Revealed: India's Best Banks 2012

By Anand Adhikari

Four years after the global financial crisis began, India's $1,508 billion (Rs 82.6 trillion; a  trillion is 100,000 crore) banking sector still grapples daily with heightened risk. Banks and borrowers, both retail  and corporate, are under financial stress. 

Indian banks have shown resilience, as they have a buffer well over the required capital adequacy ratio of nine per cent. This will help them absorb nearterm shocks, but deteriorating asset quality and slow economic growth are hurting their profitability.

"The risk will keep emerging as the environment keeps changing," warns Chanda Kochhar, Managing Director and CEO, ICICI Bank Ltd.

"You have to constantly be in monitoring mode." A veteran banker, she gained substantial fire-fighting experience as she took over from K.V. Kamath in May 2009.

ALSO READ: Why Bank of Baroda is ranked India's best bank

The industry's performance parameters are sobering: the growth rate for deposits has crashed from 23 per cent in 2007/08 to 15 per cent in 2011/12.

Loans and advances growth has fallen from 25 to 18 per cent. Net non-performing assets (NPAs) have risen from one per cent to 1.28 per cent. 

Return on assets, a measure of profitability, is down from 1.12 per cent to 1.08 per cent. As if all that isn't pressure enough, regulations increasingly require banks to set aside more capital. The Basel III norms, to be implemented beginning January 2013, will require massive capital infusion by Indian banks in a phased manner. 

The high incidence of corporate debt restructuring in the last couple of years may add to the NPAs in the system. Provisioning for NPAs has risen from Rs 54,000 crore in 2010/11 to Rs 74,700 crore in 2011/12.

All these developments will increase pressure on profitability, although Basel III will go a long way in building a strong foundation for the Indian banking sector. All in all, the negatives far outweigh the positives.

Even as pinstripe-clad bankers tighten their belts, Business Today and KPMG together raise the annual toast to the best in the industry. For the second year running, the stateowned Bank of Baroda is the best among large banks.

A large bank is one with a balance sheet of more than Rs 1 trillion. In other words, the bank's assets - investments as well as loans and advances - exceed Rs 1 trillion. On the liabilities side are capital, deposits and borrowings.

In the BT-KPMG study, the country's largest bank, the State Bank of India, has risen from the 21st to the seventh spot thanks to improved operating profits. The second largest, ICICI Bank, has jumped to fifth place from the 13th spot last year.

The Indian banking sector has been insulated from the global banking crisis of 2008, but the industry regulator is concerned about important large institutions whose failure could put the entire sector at risk. When this happened globally, governments had to infuse vast amounts of capital to save large institutions.

The Reserve Bank of India (RBI) is in the process of classifying some domestic banks as systemically important institutions that would get special regulatory attention.

Banking institutions worldwide are yet to recover from the shocks of 2008. The net gainers are Chinese banks, which advanced in the top 100 global bank ratings.

In India, bankers say the challenge is to improve operational efficiency and risk management. "Banks that are agile and proactive will be able to mitigate risk," says Rana Kapoor, CEO of YES Bank Ltd. 

In eight years, this new private-sector bank has built up a balance sheet of over Rs 73,000 crore. It is the best bank in the mid-sized category.

Midsized banks are those with a balance sheet of less than Rs 1 trillion.

Both Bank of Baroda and YES Bank have among the lowest cost-to-income ratios at below 0.38. Banks are increasingly focusing on cost-to-income to protect margins. Branches today are a cost centre, and front-end technology such as ATMs and Internet banking are transforming banking in urban and semi-urban areas. "Branches are evolving to do more value-added business," says ICICI Bank's Kochhar.

As for risk management, the 2008 crisis highlighted the prudence of banks in India, which remained  unscathed. Over the last two decades, net NPAs have fallen. The sudden increase after 2008, while not alarming, is best nipped in the bud by both banks and regulators. The corporate debt restructuring mechanism is full of loopholes, though.

In this environment of gloom, there is still cause for hope. Finance Minister P. Chidambaram has asked the RBI to speed up the process of issuing fresh banking licences.

Close to a dozen foreign banks have entered India in the last two to three years, including the Industrial & Commercial Bank of China and the Australia & New Zealand Banking Group.

Shikha Sharma, Managing Director at Axis Bank, says the momentum for capital investment will recover as the reforms recently initiated by the UPA government kick in. "We should see corporate lending also pick up," she says. 

The industry has big challenges before it, including financial inclusion, and funding for sectors such as agriculture and infrastructure. So even if the years ahead are not hard, there's hard work to be done.


**THE

WINNERS**

BEST LARGE BANK: Bank of Baroda
BEST MID-SIZED BANK: YES Bank

BEST SMALL BANK: JPMorgan Chase

CONSISTENT PERFORMERS: Axis Bank & Bank
of Baroda
PRODUCTIVITY & EFFICIENCY (LARGE BANK): Bank
of Baroda
PRODUCTIVITY & EFFICIENCY (MID-SIZED BANK): DBS
Bank
PRODUCTIVITY & EFFICIENCY (SMALL BANK): Bank
of Nova Scotia
ASSET QUALITY (LARGE BANK): HDFC Bank

ASSET QUALITY (MID-SIZED BANK): Deutsche Bank

ASSET QUALITY (SMALL BANK): JPMorgan Chase
GROWTH (LARGE BANK): Bank of Baroda
GROWTH (MID-SIZED BANK): Ratnakar Bank

GROWTH (SMALL BANK): Bank of Tokyo


Reproduced From Business Today. © 2012. LMIL. All rights reserved.

ALSO READ: Why Bank of Baroda is ranked India's best bank

Latest News

  • Asian markets tread water, China opens weak, investors watch Greek sta …
    Asian markets tread water, China opens weak, investors watch Greek sta …

    Investors expected investors appetite for risk to be sapped in coming months by uncertainty over whether Greece can step back from an economic abyss after its debt default to the International Monetary Fund, and doubts over its future in the eurozone. "We are shaping up for a bumpy ride in the summer as the ongoing Greek crisis means investors are adopting a risk-on, risk-off approach towards risky assets," said Tai Hui, chief markets strategist at JP Morgan Asset Management in Hong Kong. …

  • Indian businesses turn sceptical on Modi's landmark tax reform

    For years Indian businesses have lobbied for a nationwide sales tax, hoping to replace a chaotic structure that inflates costs and halts their trucks at state borders for duty payments, and to unify the country into one of the world's largest single markets. India's top business groups are now calling for a slowdown in the process as they try to roll back those compromises, putting them at odds with Finance Minister Arun Jaitley who wants to push through what he touts as the country's biggest …

  • Dollar takes centre stage as data looms, Greek worries fester

    The dollar stayed bid early in Asia on Thursday as the market geared up for a deluge of U.S. data that could back expectations for the Federal Reserve to lift interest rates sooner rather than later. Prime Minister Alexis Tsipras on Wednesday urged Greeks to reject an international bailout deal, souring hopes of any breakthrough. The dollar index (.DXY) came within a whisker of a three-week peak set on Monday. …

  • Jaguar Land Rover signs partnership to build cars in Austria

    Luxury carmaker Jaguar Land Rover [TAMOJL.UL] has signed a contract to build some vehicles in Austria, it said on Thursday, a further expansion away from its UK manufacturing base. The brand, owned by India's Tata Group since 2008, opened its first overseas manufacturing plant in China in October and is building a Brazilian plant in a bid to expand volumes and bring production closer to key markets. The automaker said it had signed a manufacturing partnership with Magna Steyr, a unit of Magna …

  • Greece's Tsipras digs in against bailout

    ATHENS/BRUSSELS (Reuters) - A defiant Prime Minister Alexis Tsipras urged Greeks on Wednesday to reject an international bailout deal, wrecking any prospect of repairing broken relations with European Union partners before a referendum on Sunday that may decide Greece's future in Europe. Less than 24 hours after he wrote a conciliatory letter to creditors asking for a new bailout that would accept many of their terms, Tsipras abruptly switched back into combative mode in a television address. …

  • Manufacturing to remain slow: HSBC index

    Mumbai, July 1 (IANS) Future manufacturing may remain sluggish in India due to declining output and new order flow, including from overseas and fall in order-to-inventory ratio while robust capital goods growth is a glimmer of hope, says HSBC Purchasing Manufacturers Index (PMI) released on Wednesday. India manufacturing PMI fell to 51.3 in June from May's 52.6 as output and flow of new orders weakened. According to the study by HSBC economists, 2015 has been quite volatile without any firm …

  • Oil slides after U.S. stockpile build; Greece, Iran in focus
    Oil slides after U.S. stockpile build; Greece, Iran in focus

    The dollar's rally on Greece's debt default, Iran's renewed efforts to reach a nuclear deal with the West to freely resume its crude exports, and signs of OPEC output at three-year highs, further weighed on the market. The U.S. Energy Information Administration (EIA) said crude inventories rose by 2.4 million barrels last week, the first weekly build since April and versus a 2-million-barrel draw forecast by analysts in a Reuters poll on Tuesday. The EIA also said gasoline stockpiles fell by …

  • Global stocks rally on hopes for Greek deal, dollar gains
    Global stocks rally on hopes for Greek deal, dollar gains

    Global equity markets jumped and safe-haven bonds fell on Wednesday after Greece's prime minister signaled he was prepared to accept the bulk of a bailout offer, while stronger-than-expected data on private U.S. jobs growth bolstered the dollar. Prime Minister Alexis Tsipras told international creditors that Athens could accept the bailout if some conditions were changed, but Germany said it could not negotiate while Greece was headed for a referendum on the aid-for-reforms deal. MSCI's …

DON'T MISS

MARKET MOVERS

    QUOTES

     
    Recent Quotes
    Symbol Price Change % Chg 
    Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
    You need to enable your browser cookies to view your most recent quotes.
     
    Sign-in to view quotes in your portfolios.