This report profiles India’s banking industry, discussing market trends through 2013 and outlook for 2014 and beyond. The report also highlights leading players in the sector including State Bank of India, HDFC Bank, and ICICI Bank.

The Indian banking industry has witnessed a period of consistent growth during the last decade, with banks along with their customers embracing robust systems and processes. The industry saw a consistent rise in the number of reporting offices in the last few years. With Reserve Bank of India (RBI) stressing the policy of financial inclusion, there has been a renewed emphasis on rural expansion.

Industrial slowdown and sticky consumer price inflation created a hostile environment for the country’s banking sector in 2013. The consumer price inflation was in the double-digit range during the course of the year. As a result, RBI had to raise benchmark policy rates by 75bps between May 2013 and January 2014. Although private banks were not much affected, most banks in the public sector felt the heat. The cost of servicing debt went up, resulting in an increase in bad loans in the rate-sensitive sectors. As a result, the profitability of nationalized players also suffered.

However, the outlook for the Indian banking sector is stable, backed by the considerably sound financial position of its banks. Rising per capita income, growing urbanization, and consistent economic growth will drive growth in this sector in the years to come.

Key Points:

• The report includes company profiles with detailed financial information for three leading firms in the sector: State Bank of India (SBI), HDFC Bank, and ICICI Bank. There is also a comparative matrix of key indicators for these firms.

• During 2007–2013, the total assets of scheduled commercial banks grew at a CAGR of 18.4%. Public-sector banks led by State Bank of India and its associates dominated the Indian banking system in terms of asset size, accounting for 73% of total assets.

• Total credit disbursed by scheduled commercial banks grew at a CAGR of 23% during 2003–2013, while total deposits of scheduled commercial banks grew at a CAGR of 19% during 2003–2013.

• The asset quality of scheduled commercial banks, particularly public sector banks, has deteriorated during the last two years. A steep rise in interest rates together with industrial contraction led to a sharp increase in non-performing assets. Net NPA ratio of SCBs grew from 0.97% in FY11 to 1.68% in FY13.

• In order to curb inflation, RBI increased the policy rate (repo rate) 13 times between March 2010 and October 2011. RBI raised industry hopes by cutting the repo rate by 50 basis points between January 2013 and May 2013, but had to gradually raise it again due to sticky inflation.