BANKING SECOTR PERFORMANCE YEAR 2011-12: Good economic growth, favourable demographics and under-penetration is benefiting the growth

of Indian banking sector and banks is the country are expected to have another good year during 2011-12, according to a report by research firm Standard & Poor's. In its industry report card titled 'Indian banks are likely to ride an economic growth wave', S&P, however, said that inflationary pressure, rising competition and risk management practices will remain major challenges for the sector. "We expect the sector's asset quality to improve in view of the economy's sound performance. The banks could also benefit from limited loan concentration and India's lower leverage than other Asian countries, in terms of a ratio of overall credit to GDP," S&P credit analyst Geeta Chugh said. According to S&P, earnings pressure on the banks eased during the last fiscal, while the the introduction of a base lending rate -- which established a floor lending rate -- also boosted profitability of the sector. In addition, rising interest rates helped Indian banks, it said. "Indian banks are benefiting from the economy's sound growth, favourable demographics, and under-penetration. But...high inflation, increased competition, and evolving risk management practices will remain key challenges," it said. While the country grew by 8.5% last fiscal and the government expects the growth momentum to continue this year as well, over half of the country's population is below the age of 30 years and are a major target group for banks. Besides, penetration of banking services in the country still remain low and the government has set targets to provide banking facilities to all habitations having a population of over 2,000 by March, 2012. The non-performing loan ratio of Indian banks was about 2.6 per cent in 2010-11 and S&P said it expects the numbers to fall this year. To support capitalisation, the government injected Rs 23,200 crore into state-owned banks during the last three fiscals. "We believe pressure on the banks' capital is likely to ease in FY-12 2012. The government has budgeted Rs 6,000 crore to recapitalise banks," it said. S&P said the outlook for the sector is stable this fiscal. "We expect the sector's asset quality to improve in view of the economy's sound performance...Overall earnings are likely to be stable as lower credit costs offset a dip in margins," it said. There are 26 state sector banks in India, besides a number of private and cooperative sector players.

NEWS:

India's central bank infuses more money in system

1.
Submitted by Dalbir Sahota on Tue, 01/24/2012 - 15:24.

Banking Sector

Central Bank of India

India

New Delhi New Delhi, Jan 24 - After nearly two years of tight check on money supply to tameinflation, India's central bank took steps Tuesday to infuse more liquidity in the system by reducing a key rate in a bid to help industry out of the current downturn. The cash reserve ratio (CRR), the amount against deposits which commercial banks have to keep as liquid assets such as cash,has been lowered by 50 basis points to 5.5 percent from 6 percent. "This step will release Rs. 320 billion into the system," Reserve Bank of India (RBI) Governor D. Subbarao said in a statement, soon after presenting the third quarter review of the monetary policy for the current fiscal year. "The policy actions and the guidance are expected to ease liquidity conditions, mitigate downside risks to growth and anchor medium-term inflation expectations on the basis of a credible commitment to low and stable inflation," he added. For the past two years, the central bank had been taking steps to curb liquidity with a mix of measures such as hikes in the short-term lending and borrowing rates to contain inflation that had risen to double digits with food inflation at 20 percent once. In the mid-quarter review of the monetary policy in December, the central bank had hit the pause button on rate hikes while also indicating that it may ease the tight money policy regime if the inflation were to moderate further. India's annual rate of inflation currently stands at a two-year low of 7.47 percent for December. Food inflation has been in the negative for the past three weeks, giving some comfort to policy-makers. In the monetary policy review, the central bank also lowered its growth projection for the currentfiscal to 7 percent from 7.6 percent earlier, while retaining its forecast on inflation at 7 percent by the end of March. (IANS)