Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Are Indian banks 'BRIC' solid? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 30, 2010

    Are Indian banks 'BRIC' solid?

    When was the last time you visited your bank to deposit funds and felt insecure about the safety of your hard earned money? Probably never. That is because we Indians were lucky enough to be banking in India when the biggest banks were shutting shop in late 2008.

    The global subprime crisis did a lot of good to the Indian banking system's reputation. Known for its conservative approach and good governance, the entities lived up to their repute in difficult times. Except a few, most Indian banks barely had an impact of the subprime crisis. Other than the short term liquidity crisis, Indian financial system got away with marginal rise in NPAs and lower growth.

    However, the RBI is not a regulator to bask under past glory. It wants to make sure that its repute remains intact in future as well. Accordingly it conducted a study on financial stability of Indian banks in terms of operational soundness. The comparison was also made vis a vis banks in the fast growing BRIC economies.

    While Indian entities faired considerably well in terms of relative asset quality and profitability, they seem to be undercapitalized against their peers in the BRIC nations. This can be primarily attributed to the fragmented nature of Indian banking sector. Also this can be a major handicap in the growth of entities in the sector.

    Bank financials across BRIC nations
    (%) 2009 CAR NPA ROA ROE
    Brazil 18.0 4.5 1.2 12.0
    Russia 18.0 7.5 0.5 5.0
    India 13.0 2.5 1.0 13.1
    China 11.8 2.0 0.8 12.0
    Data source: RBI Financial Stability Report

    The RBI is trying to address this issue by recapitalizing public sector banks where it has a majority stake. The small private enterprises are however left to fend for themselves. They must either agree to get merged with bigger banks or raise capital at expensive rates.

    Thus it will be some time before Indian banks get the kind of capital cushion that their peers in Brazil and Russia enjoy. The fact that that the penetration of credit in India remains at a fraction of the developed economies adds to the growth potential. Moreover, the relative soundness of Indian banks as compared to the behemoths in China also works in their favour.

    Banks in the US and Europe are being proposed for stress tests and default taxes. Their humungous bonus payouts and superficial asset growth are a matter of public scrutiny. As the lens gets closer on them, these entities may have to lose a lot of their market cap.

    While the BRIC banks could be in a race to catch up with their Western peers in terms of size and market cap, they should not follow the latter's route. Indian banks in particular have to remain on their toes to keep up with their repute. The RBI rightly believes that while Indian banks are stable, they could do with consistent appraisal and oversight.



    Equitymaster requests your view! Post a comment on "Are Indian banks 'BRIC' solid?". Click here!

    5 Responses to "Are Indian banks 'BRIC' solid?"


    Apr 6, 2010

    Thanks to the controller RBI for shaping Indian banks in such a way that they are free to do as the tops of individual banks want to do but in a given field. Not in a freestyle way. It is only RBI who has given so a sound footing to bnks. Due to the policies of RBI every country is now looking at Indian banks. Now is the time to reward bank staff for proper implementation of the policies.



    Apr 5, 2010

    Nationalised bank employees need to be given their due? What have they been getting until now - less than their dues and rewarding the nation with their charity? Their self-assumed liberty to behave like organized bandits and to hold the customers to ransom at will, is not enough? I suggest that the nationalised bank staff pack be properly disciplined, if necessary by a few selective sackings for which the authorities must arm themselves legally, and the private banks be given more their due so that there is a check and balnce to this organized goonery from the side of nationalised bank staff and officers. The RBI will still do their job, they do not depend on the supremacy or primacy of nationalised banks to be able to organize banking in the country, and the bank consumers will be a relived lot. Developing and encouraging the private banks alone (to approximately the level of a balance between nationalised and priavate - no more, no less) will provide a check on the nationalised bank goons, or else they will hijack this area of critical national importance to their own personal benefits.



    Apr 4, 2010

    I wonder if we will see the PSBs being merged to form larger more efficient banks anytime soon; if we are to compete with the mammoth banks in China or those in the West the only way to catch up soon is to allow these PSBs to be merged. That is my opinion though.



    Apr 1, 2010

    Eventhough RBI is the regulator, it is the Banks that have made the economy sound and have always performed to the needs of the nation. Now it is high time the employees of these nationalised banks are given their right dues looking to their performance.



    Mar 31, 2010

    I think it is the RBI who should be commended for the 'relative soundness' of Indian banks. Left to them, they would have also gone the herd way as was seen in them falling head over heels to lend to the realty sector before the central bank put the brakes. By the way, RBI does not have any holding any of the Indian banks, it is the government. Also, the traditional risk-averse nature of the 'Indian Pysche' is to be given the credit for the so called 'safety' of our Banks and not due to any visionary CEOs. As somebody rightly said, 'the biggest risk is not taking it'.

    Equitymaster requests your view! Post a comment on "Are Indian banks 'BRIC' solid?". Click here!

    More Views on News

    IDFC Bank: Strong Trading Income Shields Credit Slowdown (Quarterly Results Update - Detailed)

    Aug 10, 2017

    IDFC Bank is taking steps to address contracting NIMs and successfully transition in to a retail bank.

    ICICI Bank: Loan Slippages Trending Downwards (Quarterly Results Update - Detailed)

    Aug 10, 2017

    Asset quality will be the key thing to watch out for going forward.

    Axis Bank: Outside Watchlist Slippages a Big Worry (Quarterly Results Update - Detailed)

    Jul 31, 2017

    Almost 74% of the watchlist as provided by the bank of Rs 226 billion in FY16 has turned into non-performing assets.

    Should You Take SBI Chief's Advice and Load up on SBI Shares? (The 5 Minute Wrapup)

    Jul 6, 2017

    Does the stock score on the value versus price equation?

    AU Small Finance Bank Ltd. (IPO)

    Jun 27, 2017

    Should one subscribe to the IPO of AU Small Finance Bank Ltd?

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)