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report on trends and progress of banking in india -2011-2012

Report on Trend and Progress of Banking in India for the year ended June 30, 2012 submitted to the Central Government in terms of Section 36(2) of the Banking Regulation Act, 1949

REPORT ON TREND AND PROGRESS OF BANKING IN INDIA 2011-12

RESERVE BANK OF INDIA

Sale Price:In India Abroad ` 150 ` 190 ` 110 ` 150 (Normal) (Inclusive of Postal Charges) (Concessional at Counter) (Concessional Including Postage)

US$ 12 (Inclusive of Air Mail Courier Charges)

Reserve Bank of India 2012 All rights reserved. Reproduction is permitted provided an acknowledgement of the source is made.

Published by Sanjay Kumar Hansda for the Reserve Bank of India, Mumbai 400 001 and designed and printed by him at Alco Corporation, A2/73, Shah and Nahar Industrial Estate, Lower Parel (W), Mumbai - 400 013

ContentsSr. No. Particulars Page No.

Chapter I: Perspectives on the Indian Banking Sector ............................................... 1. Introduction .................................................................................................... 2. Forces Shaping the Environment..................................................................... 3. Operational and Strategic Responses ............................................................ 4. Challenges ....................................................................................................... 5. The Way Forward............................................................................................. Chapter II: Global Banking Developments ................................................................. 1. Introduction .................................................................................................... 2. Global Banking Trends ................................................................................... 3. Banking Trends in Select Regions and Countries ............................................ 4. Analysis of the Performance of Top 100 Global Banks .................................... 5. Global Policy Reforms ..................................................................................... 6. Overall Assessment ......................................................................................... Chapter III: Policy Environment............................................................................... 1. Introduction .................................................................................................... 2. Monetary Policy ............................................................................................... 3. Credit Delivery ................................................................................................ 4. Financial Inclusion .......................................................................................... 5. Prudential Regulatory Policy ............................................................................ 6. Supervisory Policy ........................................................................................... 7. Regional Rural Banks ...................................................................................... 8. Co-operative Banks ......................................................................................... 9. Non-Banking Financial Companies.................................................................. 10. Customer Service in Banks ............................................................................. 11. Financial Markets............................................................................................ 12. Payment and Settlement Systems .................................................................... 13. Technological Developments............................................................................ 14. Banking Sector Legislation .............................................................................. 15. Overall Assessment ......................................................................................... Chapter IV: Operations and Performance of Commercial Banks ................................. 1. Introduction .................................................................................................... 2. Balance Sheet Operations of Scheduled Commercial Banks............................ 3. Financial Performance of Scheduled Commercial Banks ................................. 4. Soundness Indicators...................................................................................... 54 54 60 62 27 28 29 34 35 40 42 43 44 44 46 47 50 50 52 10 11 15 21 24 25 1 1 3 6 9

Sr. No.

Particulars 5. Sectoral Deployment of Bank Credit ............................................................... 6. Operations of Scheduled Commercial Banks in Capital Market ...................... 7. Shareholding Pattern in Scheduled Commercial Banks .................................. 8. Foreign Banks Operations in India and Overseas Operations of Indian Banks 9. Technological Developments in Scheduled Commercial Banks ....................... 10. Customer Service ............................................................................................ 11. Financial Inclusion .......................................................................................... 12. Local Area Banks ............................................................................................ 13. Regional Rural Banks ...................................................................................... 14. Overall Assessment .........................................................................................

Page No. 72 75 78 78 79 82 84 88 90 91

Chapter V: Developments in Co-operative Banking .................................................... 1. Introduction .................................................................................................... 2. Urban Co-operative Banks .............................................................................. 3. Rural Co-operatives ........................................................................................ 4. Progress on Licensing of Rural Co-operatives.................................................. 5. Progress relating to Revival of Rural Co-operatives ......................................... 6. Progress relating to Rural Credit Measures that have Specific Implications for Co-operatives .................................................................................................. 7. Overall Assessment ......................................................................................... Chapter VI: Non-Banking Financial Institutions ........................................................ 1. Introduction .................................................................................................... 2. Financial Institutions ...................................................................................... 3. Non-Banking Financial Companies.................................................................. 4. Primary Dealers .............................................................................................. 5. Overall Assessment ......................................................................................... 120 120 124 138 141 93 94 104 113 116 118 119

vi

List of BoxesSr. No. I.1 I.2 Particulars Technological Innovations and Efficiency Gains in the Banking Sector ........... Bilateral Memorandum of Understanding (MoU) with Reserve Banks Overseas Counterparts for Improved Cross-Border Supervision and Cooperation ........................................................................................................ Issues in LIBOR Fixation and Implications for Banks .................................... Eurozone Crisis and the Sovereign-Bank Nexus: Sovereign Rating Downgrades and Implications for Global Banking System ............................. Unique Customer Identification Code for Banks Customers in India ............. White-Label ATMs (WLAs) .............................................................................. What Drives the Profitability of Indian Banks?: A Du Pont Analysis for Bank Groups ........................................................................................................... Bank Lending to Infrastructure and Asset-Liability Mismatches: How Strong is the Linkage? ............................................................................................... Priority Sector Lending is there a Bias towards Bigger Credit Needs?.......... Changing Trend of the Payment Systems from Cash to Cashless .................... An Analysis of Market Concentration within the UCB Sector .......................... Weakening Long-Term Co-operative Credit Structure: A Comparative Analysis of the Apex-Level Institutions............................................................ Reforms for the Revival of Short-term Rural Co-operatives ............................ Micro Finance Institutions (Development and Regulation) Bill, 2012 and its Impact on Microfinance Sector ....................................................................... Guidelines on Fair Practices Code for NBFCs ................................................. Page No. 4

5 15 18 39 49 63 74 76 81 98 113 117 126 133

II.1 II.2 III.1 III.2 IV.1 IV.2 IV.3 IV.4 V.1 V.2 V.3 VI.1 VI.2

vii

List of TablesSr.No. II.1 II.2 II.3 III.1 III.2 IV.1 IV.2 IV.3 IV.4 IV.5 IV.6 IV.7 IV.8 IV.9 IV.10 IV.11 IV.12 IV.13 IV.14 IV.15 IV.16 IV.17 IV.18 IV.19 IV.20 IV.21 IV.22 IV.23 IV.24 IV.25 IV.26 Particulars Return on Assets of Banks for Select Countries ............................................. Growth in International Assets and Liabilities of Banks ................................. Capital to Risk-Weighted Assets Ratio of Banks in Select Countries ............... Agricultural Debt Waiver and Deb