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EDITORIAL

Down but not out
The poor offtake of retail loans has pulled down credit growth

A vote for the future
A distinguished Jury picks State Bank of India Chairman O P Bhatt as the Business Standard Banker of the year

Making the elephant dance
Interview with SBI Chairman O P Bhatt on his efforts at re-energising the bank

Round Table
Seven top bankers discuss “2009: Are banks in India ready for it?”

Dial ‘R’ for restraint
Cases of coercion and violence are forcing banks to soften their approach towards debt recovery

Overcoming obstacles
RBI has softened its stand on co-operative banks, but the guidelines are still strict

Database
All the data you wanted on banks

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Red Alert

After a sharp reduction in the last three years, NPAs are creeping back into banks’ balance sheets, finds B G SHIRSAT

The Reserve Bank of India has been worried for some time now. The reason: a sharp rise in the exposure of banks to the sensitive sectors, especially real estate. And the numbers speak for themselves: overall credit grew by over Rs 100,000 crore in 2005-06 and 2006-07 with the real estate sector accounting for over 90 per cent.

This is mainly because banks had been aggressively trying to capture market share in the home loan segment, as there was high demand due to a low interest rate regime and booming stock markets.

This bold lending strategy shored up the sector’s balance sheet in 2006-07 by over 20 per cent, a first in the last four years. The interest income earned also rose by a healthy 28.3 per cent, a good nine per cent increase from 19.32 per cent in 2005-06. Private and foreign banks performed especially well with a sharp rise of 46 per cent while the public sector banks’ (PSBs) interest income grew at a lower rate of 22 per cent.

The growth in the net profit of the entire sector was also higher at 27.6 per cent, thanks to private and foreign banks which posted robust growth rates of over 30 per cent in their financial services and treasury income. As far as numbers go, foreign banks led the show with a growth rate of 49.9 per cent, followed by private banks at 32.7 per cent and the PSBs at 22 per cent. The high growth rates were achieved despite the fact that there was a higher provisioning for non performing loans, particularly by the private and foreign banks.

This advances strategy can be understood better with these numbers. The advances to the sensitive sector in 2006-2007 are up by 41.7 per cent, to Rs 396,091 crore from Rs 279,495 crore (a rise 72.4 per cent in 2005-06 over 2004-05). This is mainly due to a rise in asset prices, continued efforts to expand the home loan portfolio, substantial increase in the value of shares held in the treasury and the widening of the definition of commercial real estate.

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Business Standard • December 2007