StatsGuru-05-August-13

The sorry state of India's banking industry

As Table 1 shows, India's public sector banks have a major problem. In 2007-08, the ratio of net non-performing assets to total loans was just touching one per cent, below the average for their private sector counterparts. Yet that has swollen tremendously in the years since and for listed public-sector banks was in the last financial year over two per cent, more than four times the equivalent number for listed private sector banks. Meanwhile, the return on their assets has steadily fallen since the financial crisis, while that for private sector banks has risen - now, it is half the corresponding percentage for the private sector.

Which are doing particularly badly in the last reported quarter? Of course, behemoth State Bank of India has the lion's share of total NPAs, as shown in Table 2. The worst-performing private bank by this metric is ICICI Bank. But, as a percentage of advances - shown in Table 3 - Central Bank is in deep trouble, with an NPA ratio of nearly four per cent.

The markets seem to have woken up to this problem. As Table 4 shows, the S&P Bankex index is down 20 per cent this calendar year - with three-fourths of that dip coming just in last three weeks. While private sector banks have done better than public sector ones in the market, only one has seen positive movement in the year to date. In addition, as Table 5 shows, the price-to-earnings ratio of private sector bank stocks has declined steadily at the close of every financial year since 2010. (Click here for tables)