Dec 11, 2000|
Banking comes out tops
With all attempts to boost economic development within the country and as financial markets integrate the Government endevours to strengthen the banking system in the country. The previous week saw several PSU banking stocks in the limelight as markets anticipated Government divestment in these counters.
The Reserve Bank of India (RBI) has given an overview of the banking sector in its latest report. Operating profits of scheduled commercial banks (SCBs) were up by Rs 46.1 bn, a growth of 33.4% as against a decline of 5.7% in FY99. Net profits have also increased sharply by Rs 28.2 bn or 62.7%. The improved operating performance is attributed to the strong growth in interest income and a higher growth in other income.
Banking spreads, the difference between interest income and interest expense, continued to fall. Spreads were down by 10 basis points to 2.7% in FY00. However, the decline was primarily due to the drop in spreads of PSU and new private sector banks by 10 basis points. Other banks (foreign and old private sector banks) meanwhile managed to increase their spreads.
The thorny issue of non-performing assets (NPAs) is showing signs of improvement. The net NPAs of the banking sector had a median of 6.8% in FY00. On absolute levels, although, the NPAs increased by Rs 2.1 bn in percentage terms they declined YoY. However, at Rs 600 bn they still represent 60% of incremental deposits.
The Narasimham Committee had stipulated that the Indian banking sector should improve their capital to risk-weighted asset ratio (CRAR) to 9% by FY00 and 10% by 2002. The Indian banking sector has been able to successfully achieve the stipulation of 9%. There were only 4 banks that did not meet the CRAR stipulations. A 9% CRAR indicates a spread of 2% over the risky assets, internationally; this spread is estimated to be 5%.
In light of these facts, the trend seems to present a strengthening in the Indian banking scenario. Further, if the Narasimham Committee recommendations are followed the Government is expected to reduce its shareholding in nationalised banks to 33%. Consequently, we may see news on the disinvestment front.
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