The banking industry, vital to India's growth, has suffered from low credit offtake and worsening asset quality as slowing economic growth took a toll. Here is an analysis by CRISIL.
- Aggregate bank credit growth slowed to 12.8 percent y-o-y as on May 30, 2014, from 14.2 percent as on May 31, 2013 due to sluggish investment demand, and increased risk aversion due to the deterioration in asset quaility of public sector banks (PSBs). Growth in bank credit to industries such as mining, textiles, petroleum, pharmaceuticals, engineering and construction has decelerated over the past one year.
- The pace of new loan sanctions has also decreased significantly over the past couple of years as corporates have postponed their capacity expansion plans in the wake of the overall slowdown in the economy and continued global uncertainty.
- CRISIL Research expects credit growth to improve to 16-18 percent in 2014-15, especially in the second half, given the decisive mandate in the recently concluded elections.
- On an aggregate basis, deposits grew by 13.8 percent y-o-y as on May 30, 2014, compared with 13.5 percent y-o-y as on May 31, 2013, led by a surge in foreign currency non-resident (FCNR) deposits. Banks garnered almost USD 26 billion (Rs 1.5-1.7 trillion) during September-November 2013 under FCNR deposits.
- Overall deposits are forecast to grow by around 15-16 percent in 2014-15, a tad higher than in 2013-14.
- Net interest margins will improve by a marginal 5-10 basis points in 2014-15 with improved credit offtake and re-pricing of deposits raised at high interest rates in previous years.
- Aggregate GNPAs of all banks rose to about 4 percent as of March 2014 from 3.3 percent as of March 2013. The public sector banks (PSBs) had very high GNPA of around 4.2 percent, while the GNPA of private sector banks was around 1.7 percent in 2013-14.
- CRISIL Research expects banks' GNPAs to remain at similar levels till March 2015 due to slippages from loans restructured in 2012-13, and continued stress in the infrastructure sector (especially power) and construction segment. Weak assets which includes reported GNPA + 30 percent of outstanding restructured advances (excluding state power utilities) + 75 percent of investments in security receipts are expected to remain in the range of 5.5 to 5.7 percent, a level similar to 2013-14.
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