Headline

Published On

Jun 01, 2012

Advances of public sector banks have registered the highest growth at over last 5 years

Abstract
The total advances of SCBs grew at a CAGR of 23.2 per cent, from Rs 15,168 billion in 2005-06 to Rs 42,987 billion in 201011. The advances of public sector banks increased at a CAGR of 24.5 per cent to reach Rs 33,056 billion while private sector banks registered a CAGR of 20.6 per cent in advances, where it increased from Rs 3,130 billion to Rs 7,975 billion during the same period. The total advances of foreign banks grew at the lowest pace among all bank groups at a CAGR of 14.9 per cent, from Rs 976 billion in 2005-06 to Rs 1,955 billion in 2010-11.

Key Issues
- What has been the growth in overall advances for all SCBs and bank-groups? - What has been the historical trend in the proportion of terms loans and working capital credit for the bank-groups? - What has been the growth in priority sector advances for all SCBs and bank-groups? -

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No part of this Report may be published/reproduced/distributed in any form without CRISILs prior written approval.

Public sector banks have grown at a faster pace over last 5 years
All SCBs
Total advances of SCBs has grown at a CAGR of 23.2 per cent over the past five years, from Rs 15,168 billion in 2005-06 to Rs 42,987 billion in 2010-11. Growth in advances for SCBs improved significantly during 2010-11 on a y-o-y basis and averaged around 22.9 per cent as against 16.5 per cent y-o-y during 2009-10. Working capital loans grew at a CAGR of 23.7 per cent from 2005-06 to 2010-11. The term loans witnessed a CAGR growth of 22.8 per cent during the same period. On a y-o-y basis, working capital loan growth increased to 27 per cent in 2010-11 from 18 per cent in 2009-10. Like working capital loans, term loans also witnessed a decline in y-o-y growth, from 19.3 per cent in 2008-09 to 17.2 per cent in 2009-10. The share of working capital loans to total advances increased to 45 per cent in 2010-11 from 43.5 per cent in 2009-10, while the share of term loans to total advances declined to 55 per cent in 2010-11 from 56.5 per cent in 2009-10.

SCBs - Breakup of advances

Source: RBI and CRISIL Research

Public sector banks

Advances of public sector banks increased at a CAGR of 24.5 per cent between 2005-06 and 2010-11 to reach Rs 33,056 billion. The term loans segment registered a CAGR of 24.1 per cent between 2005-06 and 2010-11, while the working capital loans segment grew at a CAGR of 24.9 per cent for the same period. In terms of y-o-y growth, total public sector banks advances growth increased to 22.4 per cent in 2010-11 (19.5 per cent in the previous year), while growth in working capital loans increased to 27.3 per cent from 21.3 per cent in the previous year, the term loans remained almost flat and registered a 18.2 per cent y-o-y growth in 2010-11. The shares of working capital and term loans to total advances increased to 48 per cent in 2010-11 from 46 per cent in 2009-10 while the share of term loans in total advances declined to 52 per cent from 54 per cent during the same period.

Public sector banks - Breakup of advances

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No part of this Report may be published/reproduced/distributed in any form without CRISILs prior written approval.

Source: RBI and CRISIL Research

Private sector banks

Private sector banks registered a CAGR of 20.6 per cent in advances, where it increased from Rs 3,130 billion in 2005-06 to Rs 7,975 billion in 2010-11. Working capital loans registered a CAGR of 19 per cent between while term loans registered a CAGR of 21.2 per cent during the same period. Overall growth in advances for private sector banks increased significantly to 26 per cent in 2010-11 from 10 per cent in 2009-10. While the growth in working capital loans increased to 27.2 per cent in 2010-11 (from 5.8 per cent in 2009-10), term loans registered a y-o-y growth of 25.6 per cent in 2010-11 (from 11.8 per cent in the previous year). The share of working capital loans and term loans in total advances remained almost flat y-o-y in 2010-11 at 29.7 per cent and 70.3 per cent respectively (from 29.4 per cent and 70.6 per cent, respectively.)

Private sector banks - Breakup of advances

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No part of this Report may be published/reproduced/distributed in any form without CRISILs prior written approval.

Source: RBI and CRISIL Research

Foreign banks
From 2005-06 to 2010-11, the total advances of foreign banks grew at a CAGR of 14.9 per cent, from Rs 976 billion in 2005-06 to Rs 1,955 billion in 2010-11. Working capital loans registered a CAGR of 18 per cent between while term loans registered a CAGR of 11 per cent during the same period. In 2010-11, the group witnessed a y-o-y growth of around 20 per cent in advances driven by 23 per cent growth in working capital loans and 15 per cent growth in term loans. The share of working capital loans to total advances of the group increased to 59.5 per cent in 2010-11 from 57.8 per cent in 2009-10, while the term loans share declined from 42.2 per cent in 2009-10 to 40.5 per cent in 2010-11.

Foreign banks - Breakup of advances

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No part of this Report may be published/reproduced/distributed in any form without CRISILs prior written approval.

Source: RBI and CRISIL Research

Priority sector advances

Priority sectors have been an integral part of bank credit delivery in India. The sector received a boost from RBI's initiative in recent years, which has increased the credit flow into the sector. As per the revised guidelines, the priority sectors now comprise agriculture, SSI, education and housing. Targets and sub-targets are now linked to the adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure (CEOBSE). Also, the sector received fresh impetus in the union budget 2011-12, where the government has proposed to enhance the housing loan limit under the priority sector from Rs 2 million to Rs 2.5 million. Loans up to Rs 1.5 million availed for financing homes up to 2.5 million will now recieve an interest subvention of 1 per cent. This will attract higher credit flow to the sector with lower interest rates for the borrowers, and will help banks to meet its lending targets.

Priority sector lending targets

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No part of this Report may be published/reproduced/distributed in any form without CRISILs prior written approval.

Over the last one year (i.e. between 2008-09 and 2009-10), there has been growth in priority sector credit from domestic commercial banks (public and private) and foreign banks. However, as compared to domestic banks, foreign banks growth in priority sector lending declined for the second consecutive year (2009-10) leading to increasing share of domestic banks in total priority sector advances (from 94 per cent in 2008-09 to 95 per cent in 2009-10).

Public sector banks

The outstanding priority sector advances of public sector banks increased by 19.1 per cent y-o-y during 2010-11. The total priority sector advances of public sector banks remained almost flat and constituted 41.3 per cent of their ANBC in 2010-11 (as compared to 41.6 per cent in 2009-10).

Advances to priority sector by public sector banks

Private sector banks

Priority sector advances by private sector banks increased by 15.9 per cent y-o-y during 2010-11 as compared to 14.3 per cent in 2009-10 and accounted for 46.8 per cent of ANBC, which is well over the prescribed target of 40 per cent set by the RBI.

Advances to priority sector by private sector banks

Foreign banks
The growth rate of priority sector lending by foreign banks increased by 10.9 per cent y-o-y in 2010-11 (as compared to 8.2 per cent in 2009-10). Total priority sector advances by foreign banks constituted 40 per cent of their ANBC (as compared with 36 per cent last year), which was above the prescribed target of 32 per cent set by the RBI.

Advances to the priority sector by foreign banks

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With effect from April 30, 2007, the targets and sub-targets under priority sector lending have been linked to ANBC [Net bank credit (NBC) plus investments made by banks in non-SLR bonds held in HTM category] or credit equivalent amount of off-balance sheet exposures (OBE), whichever is higher, as on March 31 of the previous year. The outstanding FCNR (B) and NRNR deposits balances will no longer be deducted for computation of ANBC for priority sector lending purposes. Investments made by banks in the recapitalisation bonds floated by the Government of India will not be taken into account for the purpose. Existing investments (as on April 30, 2007) made by banks in non-SLR bonds held in the HTM category will not be taken into account for calculation of ANBC, up to March 31, 2010. However, fresh investments by banks in non-SLR bonds held in the HTM category will be taken into account for the purpose. Deposits placed by banks with NABARD/SIDBI, as the case may be, in lieu of non-achievement of priority sector lending targets/sub-targets, though shown under Schedule 8 'Investments' in the balance sheet, will not be treated as investment in non-SLR bonds held under HTM category. For the purpose of calculation of credit equivalent of off-balance sheet exposures, banks can use the current exposure method. Inter-bank exposures will not be taken into account for priority sector lending targets/sub-targets.

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