Recently, banks have announced their third quarter results in 2012-13. In a scenario where growth has slowed down significantly in the last six quarters and the Central Statistical Organisation has projected the GDP to grow by only 5 per cent in 2012-13, banks had a tough time to protect their bottom line. While elevated interest rates have dampened credit growth in the system, high inflation leading to poorer returns has made deposit mobilisation a difficult task. Deposits in the banking system grew by 11.1 per cent on an annual basis as on December 28. Comparable growth in 2011 was 17 per cent. Similarly, credit growth has been slower at 15.1 per cent as on December 28 compared to a growth of 16 per cent in 2011. How have the different categories of banks performed in this overall slow business growth environment in the December quarter?
The mainstream banking system consists of different categories of banks such as State Bank of India (SBI) and its subsidiaries, nationalised banks (NBs), new private sector banks (NPBs) and old private sector banks (OPBs). We consider all the banks in each category except only nine out of 14 old private banks. These banks account for more than 95 per cent of the business of the banking system. We examine performance across five dimensions — business growth, interest margin (NIM), asset quality (GNPA), operating efficiency (cost-to-income ratio) and profitability (return on assets).
One way of gauging performance of a going concern in a particular period is to compare it with the corresponding period of the previous year. However, year-on-year comparisons would make better sense for annual data than quarterly data. For quarterly data, it is easier to relate to what had happened in the previous quarter than three quarters back. Using y-o-y figures for quarterly data is akin to setting the reference period for comparison to a four year back period for annual data. As such, we have reported performance on a sequential basis. We also discuss the y-o-y figures which are the most popular form of reporting by banks.
The banking sector as a group has witnessed a sequential decline in the RoA in the December quarter. The deterioration in RoA is also observed on an annual basis. The RoA both on a sequential as well as annual basis has declined for all bank groups except the NPBs. The NPBs had the highest RoA followed by OPBs, SBI and NBs in the December quarter. RoA is primarily guided by the asset quality, pricing power and cost efficiency.
Pricing Power
Pricing power captured through the NIMs has deteriorated for the industry in the quarter ended December both on a sequential and annual basis. In fact, the NIMs for the industry have declined successively in the in the three quarters following March 2012. While NIMs marginally improved sequentially both for the NPBs and NBs, only the NPBs could register an increase also on an annual basis in the December quarter. The NPBs not only enjoy much higher NIMs, they have also been able to improve upon it.
SBI, the market leader in terms of business, also had highest NPAs both in absolute and percentage terms in the banking industry in the quarter ended December. NPBs as a group have the least NPA percentages amongst all bank groups in the quarter ended December. While both SBI and the NBs reported an increase in GNPA percentage of the same order compared in December quarter compared to the September quarter, the NPBs have registered a decline. If we compare the position in the subsequent three periods compared to the March 2012 quarter, we find in the June quarter all bank groups reported higher GNPA percentages. However, in the subsequent two quarters, Gross NPA percentages have increased for all bank groups except that for NPBs.
Operating efficiency captured through the cost to income ratio sequentially improved by 141 basis points in the December quarter for all the banks taken together compared to a deterioration of 68 basis points in the September quarter. The improvement is also observed on an annual basis. Though the sequential improvement is across the board, it has been the highest for the NPBs. Notwithstanding the improvement, cost to income ratio remains unfavourable for the NPBs compared to other bank groups.
Business Growth
Business growth was highest for the NPBs followed by SBI, NBs and OPBs in the December quarter over the September quarter. The business growth was sharper in the advances segment compared to deposits for all the bank groups except the OPBs in the December quarter. While NPBs had a relatively sturdy growth in both deposits and advances, the PSBs had a subdued growth in deposits compared to advances in the December quarter on a sequential basis. Higher business growth coupled with a retail leaning of the loan portfolio has helped the NPBs to protect their NIMs.