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The
chase for retail assets
Theoretically
speaking, banks can have the best of both worlds. In a falling
interest rate scenario, they can make money on their bond
portfolio because of the rising prices of securities. Similarly,
when interest rates rise, handsome profits can be earned
on their loan book as the yield on advances goes up. However,
this is not so in practice.
A drastic erosion in treasury
income last year led to a 9.14 per cent drop in the net
profits of 76 banks featured in this magazine. Even though
their advances portfolio galloped ahead by 29.5 per cent,
this did not translate into higher interest income, which
grew by only 7.05 per cent. In other words, the volume of
business has grown but realisation is low as borrowers are
not willing to cough up high rates to access funds.
It is no wonder then that every bank is
chasing retail assets to increase their interest income.
This year’s Banking Round Table deals with the phenomenal
growth in retail loans. The contribution of retail credit
to overall credit growth last year was 42 per cent. Retail
assets in the banking system jumped to Rs 189,000 crore
in 2004, from Rs 42,000 crore in 1999, a compound growth
rate of 35 per cent.
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Over the next eight to 10 years,
retail assets are expected to grow to Rs 12,50,000
crore, at an annual average growth rate of around
25%. And yet, these assets are only 22% of total banking
assets. As a percentage of India’s GDP, they
are less than 6%, against 15% in China, 24% in Thailand
and 52% in Taiwan.
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The contribution of retail
credit to overall credit growth last year was
42%.
And yet, as a percentage of India’s GDP,
they
are less than 6%
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India originally has been an under-tapped
market for retail credit. That has begun to change, and
the demographic transition has created a lot of demand in
recent years. Coupled with that, lenders have made money
available at an affordable price. But there is no free lunch,
and the problem of non-performing assets in consumer loans
is growing. So are delinquency rates in credit cards and
frauds in home loans. The findings of the Round Table are
an eye opener.
Another interesting feature has been the Indian banks’
new-found focus on overseas markets. Having failed to push
ahead with consolidation in the domestic market, leading
Indian banks have shifted attention to overseas markets.
The cover story of the Banking Annual highlights the global
ambition of Indian banks.
Finally, we have a report on urban cooperative banks. The
worst is over for the soft underbelly of the Indian financial
system, with state governments joining hands with the regulator
to take stock of the deteriorating health of this segment.
All in all, an exciting year for Indian banking.
Happy reading!
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Business
Standard •
BANKING
ANNUAL • November
2005
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