Banking Sector Scenario

The concept of Banking in India dates back to the first half of 18th century. The first bank that was established in the country was The General Bank of India founded in 1786. After that came the State Bank of India in Kolkata in 1806 which was then known as The Bank of Bengal. The operations of all the banks in India are controlled by the Reserve Bank of India. Banks in India are classified into 2 broad categories namely, Public sector banks and Private sector banks. The Reserve Bank of India has played a key role is assisting the banking sector in managing its liquidity and despite recent events, the medium-to-long-term India growth story remains intact. Capital adequacy is seen as important to the stability of the banking system. The minimum Capital to Risk-weighted Asset Ratio (CRAR) in India as required by the RBI is placed at 9%, one percentage point above the Basel II requirement. Public sector banks are further required to maintain a CRAR of 12% by the Government of India. This intact regulatory system helped Indian banks to survive during the global financial meltdown which has its origins in the sub-prime mortgage crisis originating in the United States which has led banks to be more conservative in their lending practices, and consequently a rise in capital costs for corporate.
GDP and banking sector

India Inc is completely dependent on the Banking System for meeting its funding requirement. The banking industry forms the basis of the entire production of goods and services in every country as the dire need for production is money for which banks are the only source. Hence there is high correlation between a countrys GDP and its banks business.
30 25 20 15 10 5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010

GDP groth rate SB's Business Growth Rate

Average growth rate for banking sector over last 8 years is 20.55% whereas the same for Indian GDP is 8%

India being an emerging economy has high GDP growth rate forecasts and hence its banking sector is bound to show higher growth.

Sector highlights:
With majority of population dwelling in rural and semi urban areas , the banking presence has been only 22.7 % in terms of deposits and 17.1 % in terms of outstanding amount.

Breakup of deposits as on March 2010

RURAL SEMI9% URBAN 13%

Breakup of credit as on March 2010

RURAL 7% SEMIURBAN 10% URBAN 17%
METROP OLITAN 66%

METROPO LITAN 57%

URBAN 21%

Regulatory systems of Indian banks are rated better than China, Brazil, Russia, UK; at par with Japan, Singapore and Hong Kong as per the industry reports. With only 30-35% of the population financially included, and the Indian banking industry unsaturated with CAGR of well above 20%, the market definitely has scope for further growth. India has an expanding middle class of 250 to 300 million people in need of varied banking services. While 60% of our population has access to banks, only 15% of them have loan accounts and an overwhelming 70% of farmers have no access to formal sources of credit, reflective of immense potential for the banking system The ATM outlets in India increased at a CAGR of 28.09% from year 2007. Increasing number of millionaires in India is increasing the scope of Wealth Management Services. Bankable households in India are anticipated to grow at a CAGR of 28.10% during the next five years. Investment by banking sector in Information Technology is expected to increase at 18% as this will improve mobile banking features.

Government Initiatives Financial Inclusion The new bank liscence mandate includes clause to extend 25% of the new branches in rural india. Five year Plan Highlights

Appendix

Total Business of Scheduled Banks in India

9000000 8000000 7000000 6000000 5000000 4000000 3000000 2000000 1000000 0 March March March March March March March March March 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total Business of Scheduled Banks in India