KEY TRENDS IN INDIAN BANKING

2017-2018
the banking sector during 2017-18 and 2018-19 so far. The Report also provides an analysis of the
co-operative banks and non-banking financial institutions. The highlights of the Report are set out
below:

• The overhang of stressed assets weighed down the consolidated balance sheet of the banking
sector, necessitating large provisions, which adversely affected their profitability during 2017-18.
Recent data for H1:2018-19, however, indicates that the non-performing assets (NPAs) have begun to
stabilise, albeit at an elevated level; capital positions have been buffered and the provision coverage
ratio has improved.

• The year 2017-18 can be considered a watershed in the resolution of stressed assets as the
foundation of a new, comprehensive, decisive and credible framework was laid and built upon through
the Reserve Bank’s circular dated February 12, 2018 under the overarching mandate of the
Insolvency and Bankruptcy Code (IBC).

• The revival in credit growth in 2017-18, from the deceleration in the previous year, coupled with
improving share of bank finance in the total flow of resources to the commercial sector, augurs well for
the growth prospects of the banking sector. The continuing credit growth recovery in 2018-19 (up to
October 2018) may further reinforce this momentum.

• The Reserve Bank took steps to progressively align the liquidity risk management practices of the
Indian banking system with international standards. Further, commercial banks were allowed to co-
originate priority sector loans with non-deposit taking systemically important non-banking financial
companies (NBFCs-ND-SI) to enhance the efficiency of credit delivery to priority sectors.

• In the co-operative banking space, the consolidated balance sheet of urban co-operative banks
(UCBs) moderated in 2017–18 on account of slower deposit growth. While the overall profitability of
these banks moderated, their asset quality improved. The eligible UCBs are now allowed to transit to
small finance banks (SFBs), which would enable them to carry out a wider range of activities and also
have a pan-India presence.

• Within the rural co-operatives arena, the performance of state co-operative banks (StCBs) in terms
of NPA ratios and profitability continued to improve whereas the performance of district central co-
operative banks (DCCBs) deteriorated.

• The balance sheets of NBFCs, especially that of companies that provide loan finance (NBFCs-Loan
Companies), have been growing manifold against the backdrop of relative decline in their cost of
lending vis-à-vis banks and subdued credit growth of scheduled commercial banks (SCBs) in the
previous three years. The consolidated balance sheet of NBFCs expanded in 2017-18 and during the
first half of 2018-19. The profitability of NBFCs improved on account of fund-based income, relatively
lower NPA levels and strong capital position. The recent concerns about some NBFCs are being
proactively addressed.

• The Report flags major challenges that are likely to shape the outlook for the financial sector in
India, which include:

 Continuing with the progress made under the new resolution framework with the IBC as the focal
point;
 The need for adequate recapitalisation of public sector banks;
 Firming up of corporate governance mechanisms to address the growing complexity of the Indian
financial system; and
 Strengthening the asset-liability framework for NBFCs to bring it on par with that of banks and
harmonising it across different categories of NBFCs.

2018-2019
the Report on Trend and Progress of Banking in India 2018-19, a statutory publication in compliance
with Section 36 (2) of the Banking Regulation Act, 1949. This Report presents the performance of the
banking sector, including co-operative banks, and non-banking financial institutions during 2018-19
and 2019-20 so far. The highlights of the Report are set out below:

 The banking sector showed improvement with the gross non-performing assets (GNPA) ratio of
Scheduled Commercial Banks (SCBs) declining from 11.2 per cent in March 2018 to 9.1 per cent in
March 2019 and a return to profitability in H1: 2019-20.

 This turnaround has been facilitated by a conducive policy environment underpinned by the traction in
insolvency and bankruptcy code (IBC).

 Recapitalisation of Public Sector Banks (PSBs) shored up the capital position of PSBs.

 In the co-operative banking arena, the consolidated balance sheet of Urban Co-operative Banks
(UCBs) expanded in 2018-19 on account of robust deposit growth, although, a fall in interest income
adversely affected their profitability; among rural co-operatives, the financial health of state co-
operative banks and district central co-operative banks weakened with an increase in the non-
performing assets and slowdown in profitability.

 The pace of credit expansion by NBFCs, which began slowing in 2018-19, continued in the first half of
2019-20, largely affected by the performance of non-deposit taking systemically important NBFCs
(NBFCs-ND-SI), though capital buffers remained above the stipulated norms. Bank credit remained a
stable source of funding for NBFCs

2019-2020
The broad theme of this year’s report is the impact of COVID-19 on banking and non-banking sectors,
and the way forward. The highlights of the Report are set out below:

 During 2019-20 and first half of 2020-21, scheduled commercial banks (SCBs) consolidated the gains
achieved after the turnaround in 2018-19.
 SCBs’ gross non-performing assets (GNPA) ratio declined from 9.1 per cent at end-March 2019 to 8.2
per cent at end-March 2020 and further to 7.5 per cent at end-September 2020.
 Capital to risk weighted assets (CRAR) ratio of SCBs strengthened from 14.3 per cent at end-March
2019 to 14.7 per cent at end-March 2020 and further to 15.8 per cent at end-September 2020, partly
aided by recapitalisation of public sector banks and capital raising from the market by both public and
private sector banks.
 Net profits of SCBs turned around in 2019-20 after losses in the previous two years; in H1:2020-21,
their financial performance was shored up by the moratorium, standstill in asset classification and
ploughing back of dividends.
 The Reserve Bank undertook an array of policy measures to mitigate the effects of COVID-19; its
regulatory ambit was reinforced by legislative amendments, giving it greater powers over co-operative
banks, non-banking financial companies (NBFCs), and housing finance companies (HFCs); and it
also undertook a series of initiatives to bolster its supervisory framework.
 The recovery process gained traction with the resolution of large accounts through the Insolvency and
Bankruptcy Code (IBC); the Securitisation and Reconstruction of Financial Assets and Enforcement of
Securities Interest Act, 2002 (SARFAESI) channel also aided the process of recovery.
 The balance sheet growth of Urban Co-operative Banks (UCBs) moderated in 2019-20 on lower
deposit accretion and muted expansion in credit; while their asset quality deteriorated, increased
provisioning resulted in net losses.
 The performance of state co-operative banks improved, both in terms of profitability and asset quality.
 The consolidated balance sheet of NBFCs decelerated in 2019-20 due to near stagnant growth in
loans and advances although some improvement became visible in H1:2020-21; notwithstanding a
marginal deterioration in asset quality, the NBFC sector remains resilient with strong capital buffers.
 The Report also offers some perspectives on the evolving outlook for India’s financial secto

2020-2021

 From 2020 to 2021, the Consolidated Balance Sheets of Scheduled Commercial Banks
(SCBs) expanded despite the pandemic and associated contraction in economic activity.
So far in 2021-2022, credit growth shows early signs of recovery. Deposits at the end of
September 2021 were up 10.1% from 11.0% a year ago.

 SCB's capital to risk-weighted assets (CRAR) ratio increased from 14.8% at the end of
March 2020 to 16.3% at the end of March 2021 and further increased to 16.6% at the end
of September 2021. , bank recapitalization, public sector banks (PSBs), and market
capital raisings by both PSBs and private sector banks (PVBs).

 SCBs’ gross non-performing assets (GNPA) ratio declined from 8.2 per cent at end-
March 2020 to 7.3 per cent at end-March 2021 and further to 6.9 per cent at end-
September 2021.

 SCB's return on assets (RoA) improved from 0.2% at the end of March 2020 to 0.7% at
the end of March 2021. This was underpinned by stable revenues and declining expenses.
 Some of the policy measures taken by the RBI in response to the COVID-19 pandemic
have met their pre-announced expiration dates of 2021-2022. As a result, certain liquidity
measures have been curtailed, while other regulations, such as deferring the
implementation of the Net Stable Funding Ratio (NSFR), restricting banks from paying
dividends, and deferring the implementation of the final tranche of the capital
conservation buffer. Measures have been refocused. Avoid risks to financial stability,
including longer deferrals, while providing targeted support to sectors in need.
 The initiation of new bankruptcy proceedings under the Insolvency and Bankruptcy Code
(IBC) has been put on hold for a year until March 2021, but is most important in that
2020-21 recoveries were driven by deposits. represents one of many types of recovery.
Meanwhile, slowing credit growth has led to an acceleration in investment. Improved
financial metrics such as capital and profitability.
 State and county central credit union profitability improved in 2019-20, but asset quality
declined.
 NBFC consolidated balance sheets grew in 2020-21 due to lending and investments by
non-deposit-taking systemically important NBFCs (NBFCs-ND-SI). Asset quality and
capital buffers have also improved.