Capital shortfall to hurt banking sector: Assocham

Banking sector may face capital crunch if advances rise at a compound annual growth rate of nearly 17% in next few years, industry chamber Assocham has said in a report.

The credit portfolio of banking sector is projected to expand five-fold from Rs 34.9 lakh crore in 2010 to Rs 164.1 lakh crore by 2020 at a compound annual growth rate of nearly 17%, the report titled Trillion Dollar Economy, Opportunities and Challenges for Banks, said.

This will require scaling up of capital from Rs 4.3 lakh crore to whopping Rs 20.1 lakh crore or Rs 1.5 lakh crore annually, it said.

"But considering the implication of government ownership, banks may face 50 to 85% shortfall in capital supply," it said.

This may seriously hamper the growth of banks and the economy, it added.

At present, it said, India has the second highest number of financially excluded households in the world. About 40% of the country's population has bank accounts.

There are six lakh un-banked villages and only 38% of all bank branches are in rural areas. Although efforts have been made to expand the branch network from 8,700 at the time of nationalisation in 1969 to 87,000 now, only 32,000 branches are present in rural India, it said.

Banks are experimenting with various incentives for furthering financial inclusion but have not been able to make a significant impact, given the magnitude of the problem and difficulties in reaching the excluded population, it said.