Banks' risk aversion led to higher investment in G-secs: RBI
Total loans and advances witnessed moderation in growth compared with the previous year
The concerns of rising Non-Performing Assets (NPAs) has resulted in increase in the risk aversion of banks and this in turn resulted in banks investing substantially in government securities. “As against deceleration in credit growth, banks’ investment in government securities increased substantially.
This trend partly reflected increase in risk aversion by banks with a growing preference to park funds in safer instruments, against the backdrop of weak macro-economic outlook as well as rising NPAs,” said the RBI in its Report on Trend and Progress of Banking in India – 2011-12 on Wednesday.
However, as on March 31, 2012, banks’ investments in non-Statutory Liquidity Ratio (SLR) instruments contracted compared with the corresponding period of the previous year, due to decline in investments in shares and mutual funds, the report said. The SLR is the portion of minimum investments in gilts and other approved securities by banks. It was cut by 1 per cent to 23 per cent in July and implemented in August.
“The decline in investments in mutual funds could be partly attributed to the policy tightening by the RBI in order to curb banks’ exposure to liquid/short term debt schemes of mutual funds,” said the report. But banks’ investments in commercial papers increased sharply to Rs 35,700 crore recording a growth of 90.6 per cent over corresponding period of previous year.
Total loans and advances witnessed moderation in growth compared with the previous year. The deceleration in bank credit was broad-based with credit off-take by all major sectors slowing down during 2011-12. Credit to industry and services sector, which together constituted more than two-thirds of total bank credit, recorded slower growth.
http://www.business-standard.com/india/news/banks-risk-aversion-led-to-higher-investment-in-g-secs-rbi/195226/on
Banks hit the slow lane in FY'12, says RBI
The consolidated balance sheet of scheduled commercial banks (SCBs) in the country recorded slower growth during 2011-12, compared with the previous year, amidst an overall slowdown in the domestic economy, the Reserve Bank of India (RBI) said in a report released on Friday.
Banks reported a slowdown in profit growth, mainly due to steep increase in interest expenditure. Consequent to the slowdown in net profit, return on assets (RoA) and return on equity (RoE) dipped marginally. Also, net interest margin (NIM) declined marginally during 2011-12 compared with the previous year, RBI said in its `Report on Trend and Progress of Banking in India-2011-12'.
The capital to risk-weighted asset ratio (CRAR) remained well above the stipulated minimum for the system as a whole as well as for all bank groups during 2011-12, indicating that Indian banks remained well-capitalised. As at end-March 2012, Tier I capital accounted for more than 70 per cent of the total capital of Indian banks.
During 2011-12, the deteriorating asset quality of the banking sector emerged as a major concern, with gross non-performing assets (NPAs) of banks registering a sharp increase, RBI noted.
However, banks have progressed well under the financial inclusion plan (FIPs), and have almost completed the process of providing banking outlets in all villages with population more than 2,000.
Coperative banks
Urban co-operative banks (UCBs) posted double-digit growth in assets and showed an improvement in profitability and asset quality in 2011-12 amidst consolidation in the sector with the exit of the weak and emergence of the financially strong.
About 61 per cent of these institutions, accounting for 78 per cent of the total banking business of the UCB sector, had ratings of 'A' and 'B' as per the new CAMELS rating model, RBI said in its report.
The CAMELS ratings system is a method of evaluating the health of credit unions, based on capital, asset quality, management, earnings and asset-liability management. The National Credit Union Administration (NCUA) of the US adopted this in 1987.
State co-operative banks and district central co-operative banks showed some signs of improvement in profitability and asset quality in 2010-11, partly attributable to the prudential regulatory reforms and revival package being implemented for these institutions. However, this revival was yet to spread to the primary agricultural credit societies (PACS), the report said.
PACS remained the weakest spot in this structure, reporting high levels of overdues and losses, it added.
Unlike the revival witnessed in short-term rural co-operative structure, the long-term rural co-operative structure continued to post losses and also exhibited weak asset quality in 2010-11, as in the past.
Going forward, RBI said, the co-operative sector should persevere with recapitalisation and regulatory reforms so that the sector can lend support to financial inclusion and agriculture.
NBFCs
The performance of financial institutions (FIs) in terms of both operating and net profits improved substantially during 2011-12.
The performance of non-banking financial companies - deposit taking (NBFCs-D) witnessed improvement as reflected in the increase in their operating and net profits during 2011-12 mainly emanating from fund-based income.
The performance of systemically important non-deposit taking NBFCs (NBFCs-ND-SI) showed marginal deterioration in their net profits during 2011-12. Besides, the increase in impaired assets was a cause of concern, RBI said.
The report said while the financial system in the country remained robust, risks to stability are, however, elevated due to global and domestic macroeconomic factors.
The key issues related to the Indian banking sector include prospective migration to Basel III, which will increase the capital requirements on Indian banks. There is also a need to achieve meaningful financial inclusion through the evolution of sustainable business and delivery models.
Banks should contain slippage in asset quality while at the same time tapping untapped business opportunities for resources to power the growth engine.
The challenge for Indian banks is to reduce costs and pass on the benefits to both depositors and lenders, the report added.
http://www.domain-b.com/finance/banks/20121110_balance_sheet_oneView.html
Bihar govt revokes ban on seven banks
PATNA: Bihar government on Saturday revoked the ban imposed on seven commercial and private banks, so far as deposit of government money was concerned. A decision to this effect was taken after finding noticeable improvement in their lending performance at a state-level review meeting here.
The banks exempted from the ban Dena Bank, United Bank of India, Indian Bank, State Bank of Bikaner & Jaipur, Oriental Bank of Commerce, Indian Overseas Bank and Axis Bank.
The state government had, on August 21, 2012, decided not to keep government money in those 14 private and commercial banks which had got poor rankings in terms of credit-deposit ratio, disbursement of loans in priority sector, agricultural loans and issuance of Kisan Credit Cards. It had asked its officers, especially departmental heads and DMs, not to deposit government funds in the 14 banks till they improved their lending performance, particularly in the priority sector.
Presiding over the State Level Bankers' Committee meeting here, deputy chief minister Sushil Kumar Modi, who also holds the finance portfolio, said the seven banks were excluded from the banned list after the government found some improvement in their lending performances.
The seven other banks still on the banned list are Uco Bank, ICICI Bank, Andhra Bank, Bank of Maharashtra, Punjab and Sindh Bank, Vijaya Bank and Bihar State Land Development Bank.
The state government had earlier fixed four criteria to rate the performance of nationalized and private banks. With 14 banks faring poorly on them, with scores of less than 25 points against the minimum threshold percentage of 33, the government put them on the banned list.
Bihar lags in opening banks in villages
Altogether 3,052 unbanked villages having a population of 1,600 to 2,000 have been identified in the state. As per the Government of India's guidelines, all these villages have to be provided banking facilities by March 2013. But till September 30, 2012, only 74 of the 3052 villages were provided banking facilities.
Expressing his concern over the 'very poor coverage', Sushil Kumar Modi said he had asked all the banks to cover their respective allotted villages by March 2013. The banks, however, have covered all 9,206 villages in the state having a population of 2,000 to 5,000 by providing banking facilities, he said.
http://timesofindia.indiatimes.com/city/patna/Bihar-govt-revokes-ban-on-seven-banks/articleshow/17176285.cm
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