other income 14,741 15,955 8.2
Staff cost 5,530 7,047 27.4
other operating Expenses 11,511 12,080 4.9
Provisions 5,468 7,300 33.5
Operating Profit 10,494 13,170 25.5

Taxes 2,580 4,029 56.1
Net Profit 7,914 9,140 15.5
We have analysed results of 10 out 22 Private sector banks (constitute more 80% of total business
of private sector banks) which has already declared its result on or before 15th may 2009.
Net interest Income for Private sector banks grew by 29.5% in FY09. In contrast to PSBs, interest
income grew at a higher rate than interest expenditure. Private sector banks have not cut their
lending rate as aggressively as their Public sector counter-parts. However deposit rates have come
down in line with PSBs. Significantly lower growth in fee based income (constitutes around 20%
of other income as compared to 12-14% for Nationalised banks) lower SLR portfolio as
compared to PSBs resulted in lower growth in other income (8.2%). Higher provisioning for bad
loans and taxes resulted in mere 15% growth in net profit.
CASA ratio declined for 11 out of 13 major Banks

Share of low cost CASA deposits slipped for the major banks in FY09. CASA proportion of
FY08 was higher as to large amount of funds were mopped up in initially public offers and kept in
demand deposits by the corporates at the end of FY08. However the IPO market virtually dried
up in FY09. Moreover, Sluggish economy had put pressure on the growth in demand deposits
from corporates in H2FY09.
110
Table 13.3 – CASA Ratio of various banks in FY08 and FY09
No Bank FY08 FY09 Change

1 Axis Bank 45.68 43.15 (253)bps
2 Bank of Baroda 31.22 34.87 365bps
3 Bank of India 36.00 31.00 (500)bps
4 Canara bank 32.30 30.70 (160)bps
5 Central Bank of India 36.10 33.40 (270)bps
6 Corporation Bank 35.00 25.44 (966)bps
7 HDFC Bank 54.50 44.40 (1010)bps
8 ICICI Bank 26.10 28.70 260bps
9 IDBI Bank 16.60 14.80 (180)bps
10 Punjab and Sind Bank 36.34 31.35 (499)bps
11 State Bank of India 43.00 39.30 (370)bps
12 Syndicate Bank 30.90 27.10 (380)bps
13 Union bank 34.90 30.00 (490)bps
Source: Company Results, Capital Line
Restructured Assets around 3 to 5% of total loan book

On the overall all basis, restructured asset constituted around 3 to 5% of total loan book.
Significant variation was observed among individual banks in restructuring of loans. PSBs
showed a higher % of loan restructured as compared to private sector banks.
Table 13.4 – Restructured Assets in Rs cr and in % of total Advances

% of total loan
No Bank Rs Cr book
1 Indian Overseas Bank 7,900 10.00
2 Corporation Bank 2,324 4.80
3 Syndicate Bank 3,800 4.60
4 Bank of India 6,400 4.50
5 State Bank of India 16,500 3.04
6 IDBI Bank 3,130 3.00
7 Union bank 2,960 3.00
8 Dena Bank 610 2.10
9 ICICI Bank 4,584 2.10
10 Axis Bank 1,626 1.99
11 Bank of Baroda 2,659 1.80
12 Canara bank 2,075 1.50
13 Yes Bank 40 0.40
14 HDFC Bank 102 0.10
Source: Company Results, Capital Line
111
Chapter 14 Outlook on Indian Banking Industry
Business
Business of the banks can be divided into two categories i.e. Deposits and Advances. CARE
Research has projected the growth in Advances and growth in Deposits for the banking sector as
a whole as also for various banking groups defined earlier.
14.1 Outlook on Advances
Banks entering into new credit cycle, hyper-growth phase is behind us

The Indian Banking industry has seen a tremendous growth in credit offtake in the last five years
(CAGR in advances for all SCBs was 27.4% from FY03 to FY08). The industry recorded credit
growth of 33.3% in FY05, which was highest in the last 2-and-half decades. Excellent
performance of high credit growth in excess of 30%, witnessed for three consecutive years (from
FY05 to FY07), which is the best in banking industry so far, is difficult to repeat. The Indian
economy is witnessing moderation in growth which will lead to slowing of credit offtake.
Moreover, the rate of growth of credit offtake will be subjected to a high base effect, due to the
rapid growth in the past. We expect the credit offtake to slow down in the next two years.
Slowdown in Indian industry expected to hit credit offtake

Fresh credit demand is expected to be hit by slower economic growth due to both recession in
developed economies and sluggish domestic demand.
Fig 14.1 – Industrial production y-o-y growth

14
12
10
8
Percent
6
4
2
0
-2
Apr
Mar
Aug
Jun
Sep
Feb
Jan
Oct
Dec
May
Jul
Nov
FY08 FY09
112
Table 14.1 – Sector-wise and Use-based growth in industrial production
(%) April - February

FY08 FY09
Sectoral
General 8.8 2.8
Mining 5.2 2.4
Manufacturing 9.3 2.8
Electricity 6.6 2.4
Use-based
Basic goods 7.3 2.7
Capital goods 17.7 8.8
Intermediate goods 9.3 (2.7)
Consumer goods 6.6 4.9
(a) consumer durables (1.0) 4.1
(b) consumer non durables 9.3 5.1
Industrial credit formed 38.8% of the overall credit in FY08 and increased at a CAGR of 26.6%
from FY05 to FY08.
The slowdown in the Indian industry is evident from the above table. The primary indicator of
industrial growth, the Index of Industrial Production (IIP) grew only by 2.8% from April 2008 to
February 2009 as compared to growth of 8.8% in same period of the last year. A detailed analysis
of the IIP reveals that growth in capital goods dipped from 17.7% to 8.8% in the same period.
Capital goods and basic goods sectors are the indicators of future performance of the economy.
Sluggishness in these indicates poor economic growth going forward.
Global economic downturn to hurt export-oriented industries
Advanced economies have seen their growth rates decline sharply. Many countries of the world
have seen severe contraction in economic activity and some of them have already slipped into
recession. Export-oriented sectors like textile (11% of industrial credit), gems & jewellery (3% of
industrial credit), auto ancillary and IT/ITES have been badly affected due to the recession and
lower growth in developed economies.
Deceleration in domestic consumption coupled with overcapacity in some sectors has led to
production cuts being announced by Corporate India. Cascading effect of the slowdown in one
sector of the economy is being felt in the other sectors too. Episodes of large inventory build-up,
production cuts and temporary closure in some sectors such as automobiles at the beginning of
the second half of FY09 indicate a period of stress on account of lack of demand. Cancellation
and delay of expansion plans will also put pressure on incremental credit demand.
113
Table 14.2 – GDP growth rate across the countries
Country 2007 2008 2009P

World 5.0 3.2 (0.5)
Advanced Economies 2.6 0.8 3.0)
Euro area 2.6 0.9 (3.2)
Japan 2.4 (0.7) (5.8)
Korea 5.0 4.1 3.5
UK 3.0 0.7 (2.8)
USA 2.0 1.1 (2.6)
OECD Countries 2.6 1.2 (0.4)
Emerging Economies 8.0 6.1 2.0
Argentina 8.7 6.5 3.6
Brazil 5.7 5.8 1.8
China 13.0 9.0 6.7
India 9.0 7.1 5.3
Indonesia 6.3 6.1 5.5
Malaysia 6.3 5.8 4.8

Thailand 4.8 4.7 4.5
Source: IMF projection
114
Methodology for projections
Bank credit growth comes from the expansion of economic activity. We believe that future
growth in economy is the best indicator to project growth in bank credit. This has been validated
with a detailed analysis of the past data spanning 25 years. We have analysed boom and bear
phases of the Indian economy over the years and have found a considerable level of correlation
between GDP growth and bank credit growth.
As depicted in the chart, changes in GDP growth have either immediate or near term (within next
one to one-and-half year) impact on bank credit growth.
Fig 14.2 – GDP growth and Bank credit growth moves in tandem
12.0 40.0
10.0 35.0
8.0 30.0
6.0 25.0
4.0 20.0
Percent
Percent
2.0 15.0
- 10.0
FY80
FY82
FY84
FY86
FY88
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
(2.0) 5.0
(4.0) -
(6.0) (5.0)
GDP growth (at factor cost) Bank Credit growth
Our analysis shows low correlation between the GDP growth and credit growth on a point-to-
point basis. However, if we correlate the average GDP and credit growth of various upward and
downward phases of the economy, it gives a better correlation than just a single year. Depicted
below are the average GDP growth rates and the average bank credit growth rates over different
economic phases.
115
Table 14.3 – GDP growth and bank credit growth for block of years
Average growth (%) in

Year Description
GDP Bank Credit
FY04 to Period of rapid expansion in economic activity. GDP growth
8.8 27.5
FY08 driven by domestic consumption and positive global factors
FY1999 Global downturn affected the industrial output, weak agriculture
to growth (Average 1.6% in the period), the busting of IT bubble
5.4 17.9
FY2003 affected fastest-growing export service sector, stock market crisis
of 2001 and financial scam aggregated the problem
FY95 to Structural changes within the economy, asian currency crisis and 6.5 18
FY98 growing importance of service sector
FY91 to Post liberalisation resulted in higher competition & reduced 4.4 8.0
FY94 demand for domestic goods and high inflation.
Source: IMF projection
CAGR of GDP over the past 25 years ended March 31, 2008 was 6.2%. CAGR of credit over the
same period was 18%, giving a multiplier of 2.9x between the two. However, for the last 10 years,
the multiplier between the bank credit and GDP growth is 3.2x. Also, if we compare the average
growth rates in a block of years of boom and recessionary periods, the multiplier ranges between
2.5x to 3.5x times (baring the period of FY91 to FY94).
The relationship between GDP growth and bank credit growth over the last 10 years will give
better picture because:
¾ The financial reforms have been effected in the past 10 years
¾ Banking penetration has increased mainly in the past 10 years. Bank credit as a percentage
of GDP increased from 17.1% in FY1981 to only 21.2% in FY1998 and then galloped to
50.1% in FY2008. Also, various domestic financial institutions have been
converted/merged into banks in 2004 enabling banks to provide long-term finance to the
infrastructure sector (infrastructure accounts for around 9% of the bank credit)
116
Fig 14.3 – Bank credit as a percentage to GDP over the years
55
50
45
40
Percent
35
30
25
20
15
FY80
FY82
FY84
FY86
FY88
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
¾ A structural change with the share of service sector rising in the GDP has happened over
the years. Contribution of agriculture in GDP has been declining continuously.
Agriculture contributed 17.8% to total GDP in FY08 as against 26.0% in FY1998 and
37.9% in FY1981. High contributing agriculture sector in earlier years was unorganised
and dependant upon the private money lenders for credit needs. Thus, growth/decline in
GDP contributed by agriculture did not result in change in bank credit. Increasing
contribution of industry and services sector, which are more organised and better
regulated and depend largely on bank credit, has happened over the past 10 years.
Fig 14.4 – Share of various sectors in GDP over the years

90
80 Industry + Service
70
60
Percent
50
40
Agriculture & allied activities
30
20
10
0
FY80 FY82 FY84 FY86 FY88 FY90 FY92 FY94 FY96 FY98 FY00 FY02 FY04 FY06 FY08
117
Advances to grow at CAGR of 17% to 19% over next 2 years (FY09 to FY11)
CARE’s projected GDP growth for FY09 is 6.5% and growth in credit offtake was at 17.3% for
FY09 (2.7x of GDP growth). FY09 was the exceptional year particularly last 2 quarters were largly
impacted by global factors. Domestic and global factors have shown some improvement in last
couple of months, there by negating the fear of severe recession in a globe. CARE projects a
GDP growth of 5.8% and 6.2% in FY10 and FY11, respectively. We believe that growth in bank
credit will be around 2.9x to 3.1x times to GDP growth in FY10 and FY11, respectively.
Therefore, we expect the bank credit to grow at a CAGR of 17% to 19% over FY09 to FY11.
Apart from the normal relationship-based projections for bank credit, we believe that bank credit
growth has upside due to the following factors.
¾ Infrastructure sector to drive incremental growth in credit offtake. Going forward,

CARE Research feels that the growth in banks credit offtake would be fueled by growth
in lending to the infrastructure sector on the back of high spending on infrastructure by
the government. The Central government has granted approval to the projects worth
Rs.70,000 crores during August 2008 to January 2009. Also projects worth Rs.67,700
crores have been given final approval under public-private partnership mode. Share of
infrastructure credit has increased from merely 1% of total credit in FY1998 to 9% of
total credit in FY2008. Bank credit to Infrastructure sector has grown at a CAGR of
58.8% from FY03 to FY08 as against the total bank credit which grew at CAGR of
27.4% during the same period. The growth was also aided by conversion of domestic
financial institutions into banking companies as also banks starting to provide long-term
finance as against their traditional domain of working capital finance.
¾ Government’s all corner efforts to support growth through easy availability of

credit. Government through PSBs (who controlled 72.6% of total credit in FY08), has
made easy availability of bank credit possible to the sectors which are hit due to
economic slowdown viz real estate, textiles etc. The efforts includes interest subvention
scheme for export-oriented sectors, low interest rate on housing loans and vehicle loans
(SBI home loan available at 8% and auto 10% for first year), restructuring of bad loans
and setting up of the India Infrastructure Finance Company Ltd (IIFCL) with fund size
of Rs30,000 crores.
¾ Policy actions were more prompt and swifter this time than earlier slowdowns.
Policy action by the RBI to bring back economy on earlier growth track was more
prompt and swifter this time as compared to the crisis of FY91, FY99-FY01. RBI has
acted proactively by effecting the necessary cuts in policy rates on a timely basis. The
translation of a cut in key policy rates into cheaper credit availability will support the
credit growth going forward.
118
Fig 14.5 – Sharp and prompt cut in CRR than earlier slowdowns
16
14
12
Percent
10
2
Mar-91
Mar-92
Mar-93
Mar-94
Mar-95
Mar-96
Mar-97
Mar-98
Mar-99
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mix of the credit will change in favour of infrastructure and industrial credit
Incremental credit growth for banks will mainly come from robust infrastructure spending by the
government and consequent demand for credit for executing infrastructure projects such as
power, roads, ports and tele-communications. Share of infrastructure in total outstanding credit as
on March 31, 2008 was 9.0%, which will increase to 12.0% by the end of FY11. The overall
demand for funds from industry will either decline or remain at the same level as slower economic
growth delays capex cycles. However, lack of funds from non-banking channels would mean
higher lending opportunities for banks. Thus incremental offtake from industry will also remain
high for banks. We project share of industrial credit excluding infrastructure to increase from
29.8% at the end of FY08 to 32.5% at the end of FY11. Retail credit growth will be lowest among
all. CARE Research believes that there will be flat to declining growth for personal loans and
credit card outstandings. We also project moderate growth in home loans due to adverse real
estate market. Share of retail loan in overall loans was at 22.5% in FY08. However, retail loans will
contribute only 18% of total credit in FY11.
119
Fig 14.6 Projected sector-wise break-up of bank credit from FY09 to FY11
Banks group-wise projection

Table 14.4 – Projected credit growth for various banking group (%)
Bank Group FY09P* FY10E FY11E
SBI and Associates 22.0 19-21 21-23
Nationalised banks 19.5 16-18 19-21
Private sector banks 10.9 12-14 17-19
Foreign banks 4.0 6-8 13-15
SCBs (excluding RRBs) 17.3% 15-17 19-21
Source: RBI and CARE Research (* FY09 numbers are provisional)
Table 14.5 – Projected credit growth for various banking group (Rs cr)
Amount (Rs in crores) FY08 FY09P* FY10E FY11E
SBI and Associates 593,723 724,342 869,210 1,060,437
Nationalised banks 1,203,782 1,438,519 1,683,068 2,028,097
Private sector banks 518,402 574,908 643,897 759,798
Foreign banks 161,133 167,578 179,309 200,826
SCBs (excluding RRBs) 2,477,040 2,905,348 3,375,484 4,049,158
120
Rapid credit growth for PSBs
Government is pushing the cheap credit through state-owned banks to combat slowing economy.
Various state-owned banks have cut the loan rates to lowest level for retail segment. Adding to
this, PSBs are traditional lenders to the corporates where credit offtake will not see as big dent as
expected in retail credit. Infrastructure lending is expected to be robust which will support the
high credit offtake for these banks. CARE Research expects relatively higher credit offtake growth
for PSBs as compared to private sector banks.
Private and foreign banks credit growth to slow down…

Private sector and foreign banks have burned their fingers by aggressively expanding their retail
credit portfolio. Retail credit constitute majority of loan assets for private and foreign banks
(around 50 to 60%). Housing loan constituting 44.3% of retail credit of private sector banks is not
expected to grow at a high rates due to slack in real estate market. Credit card and personal loan
accounts which accounted for 40% of total retail credit are proving to be highly risky in the
economic downturn and thus banks have become cautious on such credits.
In our view, some of the private sector and foreign banks will focus more on restructuring their
balance sheets and the loan portfolios which are presently highly skewed towards retail credit. We
may see the balance sheet size of some players remaining stagnant or marginally declining in
FY10. CARE Research believes that credit growth for these banking groups will see some
improvement in FY11 when economic conditions improve.
Table 14.6 – ..thus changing share in total credit in favour of PSBs

Share in total credit (%) FY08 FY09P* FY10E FY11E
SBI and Associates 24.0 24.9 25.8 26.2
Nationalised Banks 48.6 49.5 49.9 50.1
Private sector banks 20.9 19.8 19.1 18.8
Foreign banks 6.5 5.8 5.3 5.0
SCBs (excluding RRBs) 100.0 100.0 100.0 100.0
CARE Research believes that lower growth for private and foreign banks coupled with higher
credit offtake for PSBs will change the mix in favour of PSBs. SBI and Associates are likely to
increase their share in total bank credit from 24% in FY08 to 26.2% in FY11E. Similarly,
nationalised bank’s share in total bank credit is expected to increase by 150 bps from 48.6% to
50.1% of the total bank credit. Private and foreign banks are expected to lose their market share
from 20.9% in FY08 to 18.8 in FY11E and from 6.5% in FY08 to 5.0% in FY11E respectively.
121
14.2 Outlook on Deposits
High deposit growth in past
The deposits grew by 24.6% in FY07, which is highest in the banking industry so far followed by
23.1% growth in FY08. Deposits growth up to January 2009 was also decent at 21.9%.
Variation in deposit growth is lower than credit growth

We have analysed credit and deposit growth from FY1980 till FY2008. Data reveals that standard
deviation of credit growth is far higher than standard deviation of deposit growth.
Table 14.7 – Average growth and standard deviation in deposit and credit growth from
FY1980 to FY2008 (in %)
Credit Deposits Difference
Mean 17.9 17.7 0.2

SD 7.4 3.2 4.2
There is not much difference between the average growth in deposit (17.7%) and average growth
in credit (17.9%). But the fluctuation in standalone yearly growth in credit captured by standard
deviation is higher at 7.4% as compared to fluctuation in yearly growth in deposits at 3.2%. This
leads us to the conclusion that growth in credit fluctuates more than growth in deposits. Hence
going forward, using the same logic, contraction in deposit growth will be lower than contraction
in credit growth.
Fig 14.7 –Average growth and y-o-y growth in credit for SCBs from FY1980 to FY2008
40
35
30
25
Percent
20
15
10
5
0
FY80
FY82
FY84
FY86
FY88
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
-5
y-o-y growth rate in credit Average Credit growth
122
Fig 14.8 –Average growth and y-o-y growth in deposit for SCBs from FY1980 to FY2008
30
25
20
Percent
15
10
0
FY80
FY82
FY84
FY86
FY88
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
y-o-y growth rate in deposits Average Deposit growth
Deposit growth will be equal to or more than credit growth
Banks have since FY2000 seen the wide mismatch with credit growth surpassing deposit growth.
This was manageable for banks as they had large SLR portfolio which was liquidated over the
period of FY2000 to FY2008 to support the credit offtake. Currently, the SLR investments for the
banks is close to minimum statutory requirement of 24%, any increase in credit has to be
necessarily accompanied by increase in deposits of the banks. Hence, deposit growth will be
greater than or equal to credit growth in the next two years.
Fig 14.9 –Difference between credit and deposit growth over the years
25 Higher negative spread for 9

20 years indicates equal or more
credit growth compared to
15 deposit growth
10
Percent
5
0
FY80
FY82
FY84
FY86
FY88
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
-5
-10
-15
-20
123
Deposits will show moderate growth as compared to past
As deposit growth has shown some degree of correlation with GDP growth of the nation we
expect the deposit growth rate to moderate with a lowering of the GDP growth in the next two
years. However, apart from GDP growth, deposit growth remains a function of various factors
like increase in household savings, risk aversion amongst investors in economic downturn etc.
Generally, the saving by the households in an economic downturn is diverted more towards safer
saving instruments like bank deposits due to increased risk aversion among investors. Moreover,
there is an observed tendency among the Indians unlike their western counterparts to curtail the
consumption in downturn rather than curtailing the savings.
Deposits expected to grow by 18% to 20% in FY10 and FY11

Keeping in mind our projection of credit growth of 17% to 19% CAGR from FY09 to FY11, we
expect the deposit growth rate to hover around 18% to 20% in FY10 and FY11. Deposit growth
rate will be higher than credit growth rate for FY10. However with a pick up in credit growth to
20% to 22% in FY11, deposit growth is expected to remain at 19% to 20%.
Share of Current account deposits to decrease

We believe that incremental current account deposits will be lower in the period of slowdown.
Current deposits are kept by corporates and sluggish business coupled with shortage of funds
compels them to curtail the idle fund kept by them in the banking system. Our view on this regard
is well supported by the past data.
Fig 14.10 –Share of demand deposits in incremental total deposits for SCBs over the years
50
40 low economic growth

and low contribution
30 of demand deposits
Percent
20
10
-
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
Contribution of the demand deposits went up from an average of 7.8% in FY01 to FY03 to an
average of 15.8% in FY03 to FY06 in the incremental deposits. With slower economic growth,
the demand deposits will contribute only 7-8% as seen in FY1992-93, FY1997-98 and FY2001-03.
124
Current trend supports our conclusion
Our argument is well supported by recent data. Total deposit mobilised in the current financial
year (till February 2009) is Rs.489,034 crores as against which there was outflow in demand
deposits of Rs.75,943 crores. Similar trend in earlier periods suggests that incremental demand
deposits were higher in economic boom period as in FY06 to FY08. Mobilisation from demand
deposits was lower in economic downward period of FY01 and FY02.
Table 14.8 –Trend in incremental total and incremental demand deposits for FY09 (Rs cr)
Incremental
Period Incremental deposits demand deposits
Apr-08 4,434 (62,761)
May-08 50,607 (2,360)
Jun-08 23,780 2,532
Jul-08 28,061 (13,956)
Aug-08 83,015 21,482
Sep-08 52,491 29,652
Oct-08 49,799 (34,762)

Nov-08 53,805 (9,535)
Dec-08 26,421 2,987
Jan-09 99,449 5,910
Feb-09 17,172 (15,132)
Total 489,034 (75,943)
Average 44,458 (6,904)
Table 14.9 – Trend in incremental total and incremental demand deposits over the years
(Rs cr)
Incremental Monthly Average Monthly

Incremental demand Incremental Average Incremental
Year deposits deposits deposits demand deposits
FY01 154,927 10,347 12,911 862
FY02 147,466 13,385 12,289 1,115
FY03 152,924 11,470 12,744 956
FY04 219,907 38,602 18,326 3,217
FY05 262,029 31,386 21,836 2,616
FY06 327,122 58,417 27,260 4,868
FY07 532,299 59,053 44,358 4,921
FY08 623,074 90,057 51,923 7,505
125
Share of saving account deposits to increase
Saving deposits mobilisation may not be as bad as demand deposits as alternative investments like
equity are less lucrative in economic downturn and cautious approach is adopted by general
public.
Fig 14.11 –Share of saving deposits in incremental total deposits for SCBs over the years
60
50 High share low share

during slower during high
economic growth growth phase
40
Percent
30
20
10
-
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
Banks group-wise projection
Flight of deposits to continue in favour of PSBs
Global financial crisis have put the expansion plan of foreign banks in India on a hold. Risk
perception for private sector banks among the investors have increased. Fear of losing money has
made the investor to direct his deposits to PSBs. This has resulted into high deposit growth for
PSBs as compared to private sector and foreign banks. Provisional figures released by RBI for
deposit growth up to March 2009 support our view.
Table 14.10 – Deposit growth for various bank groups (in %)

y-o-y growth (%)
Particulars FY08 FY09*
Public sector banks (PSBs) 22.9 24.1
Private sector banks 19.9 8.0
Foreign banks 29.1 7.8
SCBs (including RRBs) 22.4 19.8
Source: RBI and CARE Research(* FY09 numbers are provisional)
126
The ill effect of global crisis and slowdown in domestic economy were felt more in urban areas as
compared to rural and semi-urban areas. Wide branch network of PSBs makes them less
vulnerable to the impending crisis which has impacted more the urban population as compared to
their rural counterparts. Due to this, PSBs will be in a better position to get incremental deposits.
Table 14.11 – Projected deposit growth rate for various banking group (%)
Bank Group FY09P* FY10E FY11E
SBI and Associates 26-28 22-24 23-25
Nationalised banks 22-24 19-21 21-23
Private sector banks 8-10 12-14 14-16
Foreign banks 7-9 7-9 8-10
SCBs (excluding RRBs) 19-21 18-20 19-20
Table 14.12 – Projected deposit growth for various banking group (Rs cr)
Amount (Rs in crores) FY08 FY09P* FY10E FY11E
SBI and Associates 773,875 982,821 1,208,870 1,498,998

Nationalised banks 1,606,995 1,976,604 2,371,925 2,893,748
Private sector banks 675,073 732,455 827,674 951,825
Foreign banks 191,114 206,403 222,915 242,977
SCBs (excluding RRBs) 3,247,057 3,898,282 4,631,383 5,587,549
Table 14.13 – ..thus changing the share in total deposits in favour of PSBs
Share in total credit (%) FY08 FY09P* FY10E FY11E
SBI and Associates 23.8 25.2 26.1 26.8
Nationalised Banks 49.5 50.7 51.2 51.8
Private sector banks 20.8 18.8 17.9 17.0
Foreign banks 5.9 5.3 4.8 4.3
SCBs (excluding RRBs) 100.0 100.0 100.0 100.0
We believe that lower growth for private and foreign banks coupled with higher deposit growth
for PSBs will change the mix in favour of PSBs. We project the SBI and associates to increase the
share in total bank deposits from 23.8% in FY08 to 26.8% in FY11E. Similarly, nationalised
banks’ share in total bank deposits is expected to increase by 230 bps from 49.5% to 51.8% of the
total bank deposits. Private and foreign banks are expected to lose market share in total deposit
respectively from 20.8% & 5.9% in FY08 to 17.0% & 4.3% in FY11E.
127
14.3 Outlook on Treasury profits: It’s different this time
In the period FY02 to FY05, bank profit on sale or revaluation of investments constituted around
7-10% of their total income.
Table 14.14 – Profit on sale/revaluation of investments for SCBs
Profit/revaluation Total
Year of investments income Percent
2000 2,977 50,273 5.9
2001 3,164 56,967 5.6
2002 9,334 61,979 15.1
2003 14,254 66,324 21.5
2004 19,279 68,540 28.1
2005 8,397 76,314 11.0
2006 1,899 88,574 2.1
2007 (2,395) 111,769 NM
2008 8,901 143,597 6.2

However we do not expect the treasury gains of FY02-FY05 period repeated in the years to
come. Infact, bank profits in Q3FY09 were influenced by the high treasury gains. The magnitude
and period of continuance of such treasury gains will be different this time.
Our belief is based on the following arguments.

¾ Sharp fall in G-sec yield this time as compared to longer period of falling G-sec
yield earlier.
Price of the bond has inverse relationship with interest rate. The interest rate and G-sec
yield fell gradually over a period of almost 3-and-half years from January 2001 to May
2004. Benchmark 10-year G-sec yield declined from 10.8 in January 2001 to 5.1 in May
2004. Fall in interest rate increased the price of the bonds in bank’s SLR portfolio,
translating into gains from revaluation of investments. However, fall in G-sec yield was
much faster this time. G-sec yield declined from 9.5% in July 2008 to 5.1% in January
2008 i.e. in six months’ time.
128
Fig 14.12 –Trend in 10 year G-sec yield over the years
11.0
10.0
bond yield
bottomed out over
9.0 a period of 3.5 yrs
8.0
Percent
7.0
Bond yield
6.0 bottomed out
in less than 6
5.0 months
4.0
Mar-01
Jul-01
Nov-01
Mar-02
Jul-02
Nov-02
Mar-03
Jul-03
Nov-03
Mar-04
Jul-04
Nov-04
Mar-05
Jul-05
Nov-05
Mar-06
Jul-06
Nov-06
Mar-07
Jul-07
Nov-07
Mar-08
Jul-08
Nov-08
Mar-09
Yield on 10-year G-sec

¾ Lesser investment in SLR portfolio as compared to earlier period.

In earlier cycle of falling G-sec yield, banks increased their investments in SLR securities.
As on January 2001, the banks had 32.3% of NDTL in SLR securities, which has
increased to 40.6% in May 2004. Mandatory SLR investment requirement during this
period was 25%. The bottoming of the bond yield from 10.5% to 5.1% in the same
period and high investment in SLR portfolio brought in treasury profit to the banks.
However, banks were closer to the minimum level of SLR investments, when G-sec
yield began to fall in the month of July 2008 (26%, as compared to requirement of 25%).
In November 2008, the SLR investment was at 24.5% as compared to the requirement
of 24%.
129
Fig 14.13 –Trend in SLR Investment of SCBs
42
40
38
36 Close to minimum
requirement level (24%) of
34 SLR portfolio, at the time of
following G-sec yield.
Percent
32
30
High SLR portfolio during the period of
28 falling G-sec yield, boosted the profit on
sales/revaluation of investments
26
24
Raising SLR investment in the
22 scenario of increasing yield
20
Mar-01
Sep-01
Mar-02
Sep-02
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
SLR Investments SLR requirement
¾ Banks booked gained in Q3FY09

Banks have booked the gain on treasury in Q3FY09 due to fall in bond yield. However,
comparatively low investment in SLR securities has restricted the gains on
sale/revaluation of investment as compared with earlier period. Banks have also booked
a losses in H1FY09 when G-sec went up from 7.9% to 9.5% which lowerd the overall
profit from treasury gains in FY09.
¾ Bond yields to remain firm

We believe that bond yield has bottomed out at 5.1%. Post January 2009, the G-sec yield
has been heading northwards due to higher borrowing by GOI. The Government’s
revenue is estimated to remain sluggish due to slower economic growth both in the
global and domestic markets, whereas the expenditure is expected to increase for
boosting the economy. Hence the higher government borrowing programme to fund the
higher deficit in the next two years will keep the G-sec yield firm and range-bound
between 6.0-7.0% in the next two years.
¾ SLR investments by banks to remain range-bound

Of late, banks are increasing their investment in SLR securities and at the same time
bond yields are picking up. This will not give in any gain, but may result in losses if bond
yield continues to rise upwards. We believe that the lack of investment avenues in the
backdrop of slower credit offtake may force the banks to park their excess funds in SLR
securities. However, the SLR investments as a percentage will remain range-bound
between 24-28%.
130
14.4 Outlook on Fee Income
Fee income such as sale of third-party products like mutual fund units and insurance, investment
banking services, card income, depository services and brokerage constitute higher proportion in
other income for foreign and private sector banks as compared to PSBs. Core fee income is 8-
10% of total income for PSBs as compared to 15-18% for private and foreign banks. Since last
few years, increase in economic activity and robust primary and secondary markets have helped
the banks to garner larger increase in their fee-based incomes. However current weakness being
witnessed in the domestic primary and secondary market will hinder the growth of income from
such services.
Fee income for private sector and foreign banks has increased at a CAGR of 34.6% and 31%,
respectively, between FY03 and FY08. The proportion is higher for private and foreign banks
because of the expertise developed by them to provide such services and advance technologies
adopted by them which gave them edge over the PSBs. Margins on such services are also higher
as cost associated with the same chiefly includes labour.
Table 14.15 – Trend in Fee income growth and projected growth rate
Banks FY04 FY05 FY06 FY07 FY08 FY09E FY10E FY11E
SBI and associates 13.0 18.9 21.1 14.0 7.6 10.0 10.0 12.0
Nationalised banks 11.1 29.5 19.9 24.5 21.0 15.0 18.0 18.0
Private sector banks 20.4 39.4 44.8 33.8 35.9 12.0 15.0 18.0
Foreign banks 20.6 43.9 31.7 30.3 29.6 10.0 12.0 15.0
All SCBs 14.7 30.0 27.6 24.9 23.1 13.0 15.0 17.0
131
14.5 Outlook on Net Interest Margin (NIM)
We believe that NIM of banks will remain under pressure in FY10 and we expect some recovery
in FY11.
Movement in interest rate to squeeze the NIM in near future
Fig 14.14 –Benchmark Prime Lending Rate (BPLR - maximum) over the years
15.0 220 bps drop

14.5 in BPLR
14.0
13.5
13.0
Percent
12.5
12.0
11.5
11.0
10.5
10.0
Jul-01
Jul-02
Jul-03
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Mar-01
Nov-01
Mar-02
Nov-02
Mar-03
Nov-03
Mar-04
Nov-04
Mar-05
Nov-05
Mar-06
Nov-06
Mar-07
Nov-07
Mar-08
Nov-08
Mar-09
Fig 14.15 – Deposit rate of for more than 1 year maturity over the years
11.0
150 bps drop in
deposits rates
10.0
9.0
Percent
8.0
7.0
6.0
5.0
Nov-01
Nov-02
Nov-03
Nov-04
Nov-05
Nov-06
Nov-07
Nov-08
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Jul-01
Jul-02
Jul-03
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
132
PLR fall has been steeper than the deposit rates
Improvement in liquidity in the system driven by cut in policy rates and other measures resulted in
cut in PLRs by the banks across the sector. Currently slower growth affecting incremental credit
demand has led banks to reduce loan yields ahead of deposit rates. As seen in the graphs above,
maximum benchmark prime lending rate have fallen by 220bps from its peak, against which the
cut in the deposits rate was 150 bps, a shortfall of 70 bps.
Table 14.16 – Cut in BPLR and deposit rates by various banks

Bank PLR Reduction Deposits Reduction Mismatch in
(%) in PLR rates (%) in Depo reduction
(bps) rates (bps) (bps)
SBI 12.0 200 8.5-9.0 25-100 100
Canara Bank 12.75 125 8.0-9.0 50 75
Punjab National Bank 12.0 175 8.25-8.5 25-100 75

Allahabad Bank 12.25 200 8.25-9.25 100 100
Lagged effect of deposit rate cut to trim the NIM at least in FY10
Substantial portion of bank deposits is mobilised at fixed interest rates with an asymmetric
contractual relationship. During the upturn of the interest rate cycle, depositors have the flexibility
to prematurely terminate the existing deposits and re-deposit the funds at higher interest rates.
However, in the downturn of the interest rate cycle, banks have to necessarily carry these deposits
at higher rates of interest till their maturity. Banks have mobilised fixed deposits especially in 1 to
3 years of maturity at around 10-10.5% during August 2008 to December 2008. Effect of cut in
rates will be applicable for additional deposits. However cut in lending rates have immediate
impact on interest receivables. These high interest carrying deposits will have negative impact on
NIMs.
High share of longer maturity bulk deposits will pain more

Banks which had relied on bulk deposits from HNI and corporates to aggressively fund growing
demand for credit without increasing their low-cost deposit base and going for branch expansion.
Longer maturity of bulk deposits will make these banks to pay higher rates on deposits and thus
affecting their margins.
Period of high spread between PLR and deposits rates are gone
As shown in the graph below, spread between the Benchmark prime lending rate and deposits
rate of more than one year maturity touched its historic low of 3.0% in November 2008. However
it recovered from that level in last 2 to 3 months to the level of 3.5%. During the period of FY03
to FY06, the spread was in the range of around 4.5% to 5.5%.
133
Fig 14.16 –Spread between BPLR - maximum and deposits rate for more than 1 year
maturity
6.0
5.5
5.0
4.5
4.0
Percent
3.5
3.0
around its lowest
2.5
level since last 6.5
2.0 years
1.5
1.0
Feb-01
Aug-01
Feb-02
Aug-02
Feb-03
Aug-03
Feb-04
Aug-04
Feb-05
Aug-05
Feb-06
Aug-06
Feb-07
Aug-07
Feb-08
Aug-08
Feb-09
NIMs has positive correlation with the spread
Fig 14.17 –Net Interest Margin (NIM) for SCBs over the years
3.20
3.10
3.00
2.90
Percent
2.80
2.70
2.60
2.50
2.40
2.30
134
We do not expect the period of FY03 to FY06 will repeat in next 2 to 3 years. Higher spread
during these periods was mainly due to the following factors which we don’t expect to repeat in
the current cycle.
¾ Lower deposits rates prevailed during FY03 to FY06. Deposits rates touched the low of
5.5% in January 2004. Deposits rates remained in the range of 5.5% to 7.0%.
¾ Credit offtake started picking up from FY03 onwards. Good credit offtake during this
period never made banks to aggressively lower their lending rates. However situation is
different in the current slowdown. Banks have started resorting to sharp lending rate cuts
even ahead of deposits rate cuts, both due to pressure from government and also due to
slow incremental credit demand.
¾ Banks were not hungry for more deposits. Banks during these periods had largely built up
SLR portfolio. Incremental credit demand during FY03 to FY06 was easily manageable
by just liquidating or reducing the further investment in SLR securities. However,
currently SLR portfolio is close to the minimum required level. Banks have to keep
deposit rate attractive in order to mobilise deposits for incremental credit growth.
¾ The government is in favor of lower lending rate. Pressure on PSBs to lower rates and
increasing sub-PLR lending in order to keep the growth momentum intact will have
negative impact on the spread.
Table 14.17 –Speeding up of sub-PLR lending by PSBs at a lower interest rate to following
sectors
Sector Comment
Housing ¾ SBI offering loans at 8% for first 1 year
¾ Canara Bank offering loan at 8.5% for 1st year, 9.25% to
9.75% for next 3 years and then BPLR – 200 bps.
¾ Banks can lend up to 85% of the property amount as
against 80% earlier.
Automobile ¾ Loan at 10% for 1st year from SBI
Exports ¾ Subsidised rate for export credit and extended payment
period for sectors like textile, gems and jewellery
NBFC ¾ Loans up to Rs.3,000 crores to revive the NBFC sector
Small saving interest rate to act as a floor for deposit rates
Unlike in the earlier cycle, banks do not have a large built-up SLR portfolio which can be
liquidated to fund the growth. Banks need to have at least equivalent or higher deposit growth to
support the credit growth. We believe that administered small saving rates has little scope of
reduction due to political pressure. Bringing down the interest rate on bank deposits below the
level of rate offered by small saving instruments will divert the household savings to such
instruments.
135
We believe that banks are left with little choice and will not lower the rates below the small saving
interest rates. Although there is a marginal scope for reducing the deposit rates of around 50 bps.
Given such a situation, further reduction in lending rates will put pressure on NIMs.
Fig 14.18 –Movements in interest rate on small saving instruments and bank deposits
10.0 offered higher

rate to garner
9.0 large deposits
8.0
Percent
7.0
Spread reduced
lower interest rate to 100 bps in
6.0 didn't bother Mar'09
much due to high
5.0 SLR portfolio
4.0
Oct'08
Jun'08
Jan'09
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
Mar'09
Interest rate on small saving instruments Maximum Interest on Fixed deposits
Administered Saving deposits rate have little scope of reduction

Banks in India are free to decide their lending and deposit rates other than deposits rate on saving
accounts and NRI deposits. Currently interest rate on saving account is 3.5%. During the period
of high credit growth, the spread between saving deposit rate (3.5%) and lending rate was higher,
giving the banks better margin. With further cut in lending rates, the spread between the same to
reduce
In recent changes stipulated by RBI, Interest on saving deposits will be calculated on the basis of
daily balance with effect from April 2010. Currently it is calculated on the basis of lowest balance
kept on any day from 10th of the month to the end of the month. This will have significant impact
on the margin of the bank as interest outgo on savuings account deposits will be higher.
136
Fig 14.19 –Trend in BPLR and saving deposit rate
14
12
10 At its lowest
Percent
level since last 2

8 years.
2
Apr-07
Aug-07
Apr-08
Aug-08
Jun-07
Jul-07
Sep-07
Dec-07
Oct-07
Feb-08
Nov-07
Jan-08
Jun-08
Jul-08
Sep-08
Dec-08
Oct-08
Feb-09
Nov-08
Jan-09
May-07
May-08
Mar-08
Mar-09
BPLR (maximum) Saving deposit intererst rate
Fig 14.20 –Trend in the spread between BPLR and saving deposit rate
11.5
Spread increased
11.0 due to increase in
lending rate and vice
10.5 versa post Oct'08
Percent
10.0
9.5
9.0
8.5
8.0
Jan-09
Jun-08
Jan-08
Jun-07
Feb-09
Feb-08
Oct-08
Dec-08
Mar-09
Nov-08
Oct-07
Dec-07
Mar-08
Sep-08
Nov-07
Apr-08
May-08
Aug-08
Jul-08
Aug-07
Sep-07
Apr-07
May-07
Jul-07
spread between BPLR (maximum) and Saving deposit interest rate

Cut in SLR, CRR and repo to provide some breather

CRR, repo and SLR have been cut by 400 bps, 400 bps and 100 bps, respectively, from their peak.
CRR is the statutory minimum cash kept with RBI and does not earn any interest. Repo is rate
charged by RBI for short-term funding. Cut in these policy rates decreases the cost of the fund
for the banks, which in turn is positive for protecting the margins for the banks.
137
Fig 14.21 –Trend Repo and CRR for FY09
10
9
8
Percent
7
6
5
4
Jan-09
Jun-08
Dec-08
May-08
Jul-08
Aug-08
Sep-08
Apr-09
Apr-08
Oct-08
Nov-08
Feb-09
Mar-09
Repo CRR
Pressure on NIM for private and foreign banks will be lower

Pressure on the NIM for private and foreign banks will be lower due to following reasons
¾ BPLRs of major PSBs have come down by 150-175 basis points. Major private sector
banks have reduced their BPLRs by 50 basis points, while major foreign banks are yet to
do so. However reduction in deposits rates for private and foreign banks is in line with
the industry. For example, reduction in PLR for banks like HDFC and ICICI was around
100 bps as compared to these, deposits rates have come down in the range of 150-200
bps across the maturity.
¾ Benefits of broad policy measures like reduction in CRR, repo and SLR are available to all
the banks. As against this, these banks are shying away from low-cost lending like interest
subvention scheme and lowering of interest rate on housing loan to boost demand.
¾ Lower margin lending due to pressure from government as done by PSBs to boost the
slowing economy will be lower as government exercises lesser degree of control on these
banks.
¾ Various measures have been taken by these banks to reduce the cost of the funds. Banks
like ICICI and HDFC have increased the floor account balance limit for new saving
accounts customers from Rs.5,000 to Rs.10,000. This move will increase the Current and
Saving Accounts Ratio (CASA) ratio and in turn will lower the cost of funds.
FY11 will be a better year for NIMs

We expect the economy to perform better in FY11 as compared to FY10 and credit offtake will
also be higher in the later year. We believe that spread between the lending and deposit rates to
stabilise in FY11. We believe that the lagging effect will not be present in FY11 as most of the rate
cuts on deposits and lending front will be already done with by the end of FY10.
138
14.6 Outlook on Non-Performing Assets (NPAs)
We believe that gross NPA to gross advances will increase from 2.3% in FY08 to 4.25-4.50% by
the end of FY11 and Net NPA to Net advances will increase from current 1% to 2.7-3.0% by the
end of FY11. We don’t rule out presence of high NPAs in the banking systems which are
suppressed under the shadow of restructuring.
Slippages in corporate advances (industry + service) will be lower in percentage terms as

compared to retail advances. However corporate advances constitute higher proportion (64.6% of
total loan book as on March 31, 2009) in total advances. Since gross NPAs for corporate advances
will be higher in magnitude, it will drive the NPAs for the industry upward.
NPA levels for private sector and foreign banks will increase more rapidly as compared to PSBs
due to high proportion of retail portfolio and higher restructuring drive undertaken by PSBs
which will defer booking of NPAs.
Table 14.18 – Projection for NPAs for various bank groups

Bank group Gross NPA to Gross advances Net NPA to Net advances
FY08 FY09E FY10E FY11E FY08 FY09E FY10E FY11E
Public Sector Banks 2.2 3.0 3.5 4.2 1.0 1.5 2.0 2.5
Old Pvt. sector banks 2.3 2.9 3.8 4.4 0.7 1.3 1.9 2.5
New Pvt. sector banks 2.5 3.3 4.0 4.6 1.3 2.0 2.7 3.3
Foreign banks 1.8 3.0 4.0 4.7 0.8 1.8 2.5 3.5
All SCBs 2.3 3.0 3.7 4.3 1.0 1.8 2.2 2.8
Gross NPAs to Gross Advances to be lower than earlier cycle…
We believe that gross NPA in terms of percentages will be significantly lower in current asset
cycle as compared to earlier cycles. This is because lower proportion of lending to stressed
sectors, comparatively lower corporate leverage, better risk management and recovery
mechanisms by banks and improved debt restructuring programmes.
Reason for lower NPAs from corporate credit in current asset quality cycle
Closer look into the factors which contributed to the higher slippages in corporate loan book in
earlier cycles signals lower slippages in current cycles.
139
1. Industrial slowdown effects will be lower due to lower exposure to stressed sectors
Industrial credit mix has changed drastically since FY99 in favor of low-risk sectors as compared
to cyclical and cyclical-dependent sectors.
Table 14.19 – Sector-wise exposure of industrial credit
Sectors FY1999 FY2008 Up/(Down)

All Engineering 12.0 6.0 (6.0)
Chemicals and Chemical Products 11.1 7.4 (3.7)
Textiles 13.0 11.0 (2.0)
Basic Metals and Metal Products 13.5 12.0 (1.5)
Leather and Leather Products 1.4 0.7 (0.8)
Food Processing 6.5 5.8 (0.7)
Mining and Quarrying (including Coal) 1.4 1.2 (0.2)
Paper and Paper Products 1.6 1.6 (0.1)
Rubber, Plastic and their Products 1.1 1.2 0.1
Beverage and Tobacco 0.6 0.6 0.1

Cement and Cement Products 1.5 1.6 0.1
Glass and Glass Ware - 0.3 0.3
Wood and Wood Products - 0.4 0.4
Gems and Jewellery 2.3 2.9 0.6
Vehicles, Vehicle Parts and Transport Equipment 1.7 3.3 1.6
Petroleum, Coal Products and Nuclear Fuels 3.1 4.8 1.7
Construction 1.4 3.2 1.8
Infrastructure 3.3 23.2 19.9
2. Increased credit to the resilient Infrastructure sector

Lending to infrastructure-related sectors like power, telecom, roads and ports accounted for
23.2% of industry credit as on March 31, 2008 as compared to 3.3% of the total credit as on
March 31, 1999. Power has lower risk due to annuity nature of business and being a highly
regulated sector. From lenders’ perspective, the viability of most infrastructure projects is very
high, given the significant shortage of infrastructure in India. Moreover, the GOI is keen on
infrastructure development and has demonstrated support to the sector by recently increasing the
concession period in case of some road projects and Build, Operate & Transfer (BOT) power
projects by increasing the viability gap funding.
3. Dependence of Indian corporates on borrowed funds has reduced

Indian corporates are relying on lesser-borrowed funds for their expansion plans. As seen in the
table below, dependence on debt fund has reduced to 33.0% during the period FY02 to FY06 as
compared to 58.8% during the period of FY86 to FY91 and 48.1% in FY93 to FY97. Lesser
leverage by Indian corporates suggests better debt-servicing power.
140
Table 14.20 – Dependence of Indian corporates on borrowed funds
FY86 to FY93 to FY98 to FY02 to
FY91 FY97 FY01 FY06
Equity 41.2 51.9 56.0 67.0
Internal accruals 34.1 31.3 43.1 56.1
Raised (Equity) 7.1 20.6 12.9 10.9
Debt (a+b) 58.8 48.1 44.0 33.0
a) Borrowings (i+ii+iii+iv) 36.2 33.3 28.6 13.8
i) Debentures 10.3 5.2 6.1 (2.90)
ii) Banks 12.7 10.7 9.4 21.5
iii) FI 8.4 8.3 9.8 (5.10)
iv) Others 4.8 9.1 3.3 0.3
b) Trade dues and current liabilities 22.6 14.8 15.4 19.2
4. Overhang component will not be present this time

Analysis of the past decade indicates two prime contributors to high gross NPA:
¾ Overhang component in the form of old and stickier assets sitting in doubtful assets for a
long time (due to longer recovery cycles); and
¾ Change in business cycles. For example the mid 1990s post-liberalisation crisis, which
exposed operational inefficiencies, or the late-1990s crisis due to a slowdown instigated by
the Asian crisis resulted in high level of NPAs.
The problem of earlier cycles was that high NPAs were identified much later when the operational
inefficiencies is set in and also recovery mechanisms were poor. Indian banks continued to
accumulate NPAs from each downturn, resulting in gross NPA ratio of >15%. This has reduced
off late by improving the provisioning and writes-off of loans and also due to better recovery
mechanisms. Current cycle has no backlog NPAs of the earlier down cycle. The period between
FY04 to mid of FY09 was the best for the Indian economy. Banks could recover some of their
bad assets and lower NPAs of the current cycle have actually reduced the NPAs level to
minimum.
5. Lower share of small-scale industries in total industrial credit

The share of small-scale industrial credit has fallen from 28.9% of the total industrial credit in
FY1990 to 16.6% in FY2006, rising marginally to 17.9% in FY08.
141
Fig 14.22 –Share of small scale credit in industrial credit over the years
30
28
26
24
22
Percent
20
18 Higher overall slippages
16 due to high share of
small scale credit
14
12
10
FY90
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
Small-scale industrial credit to see higher slippages

CARE Research believes that within the industry as a group, small-scale enterprises are worst hit
followed by the medium-scale enterprises. Large-scale players are better placed to face the
slowdown due to their scale of operation, better negotiating power both on demand as well as
supply side and higher access to alternative sources of funds. Auto ancillaries, small and medium
scale suppliers of raw materials to large companies, textile whole sellers and retailers, small
exporters of gems, jewellery and textiles products, tour operators and transporters are some of the
worst hit business segments during a slowdown. Small-scale industrial loans will see higher
slippages but contribution to total industrial slippages will be lower as they constitute only 17.9%
of the total industrial credit and 6.9% of the overall credit.
Agriculture loan book looks stable

Agriculture and food credit constituted 14.2% of the total bank credit as on March 31, 2008. An
interesting characteristic of the current recession has been that consumption downturn has
affected urban areas far more than rural areas. If we take Consumer Price Index for Agricultural
Labourers and Rural labourers) (CPI-AL and CPI-RL) as an indicator for the demand for
consumption basket for rural labour force; this ratio has actually risen quarter on quarter as
compared to the overall decline in inflation rates. This indicates that rural consumption remains
strong. Agriculture loan waiver scheme announced by the government has to some extent
sanitised the agriculture loan books of the banks. We do not expect higher incremental slippages
from agriculture loan book.
142
Retail portfolio to see increased slippages
In FY09 the retail portfolio of banks has started showing some slippages. This is expected to
continue in FY10 as well due to weak employment (income) scenario, declining prices of
underlying assets coupled with banks’ limited ability in recovering personal loans. In our view,
banks which built most of their retail books in the past one-two years should see greater slippages.
Some of the private and foreign banks have seen the exponential growth in loan book by
aggressively lending to sensitive sectors, personal loans and credit card loans and may see higher
slippages.
Table 14.21 – Break-up of bank Retail credit for SCBs and expected slippages
Type of loans Advances % of total Approximate gross NPAs
(Rs cr) loan book over FY09 to FY11
Housing loans 2,52,932 10.2 1.5 to 3%

Credit card receivables 27,437 1.1 8 to 10%
Auto loans 87,998 3.6 4 to 6%
Other personal loans 2,02,681 8.2 10 to 12%
IT /ITES and financial services industries are key employers in metros and were major drivers of
retail credit. Labor-heavy industries like textiles and gems & jewellery have also laid off people and
we expect this to be an industry-wide phenomenon which could lead to higher retail
delinquencies.
Housing loans to bleed least in retail segment
The last two years witnessed the development in housing markets such as increased competition
among banks to tap borrowers, steady rise in property prices, an urge to leverage on falling
interest rates, both among borrowers and lenders and strong growth in personal wealth; these led
banks to easing their lending standards. Most of the mortgage loans disbursed during FY02-FY05
was at a Loan To Value (LTV) ratio of 70-75%. The LTV ratio steadily increased to above 80%
by FY07-08. Further, banks have given longer duration loans, moving steadily from 15 years to
over 20 years (select banks have 30 years loans too) and loans with a higher installment to income
ratio.
In the present uncertain environment with salary and job cuts, the property prices have also eased.
In some tier 1 and tier 2 cities, the property prices have corrected by around 30% which translates
into a loan value above the value of the house. Thus banks have been caught between lower assets
values and lower ability of borrowers to pay the dues.
However falling interest rate can provide some breather to the borrowers and increase their ability
to service the loan partially. Interest rates have fallen since they peaked in October 2008. Banks
have reduced the interest rate on housing loan by 150 to 200 bps. Borrowers also have the option
to switch over to home loans provided by the PSBs at a relatively lower rate.
143
Reducing the Equated Monthly Installment (EMI) and increasing the tenure is one of the options
to curtail delinquencies. We believe that slippages in housing loan will be around 1.5 to 3% of
total outstanding.
Auto loans: two-wheeler loans to be hit more than car loans
We believe that slippages in auto loan will be around 4 to 6% of total outstanding. Two-wheeler
loans are more or less like a personal loan and will be impacted more than car loan. Capacity to
repay for households which have bought cars as a matter of comfort or luxury is fairly
comfortable.
Credit card and other personal loans: unsafe of all
We believe that the worst hit will be personal loan category as it is riskiest asset class in retail
credit followed by credit card receivables. Both of these types of loans are mostly unsecured.
During the boom period, banks have aggressively provided personal loans as the yield on the
same is the highest. CARE Research estimates that slippages in personal loan category will be
highest of all, at around 10-12% of total outstanding followed by credit card receivables at around
8 to 10% of total outstanding.
CV loans and Commercial real estate to see high slippages in services

We believe that commercial vehicle loans are likely to have more slippages due to lower cargo
movements emanating from sluggish economic growth and slower industrial output. Moreover,
around 95% of sales of CV are on finance and around 80% of the truck owners in India are
single-truck owners. Such borrowers have inherent lower capacity to pay and the only source of
servicing the loan on vehicle is income from transportation.
Downturn in real estate is being felt more on commercial side as compared to residential side.
Loans to commercial real estate will see higher slippages.
144
14.6.1 Restructuring of loans: breather for FY10 but may spoil the
party in FY11
The spillover effects of the global downturn have started affecting the Indian economy
particularly from September 2008 onwards, creating stress for the otherwise viable
units/activities. The basic objective of the RBI in restructuring is to preserve economic value of
units, not ever greening of problem accounts. This can be achieved by banks and the borrowers
only by careful assessment of the viability, quick detection of weaknesses in accounts and a time-
bound implementation of restructuring packages.
RBI came out with the revised guidelines of restructuring of loans on August 27, 2008 and
circulars to the guidelines thereafter. Following are the salient features of the guidelines.
Guidelines issued on August 27, 2008 and circulars issued thereafter

¾ This guideline supersedes the earlier guideline issued in June 2007.
¾ As per the earlier guidelines, the accounts classified as 'standard assets' should be
immediately re-classified as 'sub-standard assets' upon restructuring. However, the
current guideline provides some relaxation in the same. As a special regulatory feature,
the guideline provides retention of the asset classification of the restructured account in
the pre-restructuring asset classification category. This is applicable for the loans which
are restructured by the banks within 120 days of receipt of application (120 days for
corporate debt restructuring).
¾ Banks are required to make the provision equal to difference between the present value
of the loan asset restructured and present value of the asset before restructuring.
1. Present value of asset before restructuring
The present value of future cash flows (principal and interest) based on the rate
charged in original agreement, discounted at a rate which is the sum of current
BPLR as on the date of restructuring plus the appropriate term premium and
credit risk premium for the borrower category on the date of restructuring.
2. Present value of restructured Asset

The present value of future cash flows’ (principal and interest) based on rate
charged as per the restructuring package, discounted at a rate which is the sum of
current BPLR as on the date of restructuring plus the appropriate term premium
and credit risk premium for the borrower category on the date of restructuring.
Full provision (100%) is required to be made on the difference between 1 and 2 above.
Thus, difference could arise due to either change in interest rate or change in tenure of
loan.
¾ A bank may find it difficult to ensure computation of diminution in the fair value of
advances extended by small/rural branches, therefore as an alternative to the
methodology prescribed above for computing the amount of diminution in the fair value,
banks will have the option of notionally computing the amount of diminution in the fair
value and providing at five per cent of the total exposure, in respect of all restructured
accounts where the total loan outstanding is less than rupees one crore.
145
Implication:
¾ This will enable banks to restructure the standard account without

classifying it into the sub-standard category.
¾ Sub-standard asset attracts the provision of 10% of amount outstanding.
However, if restructuring happens within the stipulated time, it will still
be classified as standard asset only.
¾ Guidelines require 100% of the difference between the present value of
loan asset before restructuring and present value of loan after
restructuring to be charged as provision.
¾ As per various banks and our quick calculation shows that provisioning
required to be made in this regard can come close to around 5% of the
loan amount.
¾ Thus, in our view, the current guidelines may provide relief of up
to 5% of loan asset restructured.
¾ Restructuring is not applicable to following categories of assets

1. Consumer and personal advances
2. Advances classified as Capital market exposures
3. Advances classified as commercial real estate exposures
¾ The extended period of loan account after restructuring should be less than 10 years,
other than for infrastructure loans.
¾ Any loan which is eligible for restructuring should have a residual maturity of less than 10
years. This rule is not applicable for housing loans. This is because ceiling of 10 years
would make many of the housing loans ineligible for special regulatory treatment, since
housing loans are normally granted with much longer repayment period.
¾ Commercial real estate was put out of the preview of restructuring guidelines. Due to
difficulties faced by the real estate sector, the circular dated on December 8, 2008 extends
exceptions/special treatment to the commercial real estate exposures which are
restructured up to June 30, 2009.
¾ The special regulatory treatment is restricted only to the cases where the restructuring
under consideration is not a 'repeated restructuring'. However, in the face of the current
economic downturn, there are likely to be instances of even viable units facing temporary
cash flow problems. To address this issue, circular dated on December 8, 2008 allowed
repeated restructuring.
¾ Special regulatory treatment was allowed even where full security cover for WCTL is not
available, subject to the condition that provisions are made against the unsecured portion
of the WCTL @ 20% for standard asset.
146
PSBs leading the race in restructuring
PSBs are restructuring a number of accounts particularly under small and medium enterprises and
retail loans. This may result in lower NPAs and provisioning for these banks in FY09 and at least
in the first half of the FY10.
Breather for FY09 and FY10
RBI by allowing longer period to restructure the bad loans, second restructuring and also
restructuring of unsecured portion of loans has put the breaks on piling up of the provisioning
and NPA levels of the banking sector. However, this may give temporary breather as banks could
save provisioning to the maximum extent of 5% on the loan asset restructured. This will keep the
book provisioning for FY09 and FY10 under a check at least for banks going for restructuring
aggressively.
May postpone provisioning to FY11….

We believe that RBI’s intention is to give temporary breather to the banking sector as also to the
industries suffering due to global slowdown and weakening domestic economy. One argument
against such restructuring exercise is that it is just the fictitious drop in NPA levels or
postponement of a particular period NPAs to another period. However, accounts getting
restructured by the banks may also include accounts which are incapable of revival post recovery.
Also if current crisis of global and domestic slowdown deepens then, the spillover restructuring
loans will eventually turn bad and thus increase the NPAs and provisioning requirement further.
147
14.7 Outlook on Profitability of banks
Interest earned
Lower ¾ Slower growth in advances
Interest on advances ¾ Reduction in lending rates
Lower ¾ Lower bond yields as compared to
FY08 will decrease the interest
Interest on investments earned
Interest on balance with Lower ¾ Lower due to decreased in reverse
RBI/others repo and inter bank rates
Interest Expended Lower
Lower ¾ Will be lower but not as much as
(but higher interest on advances
than Interest ¾ Lagging effect to be present at least
Interest on deposits on Advances) in FY10
Lower ¾ Lower due to decrease in repo and
Interest on RBI/bank borrowings inter-bank rates

NII Lower
Lower Lower due to lower non-core and core
Other Income income growth
Lower ¾ Most of treasury gains booked in
FY09. No more treasury gain in
FY10 and FY11 due to rising bond
yield as compared to levels seen in
of which, non-core income January 2009.
Lower ¾ Dent in economic activity to give
of which, core income sluggish growth
Operating expenses Higher
Higher ¾ Higher for PSBs due to wage
of which, staff cost revision
Operating profit Lower
Higher ¾ Higher due to provisioning for
provisions and contingencies restructuring
Lower ¾ Flat to marginally positive growth
for FY10
¾ Moderated growth (8to 10%) for
Net Profit FY11
148
Chapter 15 Bank’s Ranking
We have ranked banks operating in India on the base of certain predefined quantitative and
qualitative parameters as elaborated later.
We have used the data published by RBI on individual banks in its various publications, mainly
from “statistical tables relating to banks in India”. Although unlikely but there might be some
discrepancy in the data published by individual banks and data released by RBI. However to
ensure consistency, we have used only the data released by RBI.
Data on individual banks for any financial year are released by RBI in the month of November or
December of the next financial year. Due to this, we have done ranking of banks based on the
financial information for March 2008.
Fig 15.1 – Ranking Parameters

Ranking Parameters
Qualitative Parameters Quantitative Parameters

(10%) (90%)
Business Business per Profit per

per branch employee employee
(33.3%) (33.3%) (33.3%)
Size Profitability Quality Growth

(45%) (25%) (15%) (15%)
¾No. of ¾NIM ¾CAR ¾Advances

branches ¾ROA ¾CAR Tier 1 growth
¾Total business ¾ROE ¾Gross NPA ¾Deposit growth
¾Total profit ¾CASA ¾% of unsecured ¾Net profit
(Equal weights) ¾Core spread loan growth
(Equal weights) ¾Net NPA (Equal weights)
(Equal weights)
Source: CARE Research (weights are mentioned in % below each parameters)
149
We have given higher weight to size because it has overwhelming impact on other parameters.
In order to eliminate year specific happening/impact on parameters (baring the parameters of size
for which data of FY08 is considered), we have considered 3 year weighted average of parameters
(3 year CAGR for the parameter of growth)
During FY09, State Bank of Saurashtra merged with its parent bank SBI and Centurion Bank of
Punjab merged with HDFC Bank. Although these banks were in existence at the end of FY08, we
have excluded them for our analysis.
CARE Research believes that banks with a very low size banks may outscore medium to large size
banks on many parameters of ranking only due to low base effect and not due to its core
efficiency. Therefore we have excluded banks with less than five branches in our ranking.
Thus, we have excluded 17 out of 27 foreign banks and one private bank from our Ranking
analysis.
1. Abu Dhabi Commercial Bank 2. DBS Bank
3. Antwerp Diamond Bank 4. JP Morgan Chase Bank

5. Arab Bangladesh Bank 6. Krung Thai Bank
7. Bank Of Bahrain & Kuwait 8. Mashreq Bank
9. Bank Of Ceylon 10. Mizuho Corporate Bank
11. Bank Of Tokyo-Mitsubishi-UFI 12. Oman International Bank
13. Shinhan Bank 14. Societe Generale
15. Sonali Bank 16. State Bank of Mauritius
17. SBI Commercial & International Bank
Thus, total number of banks included in our analysis is calculated as follows.
Table 15.1 – Calculation of no. of banks included in Ranking analysis

Particulars No.
Total number of banks operating in India as on March 31, 2008 78
Less: Banks merged during FY09 (2)
Less: Banks with less than five branches as on March 31, 2008 (18)
Total number of banks included for our analysis 58
The Rank of individual banks have no baring on the ratings of those banks. This ranking
exercise is based on parameters presented in figure 15.1. While rating an entity emphasis
is placed on a more exhaustive set of parameters and also the economic environment.
150
Overall Ranking of banks on various parameters
Ranking Based on
Quantitative
Quantitative
Profitability
Final Rank
Qualitative
Growth
Quality
Total
Total
Rank
Rank
Bank
Size
HDFC Bank 12 3 11 5 37 1 15 2 1
Axis Bank 15 14 13 4 52 4 13 5 2
Indian Overseas Bank 10 10 17 18 49 3 31 6 3
Indian Bank 13 8 4 24 47 2 41 6 4
Bank Of India 3 20 41 14 59 5 26 7 5
ICICI Bank 6 50 24 10 73 8 12 8 6
Bank Of Baroda 4 43 21 17 65 7 25 9 7
Punjab National Bank 2 13 28 52 61 6 40 9 8

Corporation Bank 16 31 8 25 74 9 17 10 9
Andhra Bank 17 15 9 46 75 10 29 12 10
Allahabad Bank 11 20 31 30 75 11 35 13 11
Union Bank Of India 7 23 37 45 82 13 22 14 12
State Bank Of India 1 26 47 48 81 12 36 14 13
State Bank Of Hyderabad 18 37 16 25 88 15 27 16 14
Syndicate Bank 9 30 52 12 86 14 38 16 15
Canara Bank 4 45 25 56 89 16 22 17 16
Citi Bank 25 1 48 13 93 19 2 17 17
Federal Bank 31 18 5 21 90 18 21 18 18
IDBI Bank 18 58 18 19 103 20 9 19 19
Punjab & Sind Bank 29 9 27 7 89 16 49 19 20
Deutsche Bank 38 7 34 2 108 22 4 20 21
Kotak Mahindra Bank 38 22 22 3 111 23 33 24 22
State Bank Of Patiala 21 54 20 34 115 25 19 24 23
Central Bank Of India 8 48 58 23 107 21 55 24 24
Standard Chartered Bank 28 2 51 41 116 27 11 25 25
Karur Vysya Bank 40 19 7 32 116 26 24 26 26
HSBC 40 4 40 27 127 33 8 31 31
State Bank Of Mysore 32 17 33 20 112 24 45 26 27
Bank Of America 49 6 12 28 126 30 1 27 28
Jammu & Kashmir Bank 33 32 15 50 126 32 18 31 32
State Bank Of Bikaner & Jaipur 30 27 29 39 122 28 48 30 30
Oriental Bank Of Commerce 20 53 30 47 126 31 15 29 29
Nainital Bank 56 5 3 9 123 29 52 31 33
Yes Bank 46 36 10 1 127 35 14 33 34
City Union Bank 47 11 23 14 127 33 43 34 35
South Indian Bank 36 42 19 21 128 36 42 37 37
ABN AMRO Bank 42 11 36 30 134 39 7 36 36
Vijaya Bank 22 48 45 38 133 38 37 38 38
United Bank Of India 23 46 46 33 132 37 53 39 39
State Bank Of Travancore 25 35 42 54 135 41 32 40 40
Dena Bank 27 34 54 29 135 40 47 41 41
Barclays Bank 57 25 2 11 140 45 10 42 42
Tamilnad Mercantile Bank 45 16 14 50 138 44 34 43 45
151
Ranking Based on
Quantitative
Quantitative
Profitability
Final Rank
Qualitative
Growth
Quality
Total
Total
Rank
Rank
Bank
Size
Bank Of Maharashtra 24 33 56 42 136 42 50 43 43
Calyon Bank 54 27 6 35 150 47 5 43 43
UCO Bank 14 55 55 53 137 43 44 43 46
BNP Paribas 53 23 32 7 151 49 6 45 47
Bank Of Nova Scotia 55 52 1 6 153 50 2 45 48
State Bank Of Indore 34 44 39 40 150 47 30 45 49
Bank Of Rajasthan 43 38 35 14 148 46 50 46 50
Karnataka Bank 35 39 43 54 159 52 28 50 51
ING Vysya Bank 36 50 38 35 156 51 39 50 52
Indusind Bank 44 56 50 58 197 56 20 52 53
Ratnakar Bank 58 27 26 43 177 53 57 53 54

Catholic Syrian Bank 48 41 53 49 191 54 58 54 55
Lakshmi Vilas Bank 50 57 44 37 194 55 54 55 56
Development Credit Bank 51 47 49 57 203 58 46 57 57
Dhanalakshmi Bank 52 39 57 44 198 57 56 57 58
152
Ranking Based on Size of the Bank
Ranking based on
No. of Total Total Final
Bank Branches Business Net profit Ranks Rank
State Bank Of India 1 1 1 3 1
Punjab National Bank 2 3 3 8 2
Bank Of India 5 4 4 13 3
Bank Of Baroda 4 6 9 19 4
Canara Bank 6 5 8 19 4
ICICI Bank 17 2 2 21 6
Union Bank Of India 7 8 10 25 7
Central Bank Of India 3 7 20 30 8
Syndicate Bank 8 10 15 33 9
Indian Overseas Bank 10 13 11 34 10
Allahabad Bank 9 16 14 39 11
HDFC Bank 25 9 7 41 12
Indian Bank 12 17 13 42 13
UCO Bank 11 14 22 47 14
Axis Bank 28 12 12 52 15
Corporation Bank 21 18 16 55 16
Andhra Bank 16 22 18 56 17
IDBI Bank 30 11 17 58 18
State Bank Of Hyderabad 20 19 19 58 18
Oriental Bank Of Commerce 15 15 30 60 20
State Bank Of Patiala 24 20 21 65 21
Vijaya Bank 18 23 27 68 22
United Bank Of India 13 24 32 69 23
Bank Of Maharashtra 14 26 31 71 24
State Bank Of Travancore 26 28 23 77 25
Citi Bank 51 21 5 77 25
Dena Bank 19 30 29 78 27
Standard Chartered Bank 46 27 6 79 28
Punjab & Sind Bank 23 34 25 82 29
State Bank Of Bikaner & Jaipur 22 29 34 85 30
Federal Bank 29 33 26 88 31
State Bank Of Mysore 27 31 33 91 32
Jammu & Kashmir Bank 32 32 28 92 33
State Bank Of Indore 33 35 39 107 34
Karnataka Bank 35 40 38 113 35
ING Vysya Bank 36 37 42 115 36
South Indian Bank 31 41 43 115 36
Kotak Mahindra Bank 44 38 36 118 38
Deutsche Bank 53 42 23 118 38
Karur Vysya Bank 38 44 40 122 40
HSBC 50 25 47 122 40
ABN AMRO Bank 52 36 37 125 42
Bank Of Rajasthan 34 45 48 127 43
Indusind Bank 41 39 51 131 44
Tamilnad Mercantile Bank 40 47 45 132 45
Yes Bank 49 43 41 133 46
153
Ranking based on
No. of Total Total Final
Bank Branches Business Net profit Ranks Rank
City Union Bank 43 48 49 140 47
Catholic Syrian Bank 37 51 53 141 48
Bank Of America 56 53 35 144 49
Lakshmi Vilas Bank 39 50 56 145 50
Development Credit Bank 45 49 52 146 51
Dhanalakshmi Bank 42 55 54 151 52
BNP Paribas 54 54 44 152 53
Calyon Bank 55 56 46 157 54
Bank Of Nova Scotia 56 52 50 158 55
Nainital Bank 47 57 55 159 56
Barclays Bank 56 46 58 160 57
Ratnakar Bank 48 58 57 163 58
154
Ranking based on No. of branches as on 31st March 2008
Banks FY04 FY05 FY06 FY07 FY08 Rank
State Bank Of India 9,071 9,185 9,241 9,632 10,369 1
Punjab National Bank 4,102 4,128 4,142 4,168 4,275 2
Central Bank Of India 3,220 3,247 3,250 3,320 3,433 3
Bank Of Baroda 2,777 2,775 2,776 2,812 2,931 4
Bank Of India 2,666 2,670 2,678 2,760 2,805 5
Canara Bank 2,585 2,631 2,644 2,686 2,787 6
Union Bank Of India 2,109 2,139 2,169 2,286 2,410 7
Syndicate Bank 1,869 1,905 1,974 2,231 2,281 8
Allahabad Bank 2,012 2,027 2,027 2,140 2,233 9
Indian Overseas Bank 1,543 1,583 1,586 1,777 1,951 10
UCO Bank 1,805 1,798 1,815 1,923 1,946 11
Indian Bank 1,415 1,417 1,435 1,478 1,576 12
United Bank Of India 1,336 1,345 1,350 1,361 1,436 13
Bank Of Maharashtra 1,291 1,330 1,336 1,386 1,415 14
Oriental Bank Of Commerce 1,050 1,168 1,184 1,334 1,376 15
Andhra Bank 1,133 1,162 1,164 1,230 1,275 16
ICICI Bank 418 515 563 716 1,268 17
Vijaya Bank 918 968 979 1,039 1,112 18
Dena Bank 1,091 1,072 1,064 1,071 1,098 19

State Bank Of Hyderabad 919 943 959 990 1,025 20
Corporation Bank 706 799 824 923 1,006 21
State Bank Of Bikaner & Jaipur 823 833 836 876 895 22
Punjab & Sind Bank 783 787 786 860 871 23
State Bank Of Patiala 747 754 762 792 840 24
HDFC Bank 295 446 515 666 743 25
State Bank Of Travancore 679 681 703 718 725 26
State Bank Of Mysore 624 640 646 658 684 27
Axis Bank 184 250 348 501 643 28
Federal Bank 446 471 482 552 618 29
IDBI Bank 93 37 173 442 509 30
South Indian Bank 415 439 440 484 508 31
Jammu & Kashmir Bank 428 442 450 461 498 32
State Bank Of Indore 448 456 453 468 488 33
Bank Of Rajasthan 356 388 402 458 478 34
Karnataka Bank 384 398 412 428 453 35
ING Vysya Bank 386 381 387 413 421 36
Catholic Syrian Bank 311 314 325 345 363 37
Karur Vysya Bank 234 257 263 289 296 38
Lakshmi Vilas Bank 239 239 240 250 253 39
Tamilnad Mercantile Bank 182 183 184 194 217 40
Indusind Bank 62 127 146 185 195 41
Dhanalakshmi Bank 171 182 185 189 189 42
City Union Bank 131 137 142 164 183 43
Kotak Mahindra Bank 41 54 78 110 182 44
Development Credit Bank 66 89 91 93 104 45
Standard Chartered Bank 71 85 87 82 91 46
Nainital Bank 61 69 81 82 89 47
Ratnakar Bank 72 75 78 80 81 48
Yes Bank - 3 6 41 61 49
HSBC 36 39 42 47 47 50
Citi Bank 25 35 39 40 40 51
ABN AMRO Bank 16 19 23 28 28 52
Deutsche Bank 5 5 8 8 11 53
BNP Paribas 6 9 9 9 9 54
Calyon Bank 1 4 6 6 6 55
Bank Of America 2 5 5 5 5 56
Bank Of Nova Scotia 3 5 5 5 5 56
Barclays Bank 1 1 1 3 5 56
155
Ranking based on Total Business as on 31st March 2008
ICICI Bank 130,204 191,224 311,246 426,376 470,047 2
Bank Of India 116,859 134,350 159,106 204,818 263,488 4
Canara Bank 133,983 157,217 196,229 240,887 261,310 5
Bank Of Baroda 108,568 124,734 153,574 208,537 258,735 6
Central Bank Of India 78,713 88,029 103,966 134,572 183,317 7
Union Bank Of India 79,985 101,936 127,474 147,567 178,207 8
HDFC Bank 48,153 61,921 90,858 115,243 164,196 9
Syndicate Bank 63,232 73,024 90,091 130,304 159,222 10
IDBI Bank NA 60,516 78,740 105,825 155,211 11
Axis Bank 30,317 47,315 62,428 95,662 147,287 12
Indian Overseas Bank 61,777 69,446 85,286 115,801 144,749 13
UCO Bank 59,871 77,126 91,921 111,849 134,991 14
Oriental Bank Of Commerce 55,354 73,150 83,775 108,134 132,423 15
Allahabad Bank 46,818 61,913 77,647 100,834 121,337 16
Indian Bank 44,570 53,189 63,290 76,149 100,885 17
Corporation Bank 37,081 45,780 56,839 72,307 94,610 18
State Bank Of Hyderabad 36,072 44,529 54,888 69,612 85,957 19

State Bank Of Patiala 35,560 41,855 55,958 67,953 84,971 20
Citi Bank 35,724 39,595 52,367 70,736 84,502 21
Andhra Bank 35,826 45,068 56,023 69,343 83,675 22
Vijaya Bank 32,060 39,954 44,373 61,828 79,641 23
United Bank Of India 30,722 36,738 44,772 59,323 74,829 24
HSBC 25,898 29,633 41,767 57,966 72,565 25
Bank Of Maharashtra 38,177 41,906 43,376 56,839 71,044 26
Standard Chartered Bank 36,101 42,493 52,537 64,278 70,308 27
State Bank Of Travancore 30,854 38,981 44,863 55,770 63,491 28
State Bank Of Bikaner & Jaipur 24,239 31,075 37,589 49,007 59,184 29
Dena Bank 27,761 32,205 37,854 45,993 56,967 30
State Bank Of Mysore 17,390 22,366 28,123 38,488 48,490 31
Jammu & Kashmir Bank 27,946 33,162 37,968 42,274 47,476 32
Federal Bank 21,177 24,015 29,615 36,484 44,818 33
Punjab & Sind Bank 19,672 20,493 26,032 31,056 43,175 34
State Bank Of Indore 16,825 22,848 28,537 35,328 42,923 35
ABN AMRO Bank 12,553 16,862 26,937 34,386 39,293 36
ING Vysya Bank 17,525 21,650 23,567 27,395 35,148 37
Kotak Mahindra Bank 6,556 8,317 12,914 21,924 31,976 38
Indusind Bank 18,501 22,114 24,317 28,729 31,833 39
Karnataka Bank 14,075 17,124 21,035 23,590 27,858 40
South Indian Bank 12,477 13,858 15,949 20,158 25,610 41
Deutsche Bank 4,631 6,098 6,962 11,923 22,715 42
Yes Bank NA 1,424 5,317 14,510 22,703 43
Karur Vysya Bank 9,935 11,292 13,132 16,381 21,972 44
Bank Of Rajasthan 9,838 11,016 12,956 16,520 21,283 45
Barclays Bank 92 77 365 1,183 14,537 46
Tamilnad Mercantile Bank 6,518 7,453 8,329 10,067 13,002 47
City Union Bank 4,394 5,108 6,067 8,029 10,962 48
Development Credit Bank 6,914 6,051 4,991 7,074 10,144 49
Lakshmi Vilas Bank 5,335 5,814 7,289 8,633 9,477 50
Catholic Syrian Bank 5,779 6,310 6,984 7,761 8,631 51
Bank Of Nova Scotia 3,713 3,655 4,795 4,952 8,529 52
Bank Of America 5,035 5,212 5,475 5,634 7,643 53
BNP Paribas 3,052 3,392 3,701 4,440 7,008 54
Dhanalakshmi Bank 3,294 3,749 4,127 4,927 5,710 55
Calyon Bank NA 1,980 1,384 1,778 2,947 56
Nainital Bank 994 1,296 1,729 2,276 2,785 57
Ratnakar Bank 1,061 1,208 1,365 1,407 1,687 58
156
Ranking based on Net profit for the year ended on 31st March 2008
ICICI Bank 1,637 2,005 2,540 3,110 4,158 2
Bank Of India 1,008 340 701 1,123 2,009 4
Citi Bank 572 600 706 900 1,804 5
Standard Chartered Bank 596 602 905 1,364 1,706 6
HDFC Bank 510 666 871 1,141 1,590 7
Canara Bank 1,338 1,110 1,343 1,421 1,565 8
Bank Of Baroda 967 666 827 1,027 1,436 9
Union Bank Of India 712 719 675 845 1,387 10
Indian Overseas Bank NA 651 783 1,008 1,202 11
Axis Bank 278 335 485 659 1,071 12
Indian Bank 513 408 504 760 1,009 13
Allahabad Bank 463 542 706 750 975 14
Syndicate Bank 434 403 536 716 848 15
Corporation Bank 504 402 444 536 735 16
IDBI Bank 406 307 561 630 729 17
Andhra Bank 464 520 485 538 576 18
State Bank Of Hyderabad 381 251 427 506 557 19

Central Bank Of India 618 357 257 498 550 20
State Bank Of Patiala 430 287 303 367 414 21
UCO Bank 435 346 197 316 412 22
State Bank Of Travancore 245 247 259 326 386 23
Deutsche Bank 273 77 126 218 386 23
Punjab & Sind Bank 9 (71) 108 219 382 25
Federal Bank 136 90 225 293 368 26
Vijaya Bank 411 381 127 331 361 27
Jammu & Kashmir Bank 406 115 177 274 360 28
Dena Bank 230 61 73 202 360 29
Oriental Bank Of Commerce 686 726 557 581 353 30
Bank Of Maharashtra 305 177 51 272 328 31
United Bank Of India 315 300 205 267 319 32
State Bank Of Mysore 176 206 217 249 319 33
State Bank Of Bikaner & Jaipur 302 206 145 306 315 34
Bank Of America 64 80 145 196 305 35
Kotak Mahindra Bank 79 85 118 141 294 36
ABN AMRO Bank 195 195 242 385 281 37
Karnataka Bank 133 147 176 177 242 38
State Bank Of Indore 226 133 139 190 234 39
Karur Vysya Bank 161 105 135 160 208 40
Yes Bank NA (4) 55 94 200 41
ING Vysya Bank 59 (38) 9 89 157 42
South Indian Bank 84 9 51 104 152 43
BNP Paribas (13) 15 19 64 131 44
Tamilnad Mercantile Bank 81 82 101 106 127 45
Calyon Bank NA (16) 76 90 127 46
HSBC 394 337 515 846 119 47
Bank Of Rajasthan 69 35 15 111 115 48
City Union Bank 57 46 56 72 102 49
Bank Of Nova Scotia 18 (12) 32 76 101 50
Indusind Bank 262 210 37 68 75 51
Development Credit Bank 17 (163) (85) 7 38 52
Catholic Syrian Bank 56 11 6 19 37 53
Dhanalakshmi Bank 17 (22) 10 16 28 54
Nainital Bank 12 11 12 18 27 55
Lakshmi Vilas Bank 41 3 22 18 25 56
Ratnakar Bank 8 (9) 1 3 17 57
Barclays Bank 72 63 122 91 6 58
157
Ranking Based on Profitability
Core
ROE CASA spread Total Final
Banks NIM ROA Rank Rank Rank ranks Rank
Citi Bank 1 2 11 4 5 23 1
Standard Chartered Bank 7 5 3 7 7 29 2
HDFC Bank 4 17 16 3 6 46 3
HSBC 3 6 31 6 3 49 4
Nainital Bank 8 14 23 5 8 58 5
Bank Of America 6 4 43 2 15 70 6
Deutsche Bank 11 15 46 1 2 75 7
Indian Bank 15 13 9 27 15 79 8
Punjab & Sind Bank 14 24 14 12 17 81 9
Indian Overseas Bank 17 18 1 22 25 83 10
City Union Bank 12 10 5 50 11 88 11
ABN AMRO Bank 5 33 30 16 4 88 11
Punjab National Bank 16 29 24 9 23 101 13

Axis Bank 36 23 13 10 20 102 14
Andhra Bank 23 21 15 25 24 108 15
Tamilnad Mercantile Bank 9 9 32 44 19 113 16
State Bank Of Mysore 27 27 2 29 34 119 17
Federal Bank 20 16 17 47 21 121 18
Karur Vysya Bank 19 8 18 45 38 128 19
Allahabad Bank 37 18 10 20 45 130 20
Bank Of India 39 32 8 23 28 130 20
Kotak Mahindra Bank 2 28 47 46 9 132 22
Union Bank Of India 28 30 12 26 39 135 23
BNP Paribas 13 12 49 17 44 135 23
Barclays Bank 18 3 56 58 1 136 25
State Bank Of India 26 36 28 8 41 139 26
Ratnakar Bank 10 46 57 18 10 141 27
State Bank Of Bikaner & Jaipur 22 43 19 21 36 141 27
Calyon Bank 29 1 39 54 18 141 27
Syndicate Bank 42 37 6 30 30 145 30
Corporation Bank 32 22 26 24 42 146 31
Jammu & Kashmir Bank 35 35 37 19 22 148 32
Bank Of Maharashtra 24 50 36 11 32 153 33
Dena Bank 33 44 29 13 35 154 34
State Bank Of Travancore 31 38 4 38 52 163 35
Yes Bank 45 7 25 56 31 164 36
State Bank Of Hyderabad 46 31 7 33 48 165 37
Bank Of Rajasthan 47 40 21 32 27 167 38
Dhanalakshmi Bank 25 51 40 39 13 168 39
Karnataka Bank 38 20 22 51 37 168 39
Catholic Syrian Bank 21 55 50 40 14 180 41
South Indian Bank 30 41 38 48 26 183 42
Bank Of Baroda 34 42 41 28 43 188 43
State Bank Of Indore 50 39 20 34 47 190 44
Canara Bank 49 34 27 31 55 196 45
United Bank Of India 44 48 45 14 46 197 46
Development Credit Bank 41 58 58 42 12 211 47
158
Core
ROE CASA spread Total Final
Banks NIM ROA Rank Rank Rank ranks Rank
Central Bank Of India 43 53 48 15 54 213 48
Vijaya Bank 48 47 34 35 49 213 48
ICICI Bank 55 26 44 49 40 214 50
ING Vysya Bank 40 52 53 36 33 214 50
Bank Of Nova Scotia 56 11 35 57 58 217 52
Oriental Bank Of Commerce 51 25 51 37 57 221 53
State Bank Of Patiala 54 45 33 43 51 226 54
UCO Bank 53 54 42 41 56 246 55
Indusind Bank 57 57 55 55 29 253 56
Lakshmi Vilas Bank 52 56 54 52 50 264 57
IDBI Bank 58 49 52 53 53 265 58
159
Ranking based Weighted Average Net Interest Margin as on 31st March 2008
Banks FY04 FY05 FY06 FY07 FY08 Weight Avg Rank
Citi Bank 4.94 4.58 5.20 4.81 4.86 4.91 1
Kotak Mahindra Bank 2.93 3.66 4.55 4.35 5.08 4.76 2
HSBC 2.99 3.69 4.20 4.96 4.53 4.59 3
HDFC Bank 3.68 3.79 4.08 4.50 4.66 4.50 4
ABN AMRO Bank 4.49 4.41 3.68 4.44 4.85 4.49 5
Bank Of America 2.34 2.44 3.50 4.06 4.86 4.35 6
Standard Chartered Bank 4.56 3.87 4.49 4.56 4.15 4.34 7
Nainital Bank 4.08 3.89 4.37 4.47 4.02 4.23 8
Tamilnad Mercantile Bank 4.40 4.32 4.20 4.49 3.45 3.91 9
Ratnakar Bank 2.86 3.18 3.25 3.49 4.17 3.78 10
Deutsche Bank 1.01 0.88 2.07 3.39 4.28 3.57 11
City Union Bank 3.31 3.31 3.67 3.53 3.22 3.40 12
BNP Paribas 2.74 2.88 3.30 3.29 3.49 3.39 13
Punjab & Sind Bank 3.34 3.73 3.63 3.74 3.08 3.39 14
Indian Bank 3.00 3.14 3.30 3.61 3.15 3.32 15
Punjab National Bank 3.84 3.51 3.44 3.58 3.06 3.29 16
Indian Overseas Bank 3.62 3.78 3.75 3.62 2.91 3.29 17
Barclays Bank 2.17 1.97 2.67 2.66 3.74 3.20 18
Karur Vysya Bank 4.47 3.42 3.35 3.46 2.87 3.14 19
Federal Bank 3.09 3.15 3.20 3.20 3.01 3.11 20

Catholic Syrian Bank 2.99 3.34 3.19 3.27 2.91 3.07 21
State Bank Of Bikaner & Jaipur 3.74 3.98 3.90 3.45 2.48 3.06 22
Andhra Bank 3.52 3.58 3.19 3.21 2.73 2.97 23
Bank Of Maharashtra 2.70 2.71 3.03 3.12 2.82 2.95 24
Dhanalakshmi Bank 3.05 2.87 3.02 3.07 2.80 2.93 25
State Bank Of India 2.85 3.21 3.27 3.03 2.64 2.88 26
State Bank Of Mysore 3.62 3.63 3.41 3.09 2.54 2.88 27
Union Bank Of India 3.17 3.16 2.94 2.91 2.72 2.82 28
Calyon Bank NA 1.49 1.34 2.81 3.39 2.81 29
South Indian Bank 2.37 2.74 3.06 3.00 2.56 2.79 30
State Bank Of Travancore 3.18 3.39 3.15 3.25 2.33 2.77 31
Corporation Bank 3.48 3.58 3.30 2.96 2.42 2.76 32
Dena Bank 2.80 2.97 2.86 2.95 2.55 2.73 33
Bank Of Baroda 3.18 3.31 3.05 2.95 2.42 2.71 34
Jammu & Kashmir Bank 3.26 2.61 2.61 2.79 2.64 2.68 35
Axis Bank NA NA 2.47 2.55 2.83 2.67 36
Allahabad Bank 3.46 3.42 3.14 2.85 2.36 2.66 37
Karnataka Bank 2.15 2.74 2.66 2.69 2.64 2.66 38
Bank Of India 2.73 2.49 2.54 2.71 2.64 2.64 39
ING Vysya Bank 1.97 2.49 2.99 3.01 2.22 2.61 40
Development Credit Bank 1.95 1.39 1.79 2.66 2.90 2.61 41
Syndicate Bank 3.50 3.41 3.32 2.86 2.11 2.58 42
Central Bank Of India 3.52 3.60 3.32 2.95 2.05 2.57 43
United Bank Of India 3.12 3.33 3.27 3.12 1.87 2.53 44
Yes Bank NA 1.42 3.24 2.24 2.40 2.52 45
State Bank Of Hyderabad 2.96 2.94 2.90 3.02 2.01 2.49 46
Bank Of Rajasthan 2.60 2.42 2.35 2.90 2.25 2.47 47
Vijaya Bank 3.88 3.70 3.20 2.90 1.88 2.45 48
Canara Bank 2.95 3.01 2.95 2.70 2.04 2.42 49
State Bank Of Indore 3.71 3.35 2.88 2.58 2.13 2.42 50
Oriental Bank Of Commerce 3.88 3.21 2.84 2.55 2.04 2.35 51
Lakshmi Vilas Bank 2.38 2.71 2.35 2.42 2.01 2.20 52
UCO Bank 3.04 2.86 2.69 2.48 1.81 2.19 53
State Bank Of Patiala 3.41 3.34 2.74 2.50 1.67 2.13 54
ICICI Bank 1.62 1.94 2.25 2.23 1.96 2.10 55
Bank Of Nova Scotia 1.61 1.59 1.54 2.09 1.69 1.78 56
Indusind Bank 2.54 2.71 1.90 1.41 1.54 1.57 57
IDBI Bank NA 0.23 0.45 0.68 0.56 0.57 58
160
Ranking based Weighted Average Return on Asset as on 31st March 2008
Calyon Bank NA -0.80 4.30 4.60 4.20 4.34 1
Citi Bank 3.55 2.84 3.07 2.79 4.33 3.62 2
Barclays Bank 5.20 3.29 9.64 4.45 0.10 3.31 3
Bank Of America 1.26 1.46 2.41 3.10 3.76 3.29 4
HSBC 0.91 1.27 1.58 1.82 1.82 1.77 6
Yes Bank NA -0.29 2.13 1.44 1.54 1.63 7
Karur Vysya Bank 2.43 1.45 1.65 1.53 1.63 1.60 8
City Union Bank 1.86 1.33 1.46 1.57 1.60 1.56 10
Bank Of Nova Scotia 0.64 -0.35 0.83 1.73 1.73 1.55 11
BNP Paribas -0.44 0.50 0.55 1.41 1.97 1.52 12
Indian Bank 1.21 1.08 1.16 1.46 1.64 1.49 13
Nainital Bank 1.58 1.25 1.06 1.26 1.67 1.43 14
Deutsche Bank 3.17 0.72 1.04 1.23 1.56 1.36 15
Federal Bank 0.90 0.62 1.28 1.38 1.34 1.34 16
HDFC Bank 1.45 1.47 1.38 1.33 1.32 1.34 17
Allahabad Bank 1.34 1.33 1.42 1.26 1.32 1.32 18
Karnataka Bank 1.34 1.27 1.28 1.15 1.37 1.29 20

Andhra Bank 1.72 1.59 1.38 1.31 1.16 1.25 21
Axis Bank NA NA 1.18 1.10 1.24 1.19 23
Punjab & Sind Bank 0.06 -0.45 0.64 1.01 1.49 1.18 24
ICICI Bank 1.31 1.48 1.30 1.09 1.12 1.15 26
Bank Of India 1.25 0.38 0.68 0.88 1.25 1.03 32
ABN AMRO Bank 1.84 1.27 1.03 1.37 0.78 1.01 33
Canara Bank 1.34 1.01 1.13 0.98 0.92 0.98 34
Syndicate Bank 1.67 0.82 0.91 0.91 0.88 0.90 37
Bank Of Baroda 1.20 0.75 0.79 0.72 0.89 0.82 42
Dena Bank 1.11 0.26 0.29 0.71 1.06 0.80 44
Ratnakar Bank 1.12 -1.17 0.07 0.31 1.31 0.76 46
Vijaya Bank 1.91 1.43 0.45 0.92 0.75 0.74 47
IDBI Bank NA 0.78 0.68 0.67 0.67 0.67 49
Dhanalakshmi Bank 0.71 -0.83 0.33 0.52 0.76 0.60 51
ING Vysya Bank 0.45 -0.25 0.05 0.52 0.74 0.54 52
UCO Bank 1.13 0.73 0.34 0.47 0.52 0.47 54
Indusind Bank 1.74 1.50 0.22 0.34 0.34 0.32 57
Development Credit Bank 0.37 -3.38 -2.01 0.71 0.60 0.11 58
161
Ranking based Weighted Average Return on Equity as on 31st March 2008
City Union Bank 31.03 20.88 21.40 22.03 21.82 21.80 5
Syndicate Bank 24.92 19.64 21.32 22.18 21.42 21.63 6
Bank Of India 26.71 8.03 14.85 20.65 24.38 21.36 8
Indian Bank 7.61 7.12 11.97 24.00 22.29 20.74 9
Allahabad Bank 34.04 27.93 23.67 18.49 20.05 20.31 10
Citi Bank 23.70 19.98 18.43 16.44 22.62 19.93 11
Axis Bank NA NA 18.28 20.96 17.60 18.74 13
Punjab & Sind Bank 1.92 -15.67 13.03 16.63 21.86 18.53 14
Andhra Bank 36.10 31.62 20.52 17.78 17.97 18.42 15
HDFC Bank 20.61 18.45 17.74 19.46 17.74 18.26 16
Federal Bank 23.14 13.13 22.82 21.27 13.56 17.73 17
Karur Vysya Bank 25.35 14.30 16.58 16.54 18.49 17.52 18

Karnataka Bank 20.78 17.56 16.85 15.07 18.47 17.13 22
Nainital Bank 19.62 15.83 12.90 14.95 20.07 17.10 23
Yes Bank NA -1.73 14.01 13.88 19.00 16.47 25
Canara Bank 28.47 19.53 20.29 16.25 15.01 16.44 27
Dena Bank 22.45 5.65 5.98 14.22 21.82 16.37 29
ABN AMRO Bank 18.66 15.63 16.47 21.63 12.93 16.25 30
HSBC 8.33 11.17 13.30 16.38 16.31 15.73 31
Vijaya Bank 38.32 26.02 7.79 18.58 16.59 15.43 34
Bank Of Nova Scotia 6.86 -4.47 11.30 16.65 15.39 14.95 35
Calyon Bank NA -7.08 14.56 11.98 15.54 14.28 39
Dhanalakshmi Bank 13.74 -17.41 7.66 11.46 17.81 13.88 40
Bank Of Baroda 20.32 12.58 12.28 12.45 14.58 13.48 41
UCO Bank 29.14 17.86 8.68 12.34 14.75 12.81 42
Bank Of America 9.60 7.53 9.58 11.64 14.57 12.69 43
ICICI Bank 20.93 18.86 14.33 13.17 11.63 12.63 44
Deutsche Bank 31.04 7.18 9.90 13.42 12.39 12.20 46
BNP Paribas -4.42 4.28 4.60 10.24 13.35 10.67 49
IDBI Bank NA 5.18 9.12 8.59 8.52 8.66 52
ING Vysya Bank 8.12 -4.80 0.97 8.38 11.89 8.65 53
Indusind Bank 37.37 25.79 4.34 7.10 6.24 6.12 55
Barclays Bank 19.43 11.33 11.75 6.57 0.20 4.42 56
Ratnakar Bank 17.87 -19.14 1.19 2.38 6.51 4.21 57
Development Credit Bank 6.47 -63.79 -46.90 2.95 7.86 -4.57 58
162
Ranking based on Weighted CASA as on 31st March 2008
Deutsche Bank 59.1 58.0 74.9 74.4 69.5 72.0 1
Bank Of America 50.2 57.6 78.6 63.9 64.7 67.2 2
HDFC Bank 54.7 60.6 55.4 57.7 54.5 55.6 3
Citi Bank 46.2 56.0 58.7 48.4 49.4 51.0 4
Nainital Bank 51.2 49.4 54.0 49.1 45.3 48.2 5
HSBC 46.2 50.7 53.8 43.5 46.1 46.9 6
Axis Bank 38.1 38.0 40.0 39.9 45.7 42.8 10
Punjab & Sind Bank 41.5 46.3 52.1 45.7 36.3 42.3 12
Dena Bank 41.5 42.0 43.6 44.5 39.2 41.7 13
ABN AMRO Bank 56.3 58.0 43.4 37.7 39.7 39.8 16
BNP Paribas 28.5 36.0 30.7 29.4 47.2 38.5 17
Ratnakar Bank 26.2 28.5 38.3 37.8 38.3 38.2 18
Allahabad Bank 41.9 38.7 39.3 38.0 36.0 37.3 20

Bank Of India 33.7 34.5 35.0 32.2 36.0 34.7 23
Andhra Bank 37.3 36.1 36.3 34.5 33.6 34.4 25
Indian Bank 33.5 34.9 34.8 35.4 32.3 33.8 27
Bank Of Baroda 36.4 36.5 37.9 33.2 31.2 33.2 28
Syndicate Bank 33.9 37.1 38.2 30.6 30.9 32.3 30
Canara Bank 33.8 33.8 33.3 31.5 31.5 31.9 31
Vijaya Bank 30.8 32.6 35.3 30.8 27.3 30.0 35
ING Vysya Bank 24.9 24.2 27.0 28.9 31.5 29.8 36
UCO Bank 32.4 29.2 29.6 29.2 25.7 27.5 41
Karur Vysya Bank 22.9 24.4 26.9 27.7 25.6 26.5 45
Federal Bank 23.1 24.5 25.0 25.2 25.1 25.1 47
ICICI Bank 23.0 24.3 22.7 21.8 26.1 24.1 49
City Union Bank 20.5 21.9 22.9 24.3 20.9 22.3 50
Karnataka Bank 20.3 21.6 20.9 23.4 22.1 22.3 51
IDBI Bank NA 38.3 29.5 25.4 16.6 21.8 53
Calyon Bank NA 19.2 48.0 23.0 24.8 19.3 54
Indusind Bank 11.2 10.7 12.9 14.9 15.7 14.9 55
Yes Bank NA 1.4 10.7 5.8 8.5 8.1 56
Barclays Bank 9.1 14.1 2.0 0.8 5.2 3.3 58
163
Ranking based on Weighted Average Core Spread as on 31st March 2008
Barclays Bank 3.64 19.71 14.60 21.49 6.05 12.39 1
Deutsche Bank 3.53 3.91 4.60 7.58 8.12 7.25 2
HSBC 4.95 5.27 5.83 7.07 7.77 7.17 3
ABN AMRO Bank 6.34 5.81 5.89 7.40 7.42 7.11 4
Citi Bank 5.77 6.21 6.71 6.18 7.01 6.70 5
HDFC Bank 3.59 4.36 5.53 6.23 7.44 6.70 6
Nainital Bank 6.25 6.47 6.10 6.07 6.09 6.09 8
Ratnakar Bank 5.46 5.10 5.36 5.83 5.50 5.57 10
City Union Bank 4.52 4.39 5.15 4.94 5.19 5.11 11
Indian Bank 3.64 3.88 4.12 4.85 4.66 4.61 15
Bank Of America 1.49 2.41 3.88 4.16 5.17 4.61 15
Punjab & Sind Bank 4.38 5.16 4.50 4.88 4.12 4.42 17
Calyon Bank 0.00 5.30 -2.50 6.84 5.72 4.41 18
Axis Bank 4.35 3.78 3.74 4.11 4.72 4.34 20

Federal Bank 4.34 4.77 4.09 4.40 4.39 4.33 21
Andhra Bank 4.46 4.52 4.38 4.42 4.12 4.26 24
Bank Of India 2.92 2.96 3.53 4.21 4.11 4.02 28
Indusind Bank 5.97 5.26 3.60 3.75 4.30 4.00 29
Syndicate Bank 4.19 4.12 4.54 3.99 3.50 3.86 30
Yes Bank 0.00 1.70 3.83 3.80 3.89 3.85 31
ING Vysya Bank 2.94 3.60 3.78 3.68 3.91 3.82 33
Dena Bank 3.01 3.27 3.34 3.92 3.87 3.78 35
Karnataka Bank 2.70 3.30 3.43 3.37 4.12 3.76 37
Karur Vysya Bank 3.76 3.79 3.91 3.87 3.55 3.72 38
ICICI Bank 5.33 4.89 4.18 3.52 3.51 3.65 40
Bank Of Baroda 3.07 3.14 3.29 3.71 3.49 3.52 43
BNP Paribas 2.49 1.20 3.05 3.48 3.71 3.51 44
Allahabad Bank 4.08 4.33 3.97 3.64 3.23 3.50 45
Vijaya Bank 4.75 4.44 3.93 3.50 2.89 3.28 49
IDBI Bank NA 2.47 4.54 3.35 2.47 3.15 53
Canara Bank 3.47 3.25 3.33 3.12 2.89 3.05 55
UCO Bank 3.66 3.35 3.08 3.01 3.01 3.02 56
Bank Of Nova Scotia -0.56 -0.60 -0.12 0.86 0.20 0.33 58
164
Ranking Based on Quality
Ranking of Banks based on
Gross Net Unsecu Final

Banks CAR CAR 1 NPA NPA red Adv Total Rank
Bank Of Nova Scotia 2 3 6 8 16 35 1
Barclays Bank 3 2 4 9 20 38 2
Nainital Bank 18 12 17 1 6 54 3
Indian Bank 12 10 16 12 12 62 4
Federal Bank 4 5 41 14 10 74 5
Calyon Bank 11 16 3 4 43 77 6
Karur Vysya Bank 10 6 37 11 17 81 7
Corporation Bank 21 13 19 13 17 83 8
Andhra Bank 37 20 11 7 12 87 9
Yes Bank 8 24 2 5 51 90 10
HDFC Bank 15 25 12 15 23 90 11
Bank Of America 7 7 1 1 81 97 12
Axis Bank 24 32 8 23 13 100 13
Tamilnad Mercantile Bank 5 4 52 34 11 106 14
Jammu & Kashmir Bank 13 8 36 38 12 107 15
State Bank Of Hyderabad 30 36 10 10 21 107 16
Indian Overseas Bank 22 35 25 21 6 109 17
IDBI Bank 14 28 20 42 8 112 18
South Indian Bank 17 15 43 29 10 114 19
State Bank Of Patiala 20 37 15 27 16 115 20
Bank Of Baroda 19 30 32 20 15 116 21
Kotak Mahindra Bank 6 9 29 49 27 120 22
City Union Bank 26 11 33 44 6 120 23
ICICI Bank 9 19 35 45 14 122 24
Canara Bank 16 43 14 35 19 127 25
Ratnakar Bank 1 1 58 50 18 128 26
Punjab & Sind Bank 32 27 38 30 5 132 27
Punjab National Bank 23 26 46 22 15 132 28
State Bank Of Bikaner &
Jaipur 25 41 21 36 13 136 29
Oriental Bank Of
Commerce 36 18 47 26 11 138 30
Allahabad Bank 27 34 34 32 12 139 31
BNP Paribas 46 38 13 1 44 142 32
State Bank Of Mysore 42 50 26 18 8 144 33
Deutsche Bank 56 23 5 6 54 144 34
Bank Of Rajasthan 45 53 24 16 9 147 35
ABN AMRO Bank 57 42 7 17 28 151 36
Union Bank Of India 29 40 39 25 19 152 37
ING Vysya Bank 55 49 9 33 9 155 38
State Bank Of Indore 44 46 18 37 11 156 39
HSBC 51 17 22 19 51 160 40
165
Ranking of Banks based on
Gross Net Unsecu Final
Banks CAR CAR 1 NPA NPA red Adv Total Rank
Bank Of India 40 45 28 28 19 160 41
State Bank Of Travancore 34 44 27 39 17 161 42
Karnataka Bank 39 14 53 40 15 161 43
Lakshmi Vilas Bank 31 22 50 51 8 162 44
Vijaya Bank 47 48 23 24 23 165 45
United Bank Of India 33 39 48 47 7 174 46
State Bank Of India 28 31 45 54 23 181 47
Citi Bank 41 29 30 41 42 183 48
Development Credit Bank 35 21 57 53 19 185 49
Indusind Bank 38 47 40 58 9 192 50
Standard Chartered Bank 54 33 31 46 28 192 51
Syndicate Bank 43 51 42 31 25 192 52
Catholic Syrian Bank 52 52 55 56 3 218 53
Dena Bank 48 55 51 52 13 219 54
UCO Bank 50 58 44 57 11 220 55
Bank Of Maharashtra 49 57 49 43 25 223 56

Dhanalakshmi Bank 58 54 54 48 11 225 57
Central Bank Of India 53 56 56 55 13 233 58
166
Ranking based on Weighted Average Capital Adequacy Ratio
Ratnakar Bank 16.65 12.03 10.77 34.34 49.15 37.03 1
Barclays Bank 37.16 20.85 22.92 13.68 21.11 19.24 3
Federal Bank 11.48 11.27 13.75 13.43 22.46 18.01 4
Bank Of America 22.92 30.07 23.40 13.33 12.14 14.75 7
Yes Bank NE 18.81 16.40 13.60 13.60 14.16 8
ICICI Bank 10.36 11.78 13.35 11.69 14.92 13.64 9
Karur Vysya Bank 17.11 16.07 14.79 14.51 12.58 13.60 10
Calyon Bank NE 14.40 19.80 15.10 9.70 13.34 11
Indian Bank 12.82 14.14 13.19 14.14 12.86 13.31 12
IDBI Bank NE 15.51 14.80 13.73 11.95 13.05 14
HDFC Bank 11.66 12.16 11.41 13.08 13.60 13.01 15
Canara Bank 12.66 12.78 11.22 13.50 13.25 12.92 16
Nainital Bank 18.54 14.85 13.88 12.89 12.32 12.80 18
Bank Of Baroda 13.91 12.61 13.65 11.80 12.91 12.73 19

Axis Bank 11.21 12.66 11.08 11.57 13.73 12.55 24
City Union Bank 13.36 12.18 12.33 12.58 12.48 12.48 26
Allahabad Bank 12.52 12.53 13.37 12.52 12.04 12.45 27
Punjab & Sind Bank 11.06 9.46 12.83 12.88 11.57 12.22 32
Andhra Bank 13.71 12.11 14.00 11.33 11.61 12.00 37
Indusind Bank 12.75 11.62 10.54 12.54 11.91 11.83 38
Karnataka Bank 13.03 14.16 11.78 11.03 12.17 11.75 39
Bank Of India 13.01 11.52 10.75 11.58 12.04 11.64 40
Citi Bank 11.11 10.78 11.33 11.06 12.00 11.58 41
Syndicate Bank 11.49 10.70 11.73 11.74 11.22 11.48 43
BNP Paribas 21.70 9.41 11.61 10.76 11.79 11.45 46
Vijaya Bank 14.11 12.92 11.94 11.21 11.22 11.36 47
Dena Bank 9.48 11.91 10.62 11.52 11.09 11.13 48
UCO Bank 11.88 11.26 11.12 11.56 10.09 10.74 50
HSBC 14.54 14.03 10.61 11.06 10.59 10.74 51
ING Vysya Bank 11.05 9.09 10.67 10.56 10.20 10.40 55
Deutsche Bank 14.42 16.22 12.74 10.62 13.58 9.98 56
ABN AMRO Bank 13.48 10.55 10.44 11.34 12.92 9.86 57
167
Ranking based on Weighted Average Capital Adequacy Ratio Tier 1
Ratnakar Bank 13.54 10.06 9.71 33.39 48.29 36.10 1
Barclays Bank 34.85 19.88 22.15 13.68 20.81 18.94 2
Federal Bank 6.26 6.42 9.72 8.94 19.09 14.17 5
Karur Vysya Bank 15.10 14.36 13.29 14.04 12.11 12.93 6
Bank Of America 15.68 23.39 17.67 11.75 10.93 12.52 7
Indian Bank 7.66 7.60 10.29 12.28 11.41 11.45 10
City Union Bank 10.73 10.05 10.77 10.87 11.15 10.99 11
Nainital Bank 14.28 11.30 10.97 10.10 11.00 10.72 12
Karnataka Bank 10.45 12.15 11.38 10.46 10.36 10.59 14
Calyon Bank NA 10.00 14.70 11.50 7.80 10.29 16
HSBC 11.17 11.38 9.80 10.01 9.72 9.82 17
ICICI Bank 6.09 7.59 9.20 7.42 11.32 9.73 19
Andhra Bank 8.17 8.03 12.20 9.98 8.54 9.70 20

Deutsche Bank 9.32 12.62 11.14 9.73 13.09 9.46 23
Yes Bank NA 18.64 13.70 8.20 8.50 9.45 24
HDFC Bank 8.03 9.60 8.55 8.57 10.30 9.43 25
Punjab & Sind Bank 6.38 5.26 10.05 9.58 8.04 8.90 27
IDBI Bank NA 11.93 11.71 9.11 7.42 8.79 28
Citi Bank 8.79 8.60 10.77 10.12 11.24 8.66 29
Bank Of Baroda 8.47 8.21 10.98 8.74 7.63 8.63 30
Axis Bank 6.44 8.87 7.26 6.42 10.17 8.46 32
Allahabad Bank 6.26 6.46 9.53 8.10 7.75 8.21 34
BNP Paribas 13.42 6.10 7.78 7.38 8.07 7.81 38
ABN AMRO Bank 11.49 7.89 7.18 7.33 7.24 7.26 42
Canara Bank 7.81 7.29 7.81 7.17 7.01 7.22 43
Bank Of India 7.47 7.05 6.75 6.54 7.70 7.16 45
Indusind Bank 8.91 7.24 6.84 7.34 6.70 6.92 47
Vijaya Bank 8.37 7.59 9.26 7.07 5.73 6.84 48
ING Vysya Bank 6.14 5.20 7.14 6.38 6.82 6.75 49
Syndicate Bank 6.75 6.10 7.40 6.24 6.62 6.66 51
Dena Bank 5.19 6.63 5.96 6.06 6.75 6.39 55
UCO Bank 6.08 5.75 6.09 5.78 5.05 5.48 58
168
Ranking based on Weighted Average Ratio of Gross NPA to Gross Advances
Bank Of America 0.84 0.57 0.12 0.02 0.00 0.03 1
Yes Bank NA 0.00 0.00 0.00 0.10 0.05 2
Calyon Bank NA 4.34 1.00 0.30 0.10 0.34 3
Barclays Bank 7.75 0.00 0.00 0.00 0.80 0.40 4
Deutsche Bank 3.68 0.36 0.35 0.24 0.70 0.49 5
ABN AMRO Bank 3.15 2.26 0.34 0.55 1.40 0.93 7
Axis Bank 2.88 1.98 1.67 1.11 0.80 1.07 8
ING Vysya Bank 2.65 2.14 1.77 1.05 0.80 1.07 9
Andhra Bank 4.60 2.46 1.94 1.41 1.10 1.36 11
HDFC Bank 1.80 1.65 1.40 1.36 1.40 1.39 12
BNP Paribas 6.56 NA 2.17 1.63 1.00 1.42 13
Canara Bank 6.33 3.89 2.25 1.51 1.30 1.55 14
Indian Bank 7.98 4.15 2.91 1.85 1.20 1.74 16
Nainital Bank 4.00 2.57 1.91 1.95 1.80 1.87 17
IDBI Bank NA 1.43 1.98 1.89 1.90 1.91 20

HSBC 4.20 3.16 1.86 1.69 2.30 2.03 22
Vijaya Bank 3.44 2.94 3.17 2.29 1.60 2.12 23
Bank Of India 7.86 5.48 3.72 2.42 1.70 2.32 28
Citi Bank 7.76 2.74 2.13 2.09 2.60 2.35 30
Bank Of Baroda 10.52 7.30 3.90 2.47 1.80 2.42 32
City Union Bank 10.36 5.89 4.32 2.58 1.80 2.54 33
Allahabad Bank 8.66 5.80 3.94 2.61 2.00 2.57 34
ICICI Bank 4.70 2.98 1.51 2.08 3.30 2.58 35
Karur Vysya Bank 5.83 5.10 3.91 2.82 2.00 2.63 37
Punjab & Sind Bank 18.16 NA 9.61 2.43 0.07 2.69 38
Indusind Bank 3.30 3.53 2.86 3.07 3.00 2.99 40
Federal Bank 7.44 7.29 4.62 2.95 2.40 3.01 41
Syndicate Bank 7.33 5.17 4.00 2.95 2.70 3.04 42
UCO Bank 6.93 4.96 3.27 3.17 3.00 3.10 44
Dena Bank 14.82 9.67 6.44 4.08 2.40 3.71 51
Karnataka Bank 11.93 7.58 5.13 3.95 3.40 3.91 53
Ratnakar Bank 10.63 10.31 7.59 6.81 6.00 6.56 58
169
Ranking based on Weighted Average Ratio of Net NPA to Net Advances
Nainital Bank 0.0 0.0 0.0 0.0 0.0 - 1
Bank Of America 0.0 0.0 0.0 0.0 0.0 - 1
BNP Paribas 0.0 0.0 0.0 0.0 0.0 - 1
Calyon Bank NE 0.3 0.2 0.0 0.0 0.0 4
Yes Bank NE 0.0 0.0 0.0 0.1 0.0 5
Deutsche Bank 0.0 0.0 0.0 0.0 0.2 0.1 6
Andhra Bank 0.9 0.3 0.2 0.2 0.2 0.2 7
Barclays Bank 0.0 0.0 0.0 0.0 0.4 0.2 9
Karur Vysya Bank 2.3 1.7 0.8 0.2 0.2 0.3 11
Indian Bank 2.7 1.4 0.8 0.4 0.2 0.4 12
Federal Bank 2.9 2.2 1.0 0.4 0.2 0.4 14
HDFC Bank 0.2 0.2 0.4 0.4 0.5 0.5 15
ABN AMRO Bank 0.9 0.4 0.1 0.1 0.9 0.5 17
HSBC 0.7 0.5 0.6 0.4 0.6 0.5 19
Bank Of Baroda 3.0 1.5 0.9 0.6 0.5 0.6 20

Axis Bank 1.3 1.4 1.0 0.7 0.4 0.6 23
Vijaya Bank 0.9 0.6 0.9 0.6 0.6 0.6 24
Bank Of India 4.5 2.8 1.5 0.7 0.5 0.8 28
Punjab & Sind Bank 9.6 8.1 2.4 0.7 0.4 0.9 30
Syndicate Bank 2.6 1.6 0.9 0.8 1.0 0.9 31
Allahabad Bank 2.4 1.3 0.8 1.1 0.8 0.9 32
ING Vysya Bank 2.6 2.1 1.0 1.1 0.8 0.9 33
Canara Bank 2.9 1.9 1.1 0.9 0.8 0.9 35
Karnataka Bank 5.0 2.3 1.2 1.2 1.0 1.1 40
Citi Bank 1.4 1.0 1.0 1.0 1.2 1.1 41
IDBI Bank NE 1.7 1.0 1.1 1.3 1.2 42
City Union Bank 6.4 3.4 2.0 1.1 1.0 1.2 44
ICICI Bank 2.2 1.7 0.7 1.0 1.6 1.2 45
Ratnakar Bank 5.6 5.5 2.6 1.9 1.0 1.6 50
Dena Bank 9.4 5.2 3.0 2.0 0.9 1.7 52
UCO Bank 3.7 2.9 2.1 2.1 2.0 2.1 57
Indusind Bank 2.7 2.7 2.1 2.5 2.3 2.3 58
170
Ranking based on Weighted Average of the ratio Unsecured Adv to total Adv
City Union Bank 3.25 6.48 4.72 2.47 2.87 3.12 1
Nainital Bank 3.78 6.38 7.10 5.41 6.31 6.20 4
Indusind Bank 12.18 8.75 12.79 8.34 7.30 8.71 7
Karnataka Bank 8.92 15.31 11.70 7.43 8.62 8.88 8
Federal Bank 11.13 9.79 13.29 7.91 11.05 10.56 12
Karur Vysya Bank 14.33 16.54 12.23 9.04 13.64 11.98 14
Ratnakar Bank 18.16 17.60 16.05 11.61 11.36 12.38 16
IDBI Bank NA 8.17 15.55 11.38 11.81 12.43 17
Allahabad Bank 13.97 12.41 11.60 8.46 16.90 13.31 19
Axis Bank 11.06 12.97 10.12 13.36 16.16 14.11 22
Indian Bank 12.74 12.40 18.15 13.34 14.63 14.94 25
ING Vysya Bank 9.58 8.71 12.62 14.01 20.24 16.85 28
UCO Bank 8.67 10.93 13.57 12.79 20.75 16.92 29
Andhra Bank 8.81 11.97 16.24 19.54 20.90 19.56 32
Bank Of India 18.07 19.00 17.53 17.42 23.07 20.27 33
Dena Bank 7.41 12.79 17.97 21.33 21.94 20.97 34
ICICI Bank 7.54 13.72 16.99 20.23 23.09 21.01 35
Punjab & Sind Bank 3.16 4.86 20.22 20.99 22.37 21.53 36
Canara Bank 13.89 18.75 25.75 21.50 21.91 22.55 38
Vijaya Bank 17.08 23.42 18.73 22.56 24.40 22.72 39
Bank Of Baroda 12.07 15.19 19.39 22.47 26.26 23.75 42
Syndicate Bank 26.02 25.39 26.84 28.79 28.32 28.16 45
HDFC Bank 13.25 23.40 30.84 28.92 29.97 29.83 46
Yes Bank NA 51.23 29.01 39.87 48.55 42.04 49
HSBC 31.28 31.00 38.01 43.87 47.10 44.31 51
ABN AMRO Bank 16.56 28.14 34.03 34.90 58.24 46.40 52
Citi Bank 43.47 42.14 42.53 49.51 48.82 47.77 53
BNP Paribas 47.17 43.57 43.00 48.50 54.11 50.20 54
Calyon Bank NA 42.96 54.65 48.62 57.59 54.31 55
Deutsche Bank 37.91 54.48 70.82 75.49 69.72 71.67 56
Barclays Bank 19.14 20.25 13.86 93.25 89.15 75.32 57
Bank Of America 52.69 81.26 86.40 82.03 73.90 78.84 58
171
Ranking Based on Growth
Ranking Based on 3 year CAGR in
Final
Banks Advance Deposit Net profit Total Rank
Yes Bank 2 2 6 10 1
Axis Bank 4 7 18 29 4
HDFC Bank 11 6 24 41 5
BNP Paribas 26 18 3 47 7
ICICI Bank 12 10 31 53 10
Citi Bank 30 12 20 62 13
Bank Of India 35 21 8 64 14
IDBI Bank 47 3 25 75 19
Indian Bank 27 33 22 82 24
HSBC 18 9 57 84 27
Dena Bank 37 42 9 88 29
ABN AMRO Bank 33 8 48 89 30
Calyon Bank 8 58 29 95 35
Vijaya Bank 25 23 54 102 38
172
Ranking Based on 3 year CAGR in
Final
Banks Advance Deposit Net profit Total Rank
Andhra Bank 42 28 51 121 46
UCO Bank 40 43 50 133 53
Canara Bank 48 46 49 143 56
173
Ranking based on CAGR in total Advances from FY05 to FY08
Banks FY04 FY05 FY06 FY07 FY08 3yr CAGR Rank
Barclays Bank 3 2 4 173 7,636 1,366.7 1
Yes Bank NA 761 2,407 6,290 9,430 131.4 2
Kotak Mahindra Bank 2,097 4,017 6,348 10,924 15,552 57.0 3
Axis Bank 9,363 15,603 22,314 36,876 59,661 56.4 4
Deutsche Bank 2,098 2,541 2,582 4,945 8,960 52.2 5
Punjab & Sind Bank 6,030 6,322 9,107 11,738 18,343 42.6 6
Nainital Bank 236 363 603 795 995 39.9 7
Calyon Bank NA 674 1,012 1,003 1,812 39.0 8
Central Bank Of India 22,804 27,277 37,483 51,795 72,997 38.8 9
Bank Of Rajasthan 2,432 2,896 4,065 5,704 7,434 36.9 10
HDFC Bank 17,745 25,566 35,061 46,945 63,427 35.4 11
ICICI Bank 62,096 91,405 146,163 195,866 225,616 35.1 12
Bank Of Baroda 35,601 43,400 59,912 83,621 106,701 35.0 13
United Bank Of India 7,963 11,390 15,522 22,156 27,858 34.7 14
Indian Overseas Bank 20,295 25,205 34,756 47,060 60,424 33.8 15
Syndicate Bank 20,647 26,729 36,466 51,670 64,051 33.8 16
State Bank Of Mysore 6,307 8,781 11,754 16,466 21,027 33.8 17
HSBC 9,628 12,621 16,812 23,142 29,944 33.4 18
State Bank Of Patiala 13,086 15,359 22,180 28,770 36,400 33.3 19
Allahabad Bank 15,342 21,151 29,148 41,290 49,720 33.0 20

Bank Of Nova Scotia 2,019 2,053 2,440 2,969 4,774 32.5 21
State Bank Of Hyderabad 11,814 15,600 20,863 28,109 35,849 32.0 22
City Union Bank 1,547 2,013 2,550 3,329 4,537 31.1 23
Bank Of Maharashtra 11,732 13,062 16,470 22,919 29,286 30.9 24
Vijaya Bank 11,045 14,336 16,664 24,224 31,689 30.3 25
BNP Paribas 1,315 1,719 1,854 2,342 3,772 29.9 26
Indian Bank 14,126 18,380 22,485 29,058 39,839 29.4 27
Oriental Bank Of Commerce 19,681 25,299 33,577 44,138 54,566 29.2 28
Federal Bank 7,701 8,823 11,736 14,899 18,905 28.9 29
Citi Bank 15,259 18,111 24,455 32,861 38,377 28.4 30
Corporation Bank 13,890 18,546 23,962 29,950 39,186 28.3 31
State Bank Of Bikaner & Jaipur 8,597 12,036 15,896 20,526 25,076 27.7 32
ABN AMRO Bank 6,697 9,836 15,073 18,388 20,381 27.5 33
State Bank Of India 157,934 202,374 261,801 337,336 416,768 27.2 34
Bank Of India 45,856 55,529 65,174 84,936 113,476 26.9 35
Karur Vysya Bank 4,023 4,620 5,555 7,040 9,422 26.8 36
Dena Bank 9,412 11,309 14,231 18,303 23,024 26.7 37
Tamilnad Mercantile Bank 2,114 2,626 3,126 4,047 5,331 26.6 38
State Bank Of Indore 6,406 9,041 11,876 15,351 18,224 26.3 39
UCO Bank 20,626 27,656 37,378 46,989 55,082 25.8 40
Punjab National Bank 47,225 60,413 74,627 96,597 119,502 25.5 41
Andhra Bank 12,885 17,517 22,100 27,889 34,238 25.0 42
South Indian Bank 4,197 5,365 6,370 7,919 10,454 24.9 43
State Bank Of Travancore 11,132 14,848 18,866 24,786 28,137 23.7 44
Development Credit Bank 2,440 2,156 1,867 2,659 4,069 23.6 45
Union Bank Of India 29,426 40,105 53,380 62,386 74,348 22.8 46
IDBI Bank NA 45,414 52,739 62,471 82,213 21.9 47
Canara Bank 47,639 60,421 79,426 98,506 107,238 21.1 48
Karnataka Bank 4,668 6,287 7,792 9,553 10,842 19.9 49
Standard Chartered Bank 16,152 19,970 24,077 30,104 33,352 18.6 50
Lakshmi Vilas Bank 2,039 2,318 2,953 3,613 3,859 18.5 51
Jammu & Kashmir Bank 9,285 11,517 14,483 17,080 18,883 17.9 52
ING Vysya Bank 7,047 9,081 10,232 11,976 14,650 17.3 53
Dhanalakshmi Bank 1,139 1,410 1,594 1,840 2,102 14.2 54
Catholic Syrian Bank 1,898 2,289 2,695 3,013 3,314 13.1 55
Indusind Bank 7,301 9,000 9,310 11,084 12,795 12.4 56
Ratnakar Bank 346 424 491 531 586 11.4 57
Bank Of America 3,059 3,219 3,369 2,916 3,452 2.4 58
174
Ranking based on CAGR in total Deposits from FY05 to FY08
Barclays Bank 90 75 361 1,010 6,902 352.0 1
Yes Bank NA 663 2,910 8,220 13,273 171.5 2
IDBI Bank NA 15,103 26,001 43,354 72,998 69.1 3
Deutsche Bank 2,533 3,558 4,380 6,978 13,755 56.9 4
HDFC Bank 30,409 36,354 55,797 68,298 100,769 40.5 6
Axis Bank 20,954 31,712 40,114 58,786 87,626 40.3 7
ABN AMRO Bank 5,856 7,026 11,864 15,998 18,912 39.1 8
HSBC 16,270 17,013 24,955 34,825 42,620 35.8 9
ICICI Bank 68,109 99,819 165,083 230,510 244,431 34.8 10
Bank Of Nova Scotia 1,694 1,602 2,355 1,983 3,755 32.8 11
Citi Bank 20,465 21,484 27,912 37,875 46,125 29.0 12
Bank Of America 1,976 1,993 2,106 2,718 4,191 28.1 13
City Union Bank 2,847 3,095 3,518 4,699 6,425 27.6 14
Syndicate Bank 42,585 46,295 53,624 78,634 95,171 27.2 15
BNP Paribas 1,737 1,674 1,847 2,098 3,236 24.6 18
Nainital Bank 759 933 1,125 1,481 1,790 24.2 19
Indian Overseas Bank 41,483 44,241 50,529 68,740 84,326 24.0 20

Bank Of India 71,003 78,821 93,932 119,882 150,012 23.9 21
Karur Vysya Bank 5,911 6,672 7,577 9,340 12,550 23.4 22
Vijaya Bank 21,015 25,618 27,709 37,604 47,952 23.2 23
Bank Of Baroda 72,967 81,333 93,662 124,916 152,034 23.2 24
Andhra Bank 22,941 27,551 33,922 41,454 49,437 21.5 28
South Indian Bank 8,280 8,492 9,579 12,239 15,156 21.3 31
Allahabad Bank 31,477 40,762 48,500 59,544 71,616 20.7 32
Indian Bank 30,444 34,808 40,806 47,091 61,046 20.6 33
Punjab & Sind Bank 13,642 14,171 16,925 19,319 24,831 20.6 34
Federal Bank 13,477 15,193 17,879 21,584 25,913 19.5 36
ING Vysya Bank 10,478 12,569 13,335 15,419 20,498 17.7 40
Oriental Bank Of Commerce 35,674 47,850 50,197 63,996 77,857 17.6 41
Dena Bank 18,349 20,897 23,623 27,690 33,943 17.6 42
UCO Bank 39,244 49,470 54,544 64,860 79,909 17.3 43
Lakshmi Vilas Bank 3,296 3,496 4,336 5,020 5,618 17.1 45
Canara Bank 86,345 96,796 116,803 142,381 154,072 16.8 46
Karnataka Bank 9,407 10,837 13,243 14,037 17,016 16.2 48
Development Credit Bank 4,474 3,895 3,124 4,415 6,075 16.0 49
Dhanalakshmi Bank 2,156 2,339 2,533 3,088 3,608 15.6 50
Indusind Bank 11,200 13,114 15,006 17,645 19,037 13.2 53
Ratnakar Bank 715 784 874 876 1,101 12.0 55
Catholic Syrian Bank 3,880 4,021 4,289 4,749 5,318 9.8 56
Calyon Bank NA 1,306 372 775 1,135 -4.6 58
175
Ranking based on CAGR in Net Profit from FY05 to FY08
Ratnakar Bank 845 -942 59 299 1,701 436.9 1
ING Vysya Bank 5,900 -3,818 907 8,892 15,693 316.0 2
BNP Paribas -1,309 1,478 1,909 6,361 13,072 161.7 3
South Indian Bank 8,432 870 5,093 10,412 15,162 159.3 4
Lakshmi Vilas Bank 4,105 335 2,247 1,757 2,527 96.1 5
Yes Bank NA -379 5,533 9,437 20,002 90.1 6
Punjab & Sind Bank 887 -7,107 10,831 21,852 38,236 87.9 7
Bank Of India 100,832 34,005 70,144 112,316 200,940 80.8 8
Dena Bank 23,048 6,100 7,299 20,155 35,979 80.7 9
Bank Of Nova Scotia 1,795 -1,177 3,166 7,584 10,127 78.8 10
Dhanalakshmi Bank 1,748 -2,160 952 1,614 2,846 72.9 11
Deutsche Bank 27,265 7,718 12,592 21,822 38,611 71.0 12
Federal Bank 13,629 9,010 22,521 29,275 36,805 59.9 13
Bank Of America 6,418 8,043 14,458 19,554 30,523 56.0 14
Catholic Syrian Bank 5,648 1,066 612 1,908 3,656 50.8 16
Axis Bank 27,831 33,459 48,509 65,903 107,103 47.4 18
Citi Bank 57,163 60,002 70,554 90,000 180,426 44.3 20

Indian Bank 51,275 40,846 50,449 75,978 100,874 35.2 22
Nainital Bank 1,222 1,134 1,218 1,776 2,714 33.8 23
HDFC Bank 50,950 66,556 87,078 114,145 159,018 33.7 24
IDBI Bank 40,573 30,725 56,088 63,030 72,946 33.4 25
City Union Bank 5,703 4,632 5,636 7,181 10,173 30.0 27
Bank Of Baroda 96,701 66,594 82,698 102,650 143,552 29.2 28
Calyon Bank NA -1,581 7,618 8,978 12,670 29.0 29
Syndicate Bank 43,413 40,288 53,649 71,604 84,807 28.2 30
ICICI Bank 163,709 200,522 254,006 311,020 415,773 27.5 31
Karur Vysya Bank 16,105 10,533 13,535 16,002 20,833 25.5 32
Indian Overseas Bank NA 65,136 78,335 100,844 120,234 22.7 35
Allahabad Bank 46,338 54,177 70,615 75,017 97,474 21.6 37
Karnataka Bank 13,318 14,715 17,601 17,703 24,174 18.0 39
ABN AMRO Bank 19,481 19,524 24,169 38,535 28,067 12.9 48
Canara Bank 133,803 110,953 134,323 142,081 156,501 12.1 49
UCO Bank 43,541 34,567 19,665 31,609 41,216 6.0 50
Andhra Bank 46,350 52,008 48,549 53,790 57,557 3.4 51
Development Credit Bank 1,734 -16,292 -8,528 735 3,833 0.0 53
Vijaya Bank 41,131 38,055 12,689 33,133 36,128 -1.7 54
Oriental Bank Of Commerce 68,606 72,606 55,719 58,078 35,322 -21.4 55
Indusind Bank 26,209 21,012 3,681 6,824 7,505 -29.0 56
HSBC 39,378 33,690 51,496 84,560 11,923 -51.9 57
Barclays Bank 7,187 6,250 12,194 9,108 615 -53.8 58
176
Ranking based on Qualitative Factors
Busi- Busi- Profit-

branch empl empl Total Final
Banks Rank Rank Rank ranks Rank
Citi Bank 1 6 5 12 2
Calyon Bank 13 3 2 18 5
BNP Paribas 9 5 6 20 6
ABN AMRO Bank 3 9 12 24 7
HSBC 5 11 9 25 8
IDBI Bank 12 4 11 27 9

ICICI Bank 10 12 10 32 12
Axis Bank 14 8 13 35 13
Yes Bank 11 16 14 41 14
HDFC Bank 15 20 15 50 15
Canara Bank 19 25 32 76 22
Bank Of India 26 26 31 83 26
Andhra Bank 40 24 27 91 29
Vijaya Bank 36 32 44 112 37
Indian Bank 43 47 28 118 41
UCO Bank 35 35 54 124 44
177
Busi- Busi- Profit-
branch empl empl Total Final
Banks Rank Rank Rank ranks Rank
Dena Bank 47 39 45 131 47
178
Ranking based on Weighted Average Business Per Branch
Banks FY04 FY05 FY06 FY07 FY08 Weight Av Rank
Citi Bank NA 1255.3 1242.7 1558.3 1940.5 1686.3 1
Deutsche Bank NA 1072.9 1004.6 1180.3 1823.1 1466.6 2
ABN AMRO Bank NA 840.4 1042.8 1202.4 1315.7 1227.1 3
Bank Of America NA 1463.8 1068.7 1110.9 1327.7 1210.9 4
HSBC NA 740.4 881.5 1120.6 1388.6 1206.8 5
Barclays Bank NA 84.6 221.1 387.0 1965.0 1142.8 6
Bank Of Nova Scotia NA 921.1 845.0 974.7 1348.1 1135.4 7
Standard Chartered Bank NA 503.8 552.5 691.2 778.0 596.3 8
BNP Paribas NA 429.6 394.1 452.3 636.0 532.5 9
ICICI Bank NA 344.5 466.1 576.7 451.8 492.2 10
Yes Bank NA NA 749.1 421.9 364.8 458.8 11
IDBI Bank NA NA 663.1 300.1 274.5 359.9 12
Calyon Bank NA NA 336.4 263.5 393.8 343.2 13
Axis Bank NA 178.9 183.5 186.2 212.4 198.7 14
HDFC Bank NA 148.5 159.0 174.5 198.3 183.3 15
Kotak Mahindra Bank NA 156.6 160.8 185.3 184.6 180.1 16
Indusind Bank NA 214.9 170.1 160.3 159.4 161.8 17
Jammu & Kashmir Bank NA 70.2 79.7 88.1 93.6 89.2 18
Canara Bank NA 55.8 67.0 82.0 91.8 83.9 19
State Bank Of Patiala NA 51.6 64.5 79.7 93.7 83.7 20

Oriental Bank Of Commerce NA 57.9 66.7 76.2 88.8 80.6 21
State Bank Of India NA 57.3 65.7 75.0 86.3 78.8 22
Corporation Bank NA 55.1 63.2 73.9 86.5 78.1 23
Development Credit Bank NA 83.6 61.3 65.6 87.4 75.6 24
State Bank Of Travancore NA 51.3 60.6 70.8 82.6 74.7 25
Bank Of India NA 47.1 54.9 66.9 84.2 73.1 26
State Bank Of Indore NA 43.9 56.5 69.3 81.9 73.0 27
Bank Of Baroda NA 42.0 50.1 64.8 81.4 70.1 28
ING Vysya Bank NA 51.1 58.9 63.7 75.0 68.4 29
State Bank Of Hyderabad NA 43.3 52.3 63.9 77.2 68.2 30
Federal Bank NA 49.3 56.3 63.9 69.5 65.2 31
Union Bank Of India NA 42.8 53.3 61.7 69.4 63.9 32
Indian Overseas Bank NA 42.0 48.8 59.8 69.9 62.6 33
Karur Vysya Bank NA 43.2 47.0 53.5 65.6 58.2 34
UCO Bank NA 38.0 46.8 54.5 63.8 57.6 35
Vijaya Bank NA 38.2 43.3 52.6 65.8 57.3 36
Syndicate Bank NA 36.1 42.1 52.4 64.2 56.2 37
State Bank Of Mysore NA 31.5 39.3 51.1 64.8 55.6 38
Punjab National Bank NA 36.3 43.3 51.8 61.9 55.1 39
Andhra Bank NA 35.2 43.5 52.4 61.1 54.9 40
Karnataka Bank NA 39.9 47.1 53.1 58.4 54.6 41
State Bank Of Bikaner & Jaipur NA 33.4 41.1 50.6 61.1 53.9 42
Indian Bank NA 34.5 40.8 47.9 58.0 51.5 43
Tamilnad Mercantile Bank NA 38.3 43.0 48.7 56.1 51.3 44
City Union Bank NA 35.5 40.1 46.1 54.7 49.2 45
Allahabad Bank NA 26.9 34.4 42.8 50.8 45.1 46
Dena Bank NA 27.7 32.8 39.3 47.5 42.1 47
South Indian Bank NA 30.8 33.9 39.1 46.1 41.6 48
United Bank Of India NA 25.2 30.2 38.4 48.0 41.5 49
Central Bank Of India NA 25.8 29.6 36.3 47.1 40.3 50
Bank Of Maharashtra NA 30.6 32.0 36.8 45.7 40.3 51
Punjab & Sind Bank NA 25.6 29.6 34.7 42.9 37.8 52
Bank Of Rajasthan NA 28.0 30.3 34.3 40.4 36.5 53
Lakshmi Vilas Bank NA 23.3 27.4 32.5 36.0 33.2 54
Nainital Bank NA 17.6 20.2 24.6 29.6 26.2 55
Dhanalakshmi Bank NA 20.0 21.5 24.2 28.1 25.6 56
Catholic Syrian Bank NA 19.3 20.8 22.0 23.2 22.3 57
Ratnakar Bank NA 15.4 16.8 17.5 19.2 18.2 58
179
Ranking based on Weighted Average Business per Employee
Bank Of Nova Scotia 1,679 2085.2 2040.3 2311.1 3082.9 2642.8 1
Bank Of America 1,748 1707.7 1924.8 1920.9 2483.5 2203.0 2
Calyon Bank NA 946.0 1278.0 1629.0 2249.0 1868.8 3
IDBI Bank NA 1349.6 1718.2 1387.2 1809.2 1664.4 4
BNP Paribas 922 980.5 1206.1 1353.3 1950.0 1622.2 5
Citi Bank 1,667 1359.5 1607.9 1360.5 1763.8 1611.6 6
Deutsche Bank 1,099 1608.9 1016.8 1143.5 1616.7 1354.8 7
Axis Bank NA NA 1020.0 1024.0 1117.0 1069.7 8
ABN AMRO Bank 891 823.7 905.8 1011.9 1070.3 1019.9 9
Indusind Bank 1,080 925.8 880.2 1039.8 1062.7 1019.3 10
HSBC 821 852.5 975.7 979.7 1012.3 995.2 11
ICICI Bank 1,010 880.0 905.0 1027.0 1008.0 993.1 12
Oriental Bank Of Commerce 416 512.2 570.3 742.6 924.4 799.0 13
Corporation Bank 366 438.0 527.0 637.0 839.0 716.0 14
Standard Chartered Bank 780 786.4 837.3 924.2 826.7 690.6 15
Yes Bank NA 687.9 848.1 531.0 683.1 670.5 16
State Bank Of Patiala 305 361.2 493.0 599.5 759.8 658.4 17
Bank Of Baroda 253 316.0 396.0 555.0 710.0 600.7 18
Union Bank Of India 286 343.1 436.5 509.2 698.6 589.4 19
HDFC Bank 866 806.0 758.0 607.0 506.0 586.7 20

Barclays Bank 271 188.5 148.5 280.5 942.3 585.0 21
Jammu & Kashmir Bank 345 435.0 516.0 585.0 596.0 576.7 22
Federal Bank 327 366.0 431.0 544.0 640.0 569.4 23
Andhra Bank 277 346.3 426.8 536.1 626.5 559.4 24
Canara Bank 298 351.1 441.6 548.8 609.4 557.6 25
Bank Of India 267 320.0 381.0 498.0 652.0 551.6 26
Karnataka Bank 320 380.9 478.3 523.9 589.0 547.3 27
Karur Vysya Bank 330 387.0 439.0 489.0 604.0 536.5 28
State Bank Of Hyderabad 266 339.7 414.3 473.6 599.1 524.5 29
South Indian Bank 306 352.0 422.0 462.0 600.4 523.2 30
State Bank Of Indore 231 293.9 368.0 476.7 604.4 518.8 31
Vijaya Bank 249 310.5 369.3 455.2 612.7 516.7 32
Syndicate Bank 240 280.2 348.6 489.2 586.0 509.5 33
State Bank Of Travancore 272 346.3 381.2 506.1 558.7 507.4 34
UCO Bank 249 321.0 387.0 464.0 580.0 506.6 35
Allahabad Bank 215 282.0 336.0 456.0 604.0 506.0 36
ING Vysya Bank 324 394.9 426.0 486.1 547.3 504.7 37
Indian Overseas Bank 233 269.5 354.7 467.2 582.7 502.5 38
Dena Bank 274 313.0 364.0 458.0 559.0 489.7 39
Tamilnad Mercantile Bank 292 317.0 358.3 451.2 542.0 478.0 40
Punjab National Bank 228 276.9 330.9 407.4 504.5 440.7 41
Bank Of Maharashtra 269 294.7 306.2 404.9 515.7 440.6 42
Bank Of Rajasthan 200 231.2 291.4 400.5 518.9 437.9 43
Lakshmi Vilas Bank 276 296.0 371.0 430.0 453.0 429.7 44
State Bank Of Mysore 163 203.5 290.0 398.0 495.0 424.9 45
Development Credit Bank 480 402.0 390.0 391.0 454.0 422.3 46
Indian Bank 189 246.0 295.0 364.0 488.0 412.2 47
State Bank Of India 211 243.1 299.2 357.0 456.0 394.9 48
State Bank Of Bikaner & Jaipur 170 220.3 276.9 368.1 445.5 388.5 49
Punjab & Sind Bank 205 217.6 277.2 328.6 466.9 387.5 50
United Bank Of India 169 208.0 254.0 350.0 463.0 387.3 51
City Union Bank 287 325.8 339.7 350.1 420.6 383.3 52
Kotak Mahindra Bank 354 387.3 352.0 383.9 383.8 377.5 53
Dhanalakshmi Bank 249 292.7 311.7 360.9 409.1 375.2 54
Central Bank Of India 182 206.9 240.5 303.9 401.0 339.7 55
Nainital Bank 125 162.3 225.0 279.0 366.0 311.7 56
Catholic Syrian Bank 182 220.0 247.0 278.0 317.0 291.3 57
Ratnakar Bank 198 220.8 250.9 254.4 310.1 281.6 58
180
Ranking based on CAGR in Net Profit from FY05 to FY08
Barclays Bank 211 160.2 271.0 36.3 50.0 90.1 1
Calyon Bank NA -15.0 71.0 82.0 97.0 87.3 2
Bank Of America 24 29.5 51.8 69.1 102.1 82.1 3
Bank Of Nova Scotia 10 -6.3 16.5 39.1 49.9 40.0 4
Citi Bank 28 21.8 21.7 17.3 37.7 28.4 5
BNP Paribas -4 4.7 6.3 19.4 36.0 25.1 6
Deutsche Bank 65 20.3 18.6 21.0 27.5 23.8 7
Standard Chartered Bank 13 11.5 14.5 19.6 20.2 18.9 8
HSBC 6 9.7 12.1 14.3 16.7 15.1 9
ICICI Bank 12 11.0 10.0 9.0 10.0 9.7 10
IDBI Bank NA 6.9 12.5 8.4 8.9 9.5 11
ABN AMRO Bank 15 10.2 8.2 11.4 7.7 8.9 12
Axis Bank NA NA 8.7 7.6 8.4 8.2 13
Yes Bank NA -1.8 8.8 4.0 6.4 6.1 14
HDFC Bank 9 8.8 7.4 6.1 5.0 5.8 15
Oriental Bank Of Commerce 5 6.7 5.4 5.6 5.8 5.7 16
Corporation Bank 5 4.0 4.1 4.8 6.5 5.5 17
Karur Vysya Bank 6 3.8 4.7 4.9 5.8 5.3 18
Tamilnad Mercantile Bank 4 3.6 4.4 4.8 5.3 5.0 19
Federal Bank 2 1.4 3.5 4.4 5.3 4.7 20

Karnataka Bank 3 3.4 4.1 4.0 5.0 4.5 21
Allahabad Bank 2 2.9 3.7 4.0 4.9 4.4 22
Jammu & Kashmir Bank 6 2.0 3.0 4.0 5.0 4.3 23
Indian Overseas Bank 2 2.7 3.2 4.0 4.8 4.3 24
Union Bank Of India 3 2.8 2.7 3.3 5.4 4.2 25
City Union Bank 4 3.2 3.5 3.8 4.7 4.2 26
Andhra Bank 4 4.0 3.7 4.1 4.3 4.1 27
Indian Bank 2 1.9 2.4 3.6 4.9 4.0 28
State Bank Of Hyderabad 3 1.9 3.3 3.9 4.4 4.0 29
Kotak Mahindra Bank 10 5.4 4.2 3.1 3.8 3.7 30
Bank Of India 2 0.8 1.7 2.7 5.0 3.6 31
Canara Bank 3 2.5 3.0 3.2 3.7 3.4 32
State Bank Of Patiala 4 2.5 2.7 3.2 3.7 3.4 33
Nainital Bank 2 2.0 2.0 3.0 4.0 3.3 34
Bank Of Baroda 2 1.7 2.1 2.7 3.9 3.2 35
State Bank Of Indore 3 2.1 2.1 2.9 3.7 3.2 36
Punjab National Bank 2 2.4 2.5 2.7 3.7 3.1 37
State Bank Of Travancore 2 2.2 2.3 3.0 3.4 3.1 38
Punjab & Sind Bank 0 -0.7 1.1 2.3 4.2 3.1 39
State Bank Of India 2 2.1 2.2 2.4 3.7 3.0 40
South Indian Bank 2 0.2 1.4 2.7 3.6 2.9 41
State Bank Of Mysore 2 2.2 2.2 2.6 3.3 2.9 42
Syndicate Bank 2 1.5 2.1 2.8 3.2 2.8 43
Vijaya Bank 4 3.5 1.2 3.0 3.3 2.8 44
Dena Bank 2 0.6 0.7 2.0 3.6 2.5 45
Indusind Bank 15 10.1 1.6 2.6 2.6 2.4 46
Bank Of Rajasthan 2 0.9 0.4 2.8 2.9 2.4 47
State Bank Of Bikaner & Jaipur 6 1.7 1.2 2.6 2.7 2.4 48
ING Vysya Bank 1 -0.7 0.2 1.7 2.7 1.9 49
Bank Of Maharashtra 2 1.3 0.4 2.0 2.4 1.9 50
Ratnakar Bank 2 -1.7 0.1 0.5 3.1 1.7 51
United Bank Of India 2 1.7 1.2 1.6 2.0 1.7 52
Dhanalakshmi Bank 1 -1.7 0.7 1.2 2.0 1.5 53
UCO Bank 2 1.4 0.8 1.3 1.8 1.4 54
Central Bank Of India 2 0.9 0.7 1.4 1.6 1.3 55
Lakshmi Vilas Bank 2 0.2 1.2 0.9 1.2 1.1 56
Catholic Syrian Bank 2 0.4 0.2 0.7 1.3 0.9 57
Development Credit Bank 1 -11.0 -7.0 0.4 2.0 -0.3 58
181
Chapter 16 Major Players
16.1 Axis Bank Ltd
Profit and loss account for the year ended (Rs cr)
Particulars FY05 FY06 FY07 FY08 FY09
Interest Earned 1,924 2,889 4,560 7,005 10,835
Interest Expended 1,193 1,811 2,993 4,420 7,149
Net Interest income 731 1,078 1,567 2,585 3,686
Growth (%) 47.5 45.3 65.0 42.6
Other income 416 730 1,010 1,795 2,897
Staff cost 177 240 381 670 998
other operating Expenses 405 574 833 1,485 1,861
Provisions 62 263 366 580 940
Operating Profit 504 731 996 1,646 2,785
Taxes 169 246 337 575 970

Net Profit 335 484 659 1,071 1,815
Growth (%) 44.7 36.1 62.5 69.5
Profit and loss account for the period ended (Rs cr)
FY08 FY09
Particulars Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Interest Earned 1,511 1,676 1,802 2,015 2,266 2,545 2,985 3,039
Interest Expended 1,090 1,088 1,055 1,187 1,456 1,632 2,055 2,007
Net Interest income 421 589 747 828 810 913 930 1,033
growth (q-o-q) 39.9 27.0 10.9 (2.2) 12.7 1.8 11.1
Other income (OI) 368 383 488 556 625 694 732 846
Total Income (TI) 789 972 1,235 1,385 1,435 1,608 1,662 1,878
OI as a % of TI 46.7 39.4 39.5 40.2 43.5 43.2 44.1 45.0
Staff cost 148 164 173 184 214 260 266 258
other operating Expenses 273 344 389 478 419 473 486 482
Provisions 101 114 200 164 297 256 132 255
Operating Profit 267 348 472 559 506 619 778 883
Taxes 92 121 165 197 175 216 277 302
Net Profit 175 228 307 361 330 403 501 581
growth (q-o-q) 30.2 34.7 17.8 (8.6) 22.0 24.3 16.1
Ratio Analysis (in %)

CASA Ratio 37.98 39.98 39.86 45.68 43.15
Gross NPA/Gross Adv. 1.98 1.67 1.11 0.80 0.96
Net NPA/Net Adv. 1.39 0.98 0.72 0.42 0.35
CRAR 12.66 11.08 11.57 13.73 13.69
Source: Capital Line, Company and CARE Research
182
Balance Sheet as on year ended (Rs cr)
Capital 274 279 282 358 359
Reserves & Surplus 2,134 2,593 3,112 8,411 9,855
Deposits 31,712 40,114 58,786 87,626 117,374
y-o-y growth 26.5 46.5 49.1 33.9
Borrowings 1,781 2,681 5,196 5,624 10,185
Other liabilities and Prov 1,898 4,118 5,935 7,607 9,986
Total Liabilities 37,800 49,785 73,310 109,626 147,759
Cash and Bank Balances 4,503 3,642 6,918 12,504 15,017
Advances 15,603 22,314 36,876 59,661 81,557
y-o-y growth 43.0 65.3 61.8 36.7
Investments 15,048 21,527 26,897 33,705 46,330
Fixed Assets 518 568 673 923 1,073
other Assets 2,127 1,734 1,945 2,832 3,782

Share Holding Pattern (in %) as on

Particulars Mar'04 Mar'05 Mar'06 Mar'07 Mar'08 Mar'09
Promoters 53.9 44.5 43.7 43.1 42.5 42.4
Domestic Institutions 4.7 2.7 7.0 6.8 7.6 8.2
Foreign Institutions 27.1 45.7 42.2 42.0 39.8 35.9
Indian Public 12.7 6.2 5.6 5.6 4.7 6.0
Others 1.7 1.0 1.5 2.5 5.4 7.5
Total 100.0 100.0 100.0 100.0 100.0 100.0
Fig NPAs of the bank over the quarters

1.2
1.01
0.95 0.92 0.91 0.96
1.0 0.90
0.80
0.8 0.72
Percent
0.59 0.55
0.6 0.47 0.43
0.42 0.39
0.36 0.35
0.4
0.2
-
Q1'08
Q2'08
Q3'08
Q4'08
Q1'09
Q2'09
Q3'09
Q4'09
Gross NPA/Gross Advances Net NPA/Net Advances

Source : Capital Line and CARE Research
183
16.2 Bank of Baroda Ltd
Interest Earned 6,431 7,050 9,004 11,813 15,092
Net Interest income 2,979 3,175 3,578 3,912 5,123
Growth (%) 6.6 12.7 9.3 31.0
Other income 1,305 1,127 1,382 2,051 2,663
Staff cost 1,381 1,524 1,644 1,804 2,348
other operating Expenses 1,411 1,471 1,236 1,172 1,133
Provisions 620 415 425 780 962
Operating Profit 872 892 1,654 2,207 3,343
Taxes 186 65 628 772 1,116
Net Profit 686 827 1,026 1,436 2,227
Growth (%) 20.6 24.1 39.9 55.1
FY08 FY09
Interest Earned 2,600 2,880 3,002 3,331 3,294 3,551 4,108 4,139
Net Interest income 904 981 997 1,029 1,057 1,134 1,462 1,471
growth (q-o-q) 8.5 1.6 3.1 2.8 7.3 28.9 0.6
Other income (OI) 424 454 618 555 513 476 916 854
Total Income (TI) 1,329 1,436 1,615 1,583 1,570 1,610 2,377 2,324
OI as a % of TI 31.9 31.6 38.3 35.0 32.7 29.6 38.5 36.7
Staff cost 450 537 396 521 463 463 667 635
Provisions 141 98 157 325 280 242 350 210
Operating Profit 503 539 775 390 580 604 1,065 1,095
Taxes 172 212 274 113 209 208 356 342
Net Profit 331 327 501 276 371 395 708 753
growth (q-o-q) (1.1) 53.1 (44.8) 34.2 6.6 79.2 6.3

CASA Ratio 36.45 37.94 33.18 31.22 34.87
Net NPA/Net Adv. 1.45 0.87 0.60 0.47 0.31
CRAR 12.61 13.65 11.80 12.91 14.05
184
Particulars FY05 FY06 FY07 FY08
Capital 295 366 366 366
Reserves & Surplus 5,333 7,479 8,284 10,678
Deposits 81,333 93,662 124,916 152,034
y-o-y growth 15.2 33.4 21.7
Borrowings 1,641 4,802 1,143 3,927
Other liabilities and Prov. 6,062 7,084 8,438 12,594
Total Liabilities 94,664 113,393 143,146 179,600
Cash and Bank Balances 9,254 13,455 18,280 22,299
Advances 43,400 59,912 83,621 106,701
y-o-y growth 38.0 39.6 27.6
Investments 37,074 35,114 34,944 43,870
Fixed Assets 861 921 1,089 2,427
other Assets 4,074 3,991 5,213 4,302


Promoters 66.8 66.8 53.8 53.8 53.8 53.8
Indian Public 0.8 0.1 0.8 8.4 6.5 6.8
Others 8.7 8.3 15.0 2.2 1.3 3.1
Total 100.0 100.0 100.0 100.0 100.0 100.0

3.0 2.78
2.5 2.33
2.11
2.0 1.84 1.86
1.62
1.50
Percent
1.5 1.27
1.0 0.67
0.55 0.54 0.47 0.52 0.43 0.37 0.31
0.5
-
Q1'08
Q2'08
Q3'08
Q4'08
Q1'09
Q2'09
Q3'09
Q4'09

185
16.3 Bank of India
Interest Earned 6,032 7,029 9,180 12,355 16,347
Growth (%) 17.7 30.7 22.9 30.0
Other income 1,156 1,184 1,563 2,117 3,052
Staff cost 1,263 1,328 1,614 1,657 1,937
other operating Expenses 669 787 994 988 1,157
Provisions 999 786 862 1,008 1,774
Taxes 121 214 410 684 675
Net Profit 340 701 1,123 2,009 3,007
Growth (%) 106.3 60.1 78.9 49.7
FY08 FY09
Interest Earned 2,727 2,975 3,151 3,502 3,548 3,963 4,343 4,493
Net Interest income 947 986 1,079 1,217 1,181 1,363 1,522 1,433
growth (q-o-q) 4.1 9.5 12.7 (3.0) 15.4 11.6 (5.8)
Other income (OI) 381 528 554 653 566 650 1,051 785
Total Income (TI) 1,328 1,514 1,634 1,870 1,747 2,013 2,572 2,219
OI as a % of TI 28.7 34.9 33.9 34.9 32.4 32.3 40.8 35.4
Staff cost 413 380 450 414 460 482 518 478
Provisions 199 299 231 287 349 287 272 385
Operating Profit 479 541 740 926 723 928 1,490 1,023
Taxes 163 115 228 169 161 165 617 213
Net Profit 315 425 512 757 562 763 872 810
growth (q-o-q) 34.9 20.4 47.9 (25.8) 35.8 14.3 (7.1)

CASA Ratio 34.55 35.02 32.22 36.00 31.00
Net NPA/Net Adv. 2.80 1.49 0.74 0.52 0.44
CRAR 11.52 10.75 11.58 12.04 12.04
186
Capital 488 488 488 526 526
Deposits 78,821 93,932 119,882 150,012 189,708
y-o-y growth 19.2 27.6 25.1 26.5
Borrowings 5,962 5,894 6,621 7,172 9,487
Advances 55,529 65,174 85,116 113,476 142,909
y-o-y growth 17.4 30.6 33.3 25.9
Investments 28,686 31,782 35,493 41,803 52,607
Fixed Assets 814 810 789 2,426 2,532
2,449 3,075 3,044 3,438 5,692
other Assets

Promoters 69.5 69.5 69.5 69.5 64.5 64.5
Indian Public - - - 7.8 6.6 6.6
Others 17.9 12.2 9.6 1.0 1.3 1.2
Total 100.0 100.0 100.0 100.0 100.0 100.0

2.5 2.29
2.07
1.90
2.0 1.71
1.68 1.64 1.63
1.53
1.5
Percent
1.0 0.89
0.75
0.62 0.52
0.52 0.52 0.48 0.44
0.5
-
Q1'08
Q2'08
Q3'08
Q4'08
Q1'09
Q2'09
Q3'09
Q4'09

187
16.4 Canara Bank
Interest Earned 7,572 8,712 11,365 14,201 17,119
Growth (%) 13.7 12.4 (12.1) 33.4
Other income 1,544 1,378 1,451 2,213 2,311
Staff cost 1,380 1,515 1,609 1,661 1,877
other operating Expenses 729 832 956 1,130 1,188
Provisions 1,306 1,069 1,242 1,054 1,391
Operating Profit 1,280 1,543 1,671 1,905 2,572
Taxes 170 200 250 340 500
Net Profit 1,110 1,343 1,421 1,565 2,072
Growth (%) 21.1 5.8 10.1 32.4
FY08 FY09
Interest Earned 3,380 3,483 3,550 3,788 3,731 4,109 4,625 4,654
Net Interest income 894 787 934 922 1,019 1,149 1,244 1,305
growth (q-o-q) (12.0) 18.7 (1.3) 10.5 12.7 8.3 4.9
Other income (OI) 380 572 546 714 369 339 757 846
Total Income (TI) 1,274 1,359 1,481 1,637 1,388 1,488 2,002 2,152
OI as a % of TI 29.8 42.1 36.9 43.6 26.6 22.8 37.8 39.3
Staff cost 428 432 445 357 421 422 504 530
Provisions 302 179 199 375 541 144 353 354
Taxes 70 70 100 100 40 100 160 200
Net Profit 241 402 459 464 123 529 701 719
growth (q-o-q) 66.9 14.3 1.1 (73.6) 331.6 32.5 2.5

CASA Ratio 33.8 33.3 31.5 31.5 NA
Net NPA/Net Adv. 1.9 1.1 0.9 0.8 1.1
CRAR 12.8 11.2 13.5 13.3 14.1
188
Capital 410 410 410 410
Deposits 96,796 116,803 142,381 154,072
y-o-y growth 20.7 21.9 8.2
Borrowings 114 26 1,574 2,517
Advances 60,421 79,426 98,506 107,238
y-o-y growth 31.5 24.0 8.9
Investments 38,054 36,974 45,226 49,812
Fixed Assets 673 688 2,861 2,917
other Assets 2,596 3,026 3,133 2,852


Promoters 73.2 73.2 73.2 73.2 73.2 73.2
Indian Public 1.0 0.1 0.0 6.3 5.8 6.0
Others 11.4 8.2 6.8 0.8 1.3 0.9
Total 100.0 100.0 100.0 100.0 100.0 100.0

2.5
1.94
2.0
1.66
1.55 1.54 1.56
1.5 1.31 1.31 1.28
Percent
1.18 1.09
0.89 0.99 0.89 0.89
1.0 0.84 0.85
0.5
-
Q1'08
Q2'08
Q3'08
Q4'08
Q1'09
Q2'09
Q3'09
Q4'09

189
16.5 Central Bank of India
Interest Earned 5,205 5,386 6,234 7,996 10,455
Growth (%) 0.2 4.0 (10.2) 0.2
Other income 920 531 476 791 1,070
Staff cost 1,278 1,276 1,175 1,214 1,273
other operating Expenses 408 440 509 531 589
Provisions 982 819 570 416 512
Operating Profit 627 376 695 852 925
Taxes 270 119 197 302 354
Net Profit 357 257 498 550 571
Growth (%) (28.0) 93.5 10.5 3.8
FY08 FY09
Interest Earned 1,759 1,919 1,993 2,211 2,411 2,674 2,722 2,647
Net Interest income 564 521 516 509 477 646 672 433
growth (q-o-q) (7.8) (1.0) (1.2) (6.4) 35.5 4.0 (35.5)
Other income (OI) 115 188 212 387 161 94 311 503
Total Income (TI) 679 708 728 897 638 741 983 936
OI as a % of TI 16.9 26.5 29.1 43.2 25.3 12.8 31.7 53.7
Staff cost 295 314 324 281 292 293 383 304
Provisions 121 123 (12) 184 155 107 (97) 347
Taxes 45 0 91 166 7 91 210 45
Net Profit 98 124 201 127 59 96 353 63
growth (q-o-q) 25.7 62.6 (36.7) (53.4) 62.1 267.4 (82.3)

CASA Ratio 43.6 46.8 42.1 36.1 33.4
Net NPA/Net Adv. 3.0 2.6 1.7 1.5 1.2
CRAR 12.2 11.0 10.4 10.4 11.8
190
Capital 1,124 1,124 1,124 1,204
Deposits 60,752 66,483 82,776 110,320
y-o-y growth 9.4 24.5 33.3
Borrowings 140 311 782 449
Advances 27,277 37,483 51,795 72,997
y-o-y growth 37.4 38.2 40.9
Investments 30,835 28,639 27,742 31,455
Fixed Assets 752 725 767 2,320
other Assets 2,961 3,427 4,226 4,851


Promoters 100.0 100.0 100.0 100.0 80.2 80.2
Domestic Institutions - - - - 4.2 2.3
Foreign Institutions - - - - 7.9 6.6
Indian Public - - - - 6.5 8.6
Others - - - - 1.2 2.3
Total 100.0 100.0 100.0 100.0 100.0 100.0

6.0
4.94 4.81
5.0 4.37
4.0
3.16 3.03
Percent
2.79 2.81 2.67

3.0
2.0 1.58 1.41 1.45

1.22 1.36 1.17 1.18 1.24
1.0
-
Q1'08
Q2'08
Q3'08
Q4'08
Q1'09
Q2'09
Q3'09
Q4'09

191
16.6 HDFC Bank
Interest Earned 3,093 4,475 6,648 10,115 16,332
Growth (%) 43.2 36.2 50.7 42.0
Other income 651 1,124 1,516 2,283 3,291
Staff cost 277 487 777 1,301 2,238
other operating Expenses 809 1,204 1,644 2,444 3,295
Provisions 365 725 925 1,484 1,880
Operating Profit 979 1,254 1,639 2,281 3,299
Taxes 313 383 497 691 1,054
Net Profit 666 871 1,142 1,590 2,245
Growth (%) 30.8 31.1 39.3 41.2
FY08 FY09
Interest Earned 2,069 2,363 2,727 2,956 3,622 3,991 4,469 4,251
Net Interest income 986 1,163 1,438 1,642 1,723 1,866 1,979 1,852
growth (q-o-q) 18.0 23.6 14.2 5.0 8.3 6.0 (6.4)
Other income (OI) 573 482 679 549 593 643 939 1,115
Total Income (TI) 1,558 1,645 2,116 2,191 2,317 2,510 2,919 2,967
OI as a % of TI 36.7 29.3 32.1 25.1 25.6 25.6 32.2 37.6
Staff cost 284 319 353 346 541 612 582 504
Provisions 307 289 423 465 344 346 532 657
Taxes 155 169 214 152 219 249 305 282
Net Profit 321 368 429 471 464 528 622 631
growth (q-o-q) 14.7 16.5 9.7 (1.4) 13.7 17.8 1.5

CASA Ratio 60.65 55.45 57.68 54.49 44.40
Net NPA/Net Adv. 0.24 0.44 0.43 0.47 0.60
CRAR 12.16 11.41 13.08 13.60 15.69
192
Capital 295 366 366 366
Deposits 81,333 93,662 124,916 152,034
y-o-y growth 15.2 33.4 21.7
Borrowings 1,641 4,802 1,143 3,927
Advances 43,400 59,912 83,621 106,701
y-o-y growth 38.0 39.6 27.6
Investments 37,074 35,114 34,944 43,870
Fixed Assets 861 921 1,089 2,427
other Assets 4,074 3,991 5,213 4,302


Promoters 24.2 22.2 22.0 21.6 23.3 19.4
Indian Public 5.7 5.2 5.2 12.7 11.1 11.2
Others 16.3 14.0 14.1 7.9 8.9 8.8
Total 100.0 100.0 100.0 100.0 100.0 100.0

2.5
1.90 1.98
2.0
1.60
1.50
1.5 1.30 1.34
Percent
1.20 1.20
1.0
0.60 0.60 0.60
0.50 0.50
0.5 0.40 0.40 0.40
-
Q1'08
Q2'08
Q3'08
Q4'08
Q1'09
Q2'09
Q3'09
Q4'09

193
16.7 ICICI Bank
Interest Earned 9,410 14,306 21,996 30,788 31,093
Growth (%) 65.9 19.7 29.6 14.5
Other income 3,416 4,181 6,928 8,811 7,604
Staff cost 737 1,082 1,617 2,079 1,972
Provisions 432 795 2,229 2,908 3,808
Taxes 519 554 535 895 1,359
Net Profit 2,005 2,540 3,110 4,158 3,759
Growth (%) 26.7 22.4 33.7 (9.6)
FY08 FY09
Interest Earned 7,331 7,516 7,912 8,029 7,892 7,835 7,836 7,530
Net Interest income 1,479 1,786 1,960 2,079 2,090 2,148 1,990 2,139
growth (q-o-q) 20.8 9.7 6.1 0.5 2.8 (7.3) 7.5
Other income (OI) 1,951 2,072 2,427 2,362 1,538 1,877 2,515 1,674
Total Income (TI) 3,430 3,858 4,386 4,441 3,628 4,025 4,505 3,813
OI as a % of TI 56.9 53.7 55.3 53.2 42.4 46.6 55.8 43.9
Staff cost 522 520 571 467 523 488 503 457
other operating Expenses 1,383 1,451 1,557 1,684 1,391 1,252 1,231 1,200
Provisions 552 644 760 947 792 924 1,008 1,085
Operating Profit 972 1,243 1,498 1,343 922 1,361 1,763 1,071
Taxes 197 240 268 193 194 347 491 327
Net Profit 775 1,003 1,230 1,150 728 1,014 1,272 744
growth (q-o-q) 29.4 22.7 (6.5) (36.7) 39.3 25.4 (41.5)

CASA Ratio 24.27 22.72 21.78 26.09 28.70
Net NPA/Net Adv. 1.65 0.72 1.02 1.55 2.09
CRAR 11.78 13.35 11.69 14.92 15.53
194
Capital 1,087 1,240 1,249 1,463
Deposits 99,819 165,083 230,510 244,431
y-o-y growth 65.4 39.6 6.0
Borrowings 33,545 38,522 51,256 65,648
Advances 91,405 146,163 195,866 225,616
y-o-y growth 59.9 34.0 15.2
Investments 50,487 71,547 91,258 111,454
Fixed Assets 4,038 3,981 3,923 4,109
other Assets 9,575 13,327 17,144 21,197


Promoters - - - - - -
Indian Public - - 0.4 6.9 7.7 8.0
Others 11.6 11.2 11.1 5.2 5.9 5.8
Total 100.0 100.0 100.0 100.0 100.0 100.0

5.0
4.18 4.32
4.5 4.14
4.0 3.72
3.30
3.5 2.96
2.82
3.0 2.63
Percent
2.5 2.07 2.09

1.91
2.0 1.80
1.43 1.50 1.55
1.35
1.5
1.0
0.5
-
Q1'08
Q2'08
Q3'08
Q4'08
Q1'09
Q2'09
Q3'09
Q4'09

195
16.8 IDBI Bank
Interest Earned 2,656 5,381 6,345 8,041 11,632
Net Interest income 188 380 658 676 1,326
Growth (%) 102.2 73.2 2.8 96.0
Other income 627 1,280 1,027 1,582 1,390
Staff cost 158 319 283 390 583
Provisions 73 213 224 477 392
Operating Profit 288 588 683 823 986
Taxes (19) 27 52 93 127
Net Profit 307 560 630 729 859
Growth (%) 82.7 12.5 15.7 17.7
FY08 FY09
Interest Earned 1,793 1,906 2,084 2,255 2,418 2,697 3,247 3,262
growth (q-o-q) 137.8 47.2 9.8 (61.9) 148.8 125.5 (6.8)
Other income (OI) 400 431 366 392 321 320 266 472
Total Income (TI) 463 581 586 633 414 549 782 954
OI as a % of TI 86.4 74.3 62.5 61.8 77.7 58.3 34.0 49.5
Staff cost 79 84 81 142 85 113 158 223
Provisions 86 175 174 47 20 100 144 112
Taxes 19 21 22 32 22 22 25 59
Net Profit 153 156 176 245 160 162 223 314
growth (q-o-q) 1.6 13.1 39.3 (34.8) 1.7 37.0 40.9

CASA Ratio 38.26 29.51 25.43 16.56 14.78
Net NPA/Net Adv. 1.74 1.01 1.12 1.30 0.92
CRAR 12.16 11.41 13.08 13.60 11.57
196
Capital 722 724 724 725
Deposits 15,103 26,001 43,354 72,998
y-o-y growth 72.2 66.7 68.4
Borrowings 50,006 47,530 42,404 38,613
Advances 45,414 52,739 62,471 82,213
y-o-y growth 16.1 18.5 31.6
Investments 25,055 25,351 25,675 32,803
Fixed Assets 889 811 2,778 2,766
other Assets 4,419 4,358 6,130 4,327


Promoters 58.5 58.5 52.8 52.7 52.7 52.7
Indian Public 0.1 0.1 0.7 15.3 16.3 16.2
Others 15.5 16.0 17.4 3.9 6.3 4.7
Total 100.0 100.0 100.0 100.0 100.0 100.0

2.5 2.24
2.06 2.04 1.98
2.0 1.87 1.87
1.71
1.5 1.30 1.36 1.28 1.38

Percent
1.15 1.19
1.11 1.04
0.92
1.0
0.5
-
Q1'08
Q2'08
Q3'08
Q4'08
Q1'09
Q2'09
Q3'09
Q4'09

197
16.9 State Bank of India
Interest Earned 32,428 35,980 39,491 48,950 63,788
Growth (%) 11.8 3.0 6.0 22.6
Other income 7,120 7,435 5,769 8,695 12,691
Staff cost 6,907 8,123 7,933 7,786 9,747
Provisions 4,469 4,393 2,375 2,669 3,735
Taxes 2,217 2,499 3,084 3,710 5,059
Net Profit 4,305 4,407 4,541 6,729 9,121
Growth (%) 2.4 3.1 48.2 35.6
FY08 FY09
11,09 11,61 12,66 13,57 13,79 15,56 18,03 17,34
Interest Earned 1 6 7 7 9 7 0 2
6,889 7,853 8,410 8,776 8,982 10,11 12,27 12,50
Interest Expended 1 2 0
Net Interest income 4,201 3,763 4,256 4,801 4,818 5,455 5,758 4,842
growth (q-o-q) (10.4) 13.1 12.8 0.4 13.2 5.6 (15.9)
Other income (OI) 1,139 2,042 2,697 2,817 2,404 2,343 3,226 4,718
Total Income (TI) 5,340 5,805 6,954 7,618 7,222 7,798 8,984 9,560
OI as a % of TI 21.3 35.2 38.8 37.0 33.3 30.0 35.9 49.4
Staff cost 2,026 1,995 2,195 1,570 2,131 2,221 3,046 2,350
other operating Expenses 952 1,096 1,099 1,675 1,128 1,384 1,456 1,934
Provisions 159 86 804 1,619 1,549 611 197 1,378
Operating Profit 2,202 2,628 2,856 2,754 2,413 3,583 4,286 3,899
Taxes 776 1,016 1,047 871 772 1,323 1,807 1,157
Net Profit 1,426 1,611 1,809 1,883 1,641 2,260 2,478 2,742
growth (q-o-q) 13.0 12.2 4.1 (12.9) 37.7 9.7 10.6

CASA Ratio 41.28 47.55 48.48 43.00 39.26
Net NPA/Net Adv. 2.65 1.88 1.56 1.78 1.76
CRAR 12.45 11.88 12.34 12.64 12.97
198
Capital 526 526 526 631 635
Deposits 367,048 380,046 435,521 537,404 742,073
y-o-y growth 3.5 14.6 23.4 38.1
Borrowings 19,184 30,641 39,703 51,727 53,714
Advances 202,374 261,801 337,337 416,768 542,503
y-o-y growth 29.4 28.9 23.5 30.2
Investments 197,098 162,534 149,149 189,501 275,954
Fixed Assets 2,698 2,753 2,819 3,373 3,838
18,580 22,513 25,533 45,016 37,733
other Assets

Promoters 59.7 59.7 59.7 59.7 59.7 59.4
Indian Public - - - 6.0 5.9 6.9
Others 9.2 8.9 8.9 2.3 3.3 5.1
Total 100.0 100.0 100.0 100.0 100.0 100.0

3.5 3.30
3.07 3.04
3.0 2.82 2.84
2.54 2.51 2.61
2.5
1.78 1.76
Percent
2.0 1.62 1.63

1.44 1.42 1.34 1.36
1.5
1.0
0.5
-
Q1'08
Q2'08
Q3'08
Q4'08
Q1'09
Q2'09
Q3'09
Q4'09

199
16.10 Syndicate Bank
Interest Earned 3,758 4,050 6,040 7,906 9,580
Growth (%) 11.0 14.3 (3.6) 25.5
Other income 564 592 618 890 860
Staff cost 961 1,037 894 929 1,045
Provisions 561 486 655 463 722
Operating Profit 433 552 728 1,006 1,025
Taxes 31 15 12 157 112
Net Profit 403 537 716 848 913
Growth (%) 33.2 33.4 18.5 7.6
FY08 FY09
Interest Earned 1,846 1,939 1,987 2,134 2,132 2,370 2,566 2,512
growth (q-o-q) (10.6) (3.1) 18.7 (10.5) 48.5 5.6 (28.8)
Other income (OI) 153 216 279 242 147 157 193 364
Total Income (TI) 700 706 753 805 650 905 982 925
OI as a % of TI 21.9 30.7 37.0 30.1 22.6 17.4 19.6 39.3
Staff cost 255 237 238 199 200 285 301 259
Provisions 48 59 44 313 314 138 23 247
Operating Profit 266 267 329 142 (20) 320 492 233
Taxes 45 40 56 16 (108) 58 135 27
Net Profit 221 228 273 126 88 262 356 207
growth (q-o-q) 3.0 20.0 (53.8) (30.4) 198.0 36.1 (42.0)

CASA Ratio 37.05 38.18 30.63 30.95 27.10
Net NPA/Net Adv. 1.59 0.86 0.76 0.97 0.77
CRAR 10.70 11.73 11.74 11.22 12.70
200
Capital 472 522 522 522 472
Deposits 46,295 53,624 78,634 95,171 46,295
y-o-y growth 15.8 46.6 21.0
Borrowings 322 343 1,374 1,306 322
Advances 26,729 36,466 51,670 64,051 26,729
y-o-y growth 36.4 41.7 24.0
Investments 20,371 17,269 25,234 28,076 20,371
Fixed Assets 381 419 772 770 381
1,577 1,723 2,102 2,579 1,577
other Assets

Promoters 73.5 73.5 66.5 66.5 66.5 66.5
Indian Public 0.1 - 0.1 14.0 12.5 12.7
Others 21.5 18.3 14.9 1.6 1.9 6.5
Total 100.0 100.0 100.0 100.0 100.0 100.0

3.5
3.06 3.07
2.86 2.84
3.0 2.71
2.55
2.39
2.5
1.93
2.0
Percent
1.5 1.27
0.95 0.97 1.03 0.92 0.86
1.0 0.82 0.77
0.5
-
Q1'08
Q2'08
Q3'08
Q4'08
Q1'09
Q2'09
Q3'09
Q4'09

201
16.11 Union Bank
Interest Earned 4,970 5,864 7,382 9,447 11,916
Growth (%) 15.0 17.5 10.6 24.4
Other income 766 494 687 1,087 1,456
Staff cost 806 867 874 845 1,152
other operating Expenses 451 536 602 748 1,062
Provisions 962 572 621 720 737
Taxes (107) 219 535 473 618
Net Profit 719 675 845 1,387 1,727
Growth (%) (6.1) 25.1 64.2 24.5
FY08 FY09
Interest Earned 2,074 2,238 2,422 2,540 2,533 2,831 3,262 3,290
Net Interest income 734 656 752 771 810 975 1,128 926
growth (q-o-q) (10.6) 14.5 2.6 5.0 20.4 15.7 (17.9)
Other income (OI) 215 287 384 373 222 283 392 559
Total Income (TI) 950 944 1,136 1,145 1,032 1,259 1,520 1,485
OI as a % of TI 22.7 30.4 33.8 32.6 21.5 22.5 25.8 37.6
Staff cost 254 255 279 57 225 292 322 313
Provisions 155 98 111 365 296 203 (45) 283
Taxes 145 155 160 4 92 135 228 163
Net Profit 225 276 365 521 228 361 672 465
growth (q-o-q) 22.5 32.4 42.8 (56.2) 58.3 85.8 (30.8)

CASA Ratio 32.68 32.36 34.50 34.86 30.00
Net NPA/Net Adv. 2.64 1.56 0.96 0.17 0.34
CRAR 12.09 11.41 12.80 12.51 13.27
202
Capital 460 505 505 505 460
Deposits 61,831 74,094 85,180 103,859 61,831
y-o-y growth 19.8 15.0 21.9
Borrowings 2,021 3,974 4,216 4,760 2,021
Advances 40,105 53,380 62,386 74,348 40,105
y-o-y growth 33.1 16.9 19.2
Investments 22,793 25,918 27,982 33,823 22,793
Fixed Assets 824 810 825 2,200 824
2,149 2,675 3,160 3,899 2,149
other Assets

Promoters 60.9 60.9 55.4 55.4 55.4 55.4
Indian Public - - - 13.6 11.6 10.9
Others 23.5 16.7 18.0 2.4 1.6 3.6
Total 100.0 100.0 100.0 100.0 100.0 100.0

3.0 2.78
2.42
2.5 2.18
2.10 2.08
1.93 1.96
2.0 1.68
Percent
1.5
1.0 0.78
0.65
0.5 0.35 0.34
0.15 0.15 0.14 0.14
-
Q1'08
Q2'08
Q3'08
Q4'08
Q1'09
Q2'09
Q3'09
Q4'09

Source : RBI and CARE Research
203
Contact:
Ms. Revati Kasture revati.kasture@careratings.com
Head – Industry Research
(D): +91-22-6754 3465
Mr. Parag Jariwala parag.jariwala@careratings.com

Analyst
(D): +91-22-6754 3448
Website: www.careratings.com
Email: careresearch@careratings.com
Other Industry Research reports by CARE Research are:

i) Indian Cement Industry
ii) Indian Express Industry
iii) Indian Fertilizer Industry
iv) Indian Soda Ash Industry
v) Indian Shipping Industry
vi) Indian Steel Industry
vii) Indian Commercial Vehicle Industry
viii) Indian Pharmaceutical Industry
ix) Indian Pesticide Industry
x) Indian Pipe Industry
xi) Indian Tyre Industry
xii) Indian Coal Industry
xiii) Indian Construction Industry
xiv) The Shipbuilding Industry
xv) Indian Gems & Jewellery Industry
xvi) Indian Retail Industry
204
HEAD OFFICE:
Mumbai: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway,
Sion (East), Mumbai – 400 022
Tel: +91-22-6754 3456, Fax: +91-22-6754 3457.
REGIONAL OFFICES:
New Delhi: 710, Surya Kiran, 19, Kasturba Gandhi Marg, New Delhi – 110 001
Tel: +91-11-2331 8701 / 2371 6199 / 2332 8524.
Kolkata: 3rd Floor, Prasad Chambers (Shagun Mall Building), 10A, Shakespeare
Sarani, Kolkata - 700 0717
Tel: +91-33-2283 1800 / 2283 1803 / 2280 8472.
Chennai: 2-B, Wellington Plaza, 90, Anna Salai, Chennai – 600 002
Tel: +91-44-2860 0876 / 2860 7812 / 2860 5284.
Ahmedabad: 307, 3rd Floor, ISCON Mall, Near Jodhpur Cross Road Satellite, Ahmedabad – 380
015
Tel: +91-79-6631 1821 / 6631 1822.
Hyderabad: 302, Priya Arcade, 8-3-826, Yellaredyguda, Srinagar Colony,

Hyderabad – 500 073
Tel: +91-40-6675 8386.
Bangalore: No.G-1, Canopy Royal Manor, Near Manipal Hospital,

Rustombagh, Off. Airport Road, Bangalore – 560 017
Tel: +91-80-2520 5575.
205

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CARE’s Research & Information Services (CARE Research)

1.3 Various Banking Groups 11

4.6.1 Priority Sector Lending for PSU and Private Banks 44

9.2.2 Nationalised Banks 82

16.2 Bank of Baroda 184

1.1 No. of Scheduled Commercial Banks in India 10

2.3 Spread between Repo and Reverse repo rates 19

4.1 Total advances and y-o-y growth in advances of SCBs 36

5.7 Credit, Investment to deposit ratio for SBI and Associates 59

1.1 List of banks under various banking groups 12

4.3 Provisional break-up of non-food credit for FY09 40

Provisioning Requirement for non-performing asset depending upon the

Overall Ranking based on various parameters 151

Ranking based on Return on Equity (ROE) 162

Bank credit to grow at a CAGR of 17-19% from FY09 to FY11

Deposits to grow at a CAGR of 18-20% from FY09 to FY11

Lower Treasury gains

NIMs under pressure

Flat to marginal growth in net profit in FY10

1. History of SBI and Associates

1.1 History of SBI and Associates

1.2.1 Pre Independence (1840 to 1947)

Year No. of banks failed

1.2.3 Nationalisation to liberalisation (1969 to 1991)

Arguments of government for nationalisation were as follows

¾ The nationalised banking set-up would vigorously pursue expansion programmes to

¾ To pay special attention to inter-sectoral balances and balanced regional development.

¾ Encourage healthy competition between large and small industrial houses.

¾ 1949: Enactment of Banking Regulation Act.

¾ 1980: Nationalisation of seven banks with deposits over Rs.200 crores.

1.2.4 Liberalisation to current date (1991 to 2008)

Narsimhan Rao government embarked on a policy of liberalisation by licensing a small number of

¾ Interest rate liberalisation

2. FDI/FII limits on investments in shares of private sector banks were raised to

3. In 2004, FDI/FII limits on investments in shares of private sector banks was

¾ Entry of foreign banks

Phase 1 (March 2005 to March 2009)

No. of banks in India have declined over the past 10 years

Fig 1.1 – No. of Scheduled Commercial Banks in India

Source: RBI and CARE Research

Scheduled Commercial Banks Unscheduled Commercial

Public Sector Private Sector Foreign Regional

State Bank of India Nationalised Banks

Source: CARE Research

The commercial banking structure in India consists of:

4. Bank of India 14. Punjab National Bank

Private Sector Banks

Fig 1.3 – No. of offices of commercial banks(both scheduled and non-scheduled

No. of Offices Growth % (y-o-y)

Source: RBI and CARE Research

Source: RBI and CARE Research

Non-monetary functions includes supervision of banks operating India, promotion of sound

2.1 RBI monetary and credit policy

From April 2008 to September 2008

From September 2008 to March 2009

Fig 2.1 – Changes in policy rate in FY09 to check inflation

9 to suck the liquidity

Source: RBI and CARE Research

Source: RBI and CARE Research

Source: RBI and CARE Research

2.4 Cash Reserve Ratio (CRR)