Banking sector in India put up a good show during global financial crisis

The performance of various bank groups as on March 2009 and March 2010 had been impressive despite constraints faced by them due to slow down in the economy of the global financial crisis and adverse real economic scenario witnessed all over the world.The performance parameters during the two-year period showed that the banking sector exhibited remarkable resilience in withstanding the impact of global economic crisis. Increase in net NPAs or fall in return on assets during the period was marginal whereas the cost of funds registered a significant decline. Analysis of bank group-wise performance was as follows:-
Cost of funds:
The cost of funds had come down considerably during 2009-10 although it continued to be high for all bank groups except for foreign banks. The cost of funds which ranged between 4.46% and 6.67% for different bank groups in March 2009 came down considerably and worked out between 2.82% and 6.13% in March 2010.
Foreign banks could bring down their cost of funds from 4.6% to 2.82% during the period, whereas the State Bank group and nationalised banks could bring down their cost only from 5.94% to 5.32% and 6.09% to 5.35% respectively. While the new private sector banks could bring down their cost of funds sharply by 1.63%, the old private sector banks could bring down their cost of funds only by 0.54% during the period.
Cost of funds for public sector banks and old private sector banks continued to remain high and is a matter of concern.
Return on advances adjusted to cost of funds:
Return on advances adjusted to cost of funds in respect of various bank group remained in the range of 3.95% and 8.14% as at the end March 2009 and 3.60% and 7.17% as at end March 2010. State Bank group had the lowest return on advances for both the years. Foreign banks outperformed the entire bank groups as their return on advances adjusted to cost of funds stood at 8.14% and 7.17% as at end March 2009 and 2010 respectively.
Return on assets:
In respect of return on assets, while the foreign bank group scored well as compared with the other bank groups, State Bank group stood lowest even compared with old private sector banks.It is noteworthy to observe that while the new private sector banks increased their return on assets from 1.12% in March 2009 to 1.38% in March 2010, all other bank groups, including foreign banks, registered a decline on their return on assets.
Net NPAs
Barring the State Bank group, nationalised banks, and foreign banks, the other bank groups could show a reduction in their net NPAs during the period 2009-10. The benefit of restructuring of assets might have come to the rescue of banks to improve their NPAs position.(BL 25.10.2010)