Many experts have talked about stability in Indian banking in the recent crisis. Several factors have been cited as underpinning stability: caution on capital account convertibility, public sector dominance, Indian banks' low exposure to international assets, strong regulation including counter-cyclical capital requirements imposed by RBI.
There is something else to Indian banks' performance in the crisis: they have done as well on efficiency indicators as in the boom period. There has been a slowdown in economic growth and in credit growth, so one would expect to see some impact on banks coming through interest income and provisions. This hasn't happened. The end result? Indian banks have posted a return of 1% on assets in the midst of the worst financial crisis of the last century! You have to pinch yourself in disbelief. Now, somebody tell me why we should be making any material change in Indian banking.
I explore this topic in my ET column, A crisis-proof banking sector.
Subscribe to:
Post Comments (Atom)
2 comments:
Financial results of Indian banks cannot be compared with those of American banks for a variety of reasons including the following:
1)Indian banks invest proportionately more in G-Secs which as you have pointed out boost treasury gains in a decreasing interest rate regime which we witnessed in the last two years, 2)Directed lending, euphemistically called priority sector advances,accounts for as much as 40% of credit portfolio of Indian banks; the government has a vested interest in ever-greening this substantial portfolio exemplified by periodic government grants for write-off (directed lending is a desirable ideal but corrupted in practice because of various misdirected measures; the resultant loss is very often borne by the government and in turn by the public)and 3)banks availing subsidies from RBI and GOI for lending to agriculture and exports (the benefits accruing to agri and export units help to convert the otherwise unviable units into viable units;we therefore need to measure banks' profitability after taking into account the burden borne by external systems).
Indian banks certainly have better credit-appraisal systems and skills. If our banks are liberated from political highhandedness and interference, they can perform much better and that too without subsidy props.
I am late here. But, a word here definitely.
Indian Banks are good are Money appropriation i.e. they take money in one form and lend it diffrently. How many Banks have really given loans - except agriculture and may be priority sector loans - without security? How many Banks support genuine entrepreneurship in the country by giving loans with minimum or less security based on busines proposals or models? I am no Banker, but very less percentages.
Bank will lend money, if one provides security. If you dont pay, the asset will be appropriated on Bank's name. This cold lend some resilience to Bank, but does not help country go richer by helping young profesionals with business ideas.
Post a Comment