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Indian Banking Sector Set for New Growth Phase

A new catalyst to the industry’s expansion is India government’s financial inclusion drive that is designed to usher in a new era by providing financial access to hundreds of millions of the unbanked rural population, said Joseph, who was in Dubai recently for the opening of new branches of Hadi Exchange, which is managed by SIB.

Under this initiative, business correspondent model with appropriate technology back up will be provided to the people who have no access to banking, especially in villages with a population of 2000, said Joseph.

In his budget speech, the Indian finance minister said the Reserve Bank of India (RBI) was open to giving banking licences to private players and non-banking finance companies if they met the central bank’s criteria. The RBI has not given new banking licences in the last several years, he pointed out.

At present, India has 96 scheduled commercial banks, 27 public sector banks, 31 private banks and 38 foreign banks, with a combined network of over 53,000 branches. According to a government report, public sector banks hold over 75 per cent of the total assets of the banking industry, while private and foreign banks hold 18.2 and 6.5 per cent 
respectively

The liberal licensing regime would enable several private sector non-banking finance companies to enter the banking sector subject to stringent obligations like maintaining stipulated cash reserve ratio — the portion of deposits that banks are mandated to park with RBI — and statutory liquidity ratio, the quantum of deposits that banks need to maintain in the form of gold, cash or other approved securities.

Joseph said another reform the Indian banking sector was looking forward to is the move to replace the current system of benchmark prime lending rate (BPLR) from April 1 with a base rate below which no banks can advance commercial loans.

Since the base rate will be the minimum rate for all commercial loans, banks are not permitted to resort to any lending below the base rate. Banks often lend to larger clients at rate below BPLR. A base rate will bring transparency in the system, he explained.

He argued that Indian banks could withstand the financial turmoil, thanks to RBI’s stringent control and regulations. Banks achieved a credit growth of 18 per cent in fiscal 2009-2010 despite challenging global conditions.

Since non-resident external (NRE) deposits fetch a lower rate of interest at 2.5 per cent compared to 6.5 per cent on non-resident ordinary (NRO) deposits, the latter segment is growing, he said.

The Thrissur-based SIB, which has network of 576 branches and four extension counters spread across India, far surpassed the industry growth with 30 per cent credit growth. “We were targeting to post total businesses of Rs360 billion, up from Rs300 billion last year. But by December, we could reach that goal, and expect to end the year with Rs375 billion, up 25 per cent as against our initial target growth of 20 per cent,” said Joseph.

SIB, which achieved 100 per cent Core Banking Solutions in 2007, chalked out a five-year roadmap in 2008 that would see its total business growing to Rs750 billion in 2013 and employee strength reaching 7,500. “We are on track to become 750-branch banks with 750 ATMS by 2013,” said Joseph, who joined the SIB as executive director in 2003, and was appointed its chairman and CEO by RBI in 2005. In 2008, he was re-designated, in response to the recommendations of Dr Ganguly Committee and appointed by RBI as managing director and CEO of SIB

He said SIB could bring down net NPA (non performing assets) percentage to 0.39 per cent from 1.13 per cent as on March 31, 2009. The bank has already achieved an NPA coverage ratio of 74.27 per cent that is well above the stipulated rate of 70 per cent prescribed by the RBI to be achieved by September 2010.

In the coming fiscal, the bank seeks to grow 26-27 per cent to post total businesses of Rs480 billion. “It is possible as we will open 60 new branches by June to take the total to 640,” said Joseph. “We will have a presence in all Indian states except Manipur by June this year,” he said.

In the Gulf, the 80-year-old bank has more than more than 200,000 NRI customers. The bank has partnered with more than 30 exchange houses and banks in the region to enable inward remittances into India. SIB also provides management support to Hadi Express Exchange and offers draft drawing arrangement and speed-remittance facility known as ‘SIB Express’ to customers.

Recently, the bank launched cyber-based share trading facility “SIBer Trade” in association with ‘Geojit BNP Paribas Financial Services’ for resident account holders. This facility will shortly be extended to NRI customers, he said.

issacjohn@khaleejtimes.com