The Indian banking sector is looking in deep trouble in 2009 as in the time of global recession, companies are feeling reluctant to borrow from the banks.
In the New Year, Indian banks, running deficient of cash, are seeking new business possibilities. However, prospects seem gloomy for them. The Reserve Bank of India has announced some measures to increase the money supply for banks to lend. Also, the government is emphasizing to increase the lending. But a major segment of borrowers is feeling reluctant.
According to the mid-2008 report of the credit rating agency “Crisil”, from 2.7% in March 2007, the level of gross non-performing assets in retail loans of banks is anticipated to increase up to 4% by March 2009. The yield on standard 10-year government bond came to 5.43% during the last week of December 2008 by declining slightly more than 400 basis points or 4% from 9.55% in September 2008.
Economic downturn, being the prominent factor, is restricting the companies from borrowing to finance new investments. Consequently, it has restrained the options for banks in their traditional lending business. This is apparently compelling the banks to pay higher attention to the retail borrowers by offering them credits to purchase consumers goods, cars and homes. Profit margins may also be increased by relying on treasury operations.
Moreover, the global liquidity crunch has pushed back the fund requirement towards India as foreign equity, debt and short term bank financing are also facing the similar situation. This has resulted in liquidity crunch and inefficient bond markets. Also, the stock markets are once again depending on FIIs.
Since declining inflation is pushing down the bond yields, in 2009, the treasury activities are appearing as a ray of hope for the banks in India.
According to a Research Analyst at RNCOS, “Economic crisis is playing havoc in the Indian banking sector. However, in coming times, lower interest rates and trading in bonds will probably lift up the treasury income, thereby resulting in higher profit returns. The proactive measures adopted by the RBI should decrease the systemic risks evolving in the Indian banking sector.”
Related Market Research Reports:
Middle East Banking - Corporate Loan a Hot Opportunity
Turkey Banking Sector Forecast to 2012
Global Credit Card Industry - Emerging Markets
