Slowdown restricts banks' credit growth

More importantly, the growth rate in bank credit decelerated to 21 per cent during 2008-09 from 25 per cent in the previous year.

Slower income growth, in turn  lead to deceleration in the growth of net profits from 37 per cent in 2007-08 to 24 per cent in 2008-09. Though the gross NPA(non performing assets) to gross advances ratio of banks remained at the last year’s level of 2.3 per cent as at end-March 2009, the gross NPA ratio of public sector banks declined but that of private and foreign banks increased during the year, it said.
While the gross NPAs of public sector banks declined, that of private and foreign banks increased during the year.

The RBI said while there is a lot to learn from the global perspectives and from global initiatives, many of the Indian banking practices are worth emulating by other countries.

“The Indian banking is a success story in the midst of the global crisis, owing primarily to the regulatory environment in place and the structural banking drivers,” the report said.

The apex bank said looking forward, the tremendous potential from greater financial inclusion provides a favourable outlook as banking penetration is at present low.
In a 400-pages report titled “Report on Trend and Progress of Banking in India, 2008-09” released here, RBI also noted that there was a slowdown in the deposits growth rate of banks in 2008-09 to 22.4 per cent as at end-March 2009 from 23.1 per cent as at end March 2008.

Among the non-deposit resources, it said the growth in borrowings by banks decelerated to 6.8 per cent as at end-March 2009 from 24.5 per cent in the previous year. The growth rate of advances by SCBs has been witnessing a slowdown since then. Apart from cyclical factors which led to slowdown in growth after a period of high credit growth, the deceleration in bank credit growth was accentuated this year due to the overall slowdown in the economy in the aftermath of global financial turmoil.

Growth rate up

Growth rate of investments by banks decelerated to 23.1 per cent during 2008-09.
However SLR securities as percentage of NDTL increased during the year due to banks’ preference to park their funds in low risk and low return instruments against the backdrop of prevailing uncertainties.

The Return on Assets (ROA) remained at last year’s level of 1.0 per cent. Significantly, the Return on Equity (ROE) increased to 13.3 per cent during 2008-09 from 12.5 per cent during 2007-08, indicating increased efficiency with which capital is used by the banks. Thus, though the expansion of the balance sheet moderated, the asset quality was maintained.