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Financial Institutions – On a growth path - Views on News from Equitymaster
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  • Jun 3, 2000

    Financial Institutions – On a growth path

    The financial sector in India is on a growth path with the liberalization of economy. The domestic financial institutions (FIs) are capitalising on opportunities thrown up by the new economy. Also the business environment has witnessed a significant change over the last several years.

    The leading FIs are aggressively transforming themselves to Universal Banks, providing all kinds of financial services. During the past ten months the sanctions of all All India Financial Institutions (AIFIs) increased by 16% to Rs 786 bn while the disbursements increased at a slower pace by 13% to Rs 461 bn. Among the FIs, ICICI’s sanctions and disbursements increased at a faster rate than the industry growth rate. The reason behind ICICI’s higher growth rate is diversification into the retail product segment and excellent services provided by it. Though IDBI is also on a growth path, IFCI is still lagging behind due to high level of its non-performing assets (NPAs).

    Comparative disbursements and approvals

    Particulars Disbursements (Rs bn) Approvals (Rs bn)
      April 98
    - Jan 99
    April 99
    - Jan 00
    % change April 98
    - Jan 99
    April 99
    - Jan 00
    % change
    ICICI 153.5 183.0 19.2% 292.3 357.8 22.4%
    IDBI 105.0 115.0 9.5% 191.2 208.4 9.0%
    IFCI 38.3 22.2 -42.1% 45.5 19.5 -57.2%
    AIFI 409.8 461.2 12.5% 677.0 786.0 16.1%

    There exist a huge gap between the amount of loan approved and actual disbursement. This gap could narrow down towards the end of the year and there might be an increase in loan disbursement with the economy gaining momentum.

    Although on a year over year basis, the table depicts the recovery in the sanctions and disbursements of FIs, the actual picture reveals that on a month over month basis there’s only a marginal recovery. This could be attributed to the prolonged period of uncertainty during FY00 – the toppling of the government in April 1999, eruption of fighting in Kargil in May and the general elections in September – October. This affected investment activity and consequently reduced the demand for funds from FIs. However, the current year is anticipated to be much better as investment activity has been picking up.



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