Indian Banking sector – a simple analysis

I have made a mention of this report from RBI in my previous posts. I have commented some important findings from the report covering Financial Market Integration, G-Sec Markets and Equity and Corporate Debt Markets

This post covers the Banking structure in the country and credit markets.

The first question which often comes to mind is what are the different kinds of banks in India? The report says:

There are wide range of financial institutions exist in the country to provide credit to various sectors of the economy. These include commercial banks, regional rural banks (RRBs), cooperatives [comprising urban cooperative banks (UCBs), State co-operative banks (STCBs), district central co-operative banks (DCCBs), primary agricultural credit societies (PACS), state co-operative and agricultural rural development banks (SCARDBs) and primary co-operative and agricultural rural development banks (PCARDBs)], financial institutions (FI) (term-lending institutions, both at the Centre and State level, and refinance institutions) and non-banking financial companies (NBFCs) 

Thankfully, the report gives a very good picture of India’s Credit System here 🙂 And it also explains each institutions role as well.

How large is the credit market in India? Almost 54% of GDP and is increasing. Indian society is getting friendlier to credit.

Total Outstanding Credit by all Credit Institutions
1991 1,94,654 34.2
1995 3,47,125 22.7 34.3
2000 7,25,074 17.1 37.1
2001 7,94,125 9.5 37.8
2002 8,93,384 12.5 39.2
2003 10,77,409 20.6 43.8
2004 11,99,607 11.3 43.4
2005 14,81,587 23.5 47.4
2006 19,28,336 30.2 54.1
Compound Annual Growth Rate (Per cent)
1991 to 2000   15.7  
2000 to 2006   17.7  

How much Credit do each of the instituions give? Commercial Banks clearly have a major sharte in the credit system.

Distribution of Credit – Category-wise Share (Per cent)

    1991 2006
1. Commercial Banks 59.7 78.2
2. RRBs (and LABs) 1.8 2.1
3. All-India Financial Institutions 24.9 5.8
4. Urban Co-operative Banks 4.1 3.6
5. State Co-operative Banks 3.4 2.1
6. District Central Co-operative Banks 6.0 4.2
7. Primary Agricultural Credit Societies 3.3 2.5
8. SCARDBs 0.7 0.9
9. PCARDBs 1.0 0.7
All Institutions 100.0 100.0

 

 

 

 

 

 

Whom do Commercial banks give most of the credit to? The preference has moved from Industry to Services sector. Within services, the credit is being increasingly given as Housing Loans.

Table 4.5: Distribution of Outstanding Credit of Scheduled Commercial Banks (Per cent to total credit)
Sector Mar-90 Mar-95 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05
Agriculture 15.9 11.8 9.9 9.6 9.8 10.0 10.9 10.8
Industry 48.7 45.6 46.5 43.9 41.4 41.0 38.0 38.8
Transport 3.2 1.9 1.8 1.6 1.4 1.2 1.3 1.2
Personal Loans and Professional Services 9.4 11.3 14.4 15.8 16.8 19.6 25.3 27.0
of which:                
Loans for Purchase of Consumer Durables 0.4 0.3 0.6 0.6 0.5 0.4 0.5 0.6
Loans for Housing 2.4 2.8 4.0 4.7 5.0 6.5 9.7 11.0
Trade 13.9 17.1 15.6 16.6 15.4 13.8 11.5 11.2
Financial Institutions 2.1 3.8 4.8 4.9 5.7 6.7 6.7 6.4
Miscellaneous / All Others 6.8 8.5 7.1 7.5 9.5 7.7 6.2 4.6
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

What is the tenure of credit by Commercial Banks. As economies and financial systems mature one would expect to see movement in favor of long-term credit. Thankfully, we see it in case of India.

Type of Credit to Industry By Banks (% of total)
  Short-Term Loans Medium term Long Term
1995 82.5 5.8 11.6
2000 74.3 6.8 18.9
2005 52.4 10.6 37.0

I don’t want to praise the report more. One of the best on India’s Financial System and markets.

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