ATS Research Desk

ATS Research Desk SECTOR REPORT – Banking

ATS Wealth Managers Pvt Ltd.

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Introduction: A bank is a financial institution that accepts deposits from public and lends it to who are in need of. The banking services also includes issuance of debit and credit cards, providing safe custody of valuable items, lockers, ATM services and online transfer of funds across the country. Banks are highly regulated in most countries. Indian Banking system consist of 22 Public Sector banks, 20 Private Sector banks, 43 Foreign banks, 56 regional rural banks, 1589 Urban Co-operative banks and 93,550 rural co-operative banks. As per Reserve Bank of India (RBI) Indian banks are sufficiently capitalized and well regulated. The financial stability of our country is far more superior to any other country. The Central bank granted approval to 11 payment banks and 10 small financial banks in FY 2015-16. RBI’s new measures may go a long way in helping the restructuring of the domestic banking industry. RBI’s new measures may go a long way in helping the restructuring of the domestic banking industry.

Key Facts:  Out of 22 Public Sector banks, 14 were nationalized in the year 1969, 6 were nationalized in the year 1980, and rest two banks are IDBI bank and Bharatiya Mahila bank  RBI in 1993 gave licenses to 12 Private bank in 2 phases, 10 private bank in 1993 and 2 private bank in 2003-2004  Bank those are registered under Co-operative Societies Act 1965, Co-operative Banks are also works as Commercial Bank, these are made by self Help Group, or by the Communities or by Groups.  The Small Industrial Development Bank of India (SIDBI) was established as a principal financial institution for the promotion, financing and development of Industries in small scale sector. SIDBI started operation on 2nd April 1990  The National Bank of Agriculture and Rural Development (NABARD) came into existence on 12th July 1982  The Export Import Bank of India (EXIM Bank) was setup in 1982 under the Export Import Bank of India Act 1981, for Financing, Facilitating and promoting Foreign Trades in India.


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Outlook: 

Healthy Growth of Banking Sector - Deposits During FY06–16, deposits grew at a CAGR of 11.47 per cent and reached 1.46 trillion in FY16.



Strong growth in savings with 10% CAGR amid rising disposable income levels are the major factors influencing deposit growth.



Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) have also increased. As of October 2016, US$ 6,755.5 million were deposited, while 249.8 million accounts were opened.



India to become the third largest domestic banking sector by 2050.



Rising income levels are expected to enhance the need for banking services in rural areas and therefore drive the growth of the sector; programmes like MNREGA have helped in increasing rural income aided by the recent Jan Dhan Yojana.

0

25429.6

0

22809.12

5000

22327.49

200

20654.53

10000

16390.38

400

11183.47

15000

9943.96

20000

13308.73

25000

18329.01

1016

983

996

684

602

428

600

587

800

969

864

1000

984

1200

Growth in Households Savings (Rs. In billion) 30000

26099.21

Growth in Deposits (US$ billion)

Source: Reserve Bank of India (RBI), Tech Sci research



Healthy Growth of Banking Sector - Credit Credit off-take has been surging ahead over the past decade from FY 07-16, aided by strong economic growth, rising disposable incomes, increasing consumerism and easier access to credit.



Total credit increased to US$1,016 billion as of March-16.



Demand has grown for both corporate and retail loans; particularly the services, real estate, consumer durables and agriculture allied sectors have led the growth in credit.


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Credit Growth in banking sector (US$ billion) 1200

984

969

996

983

1016

FY-12

FY-13

FY-14

FY-15

FY-16

864

1000 800 600

587

602

FY-08

FY-09

684

428

400 200 0 FY-07

FY-10

FY-11


Asset Base continuous to Expand:    



Total banking sector assets have increased at a CAGR of 7.61 per cent to USD1.957 billion during FY13–16 Assets of public sector banks, which account for more than 70 per cent of the total banking assets, grew at a CAGR of 5 per cent Private sector increased at a CAGR of 13 per cent, while foreign banks posted a growth of 14 per cent Corporate demand for bank loans have grown due to continued infrastructure investments & due to other policy decisions such as reducing oil subsidies, issuing of telecom spectrum licenses & the proposed abolition of penalty on loan prepayment Total assets of Public Sector Banks amounted to USD1957.03 billion in FY16

Reboust Growth in Interest Income:   

Public sector banks account for over 71.72 per cent of interest income in the sector in FY16 Overall, the interest income for the sector has grown at 8.74 per cent CAGR during FY9-16 Interest income of Public Banks was witnessed to be USD102.66 billion in FY16 Interest Income Growth (US$ Billion) 102.66 36.84

8.26

7.77

FY-13

34.12

7.78 30.65

FY-12

110.88

7.68 28.7

FY-11

7.6

5.9 20.2

FY-10

Public Sector

31.38

5.8 18.2

FY-09

102.88

102.17

103.4

76.4

67.1

6.4 17.9

57.6

120 100 80 60 40 20 0

FY-14

FY-15

FY-16

Private Sector Foreign Banks



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Government Initiative:



Pradhan Mantri Jan Dhan Yojana (PMJDY): PMJD is a pension scheme guaranteed by Pension Fund Regulatory and Development Authority (PFRDA). The scheme is a social policy aimed at providing banking facilities to even those who do not have the money to pay for the minimum account balance at the time of account opening. Each person getting into this scheme will get a Rs. 30000 life cover with opening of the account. Impact: Pradhan Mantri Jan Dhan Yojana was launched at a massive scale to bring under the purview of banking all citizens of the country, irrespective of their financial status. As of April 2017 an average of 28 crs bank account across the country were opened under Pradhan Mantri Jan Dhan Yojana. Under the account about 64,000 crs were deposited. According to RBI report post demonetization, 2.33 crs new accounts were opened under PMJDY. This enables banks with more liquidity.



Special Fund to be setup by Government: The Government of India is looking to set up a special fund, as a part of National Investment and Infrastructure Fund (NIIF). The special fund will potentially take over assets which are viable but don’t have additional fresh equity from promoters coming in to complete the project. Impact: In a big step by Reserve bank of India and Union finance ministry special funds are being setup to restructure stressed assets through equity infusion or debt funds such as stressed asset equity fund (SAEF) and stressed assets lending fund (SALF). SAEF will invest in equity of borrower who have defaulted. It will take controlling stakes either directly or through strategic debt restructuring scheme. This will strengthen lenders ability to deal with stressed assets efficiently.



Credit Guarantee Fund Scheme: To facilitate an easy access to finance by Micro and Small Enterprises (MSEs), the Government/RBI has launched Credit Guarantee Fund Scheme to provide guarantee cover for collateral free credit facilities extended to MSEs up to Rs 1 Crore. Moreover, Micro Units Development & Refinance Agency (MUDRA) Ltd. was also established to refinance all Micro-finance Institutions (MFIs), which are in the business of lending to micro / small business entities engaged in manufacturing, trading and services activities up to Rs 10 lakh. Impact: The banks were eligible to provide credit without collateral, or third party guarantee to a new or existing micro or macro enterprise. Lending Institutions comprising of 22 public sector banks, 21 private banks, 73 regional rural banks and 4 foreign banks were registered under credit guarantee fund schemes. This will enable banks to earn interest income.


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

Partial Credit Enhancement: With a view to encourage corporates to avail bond financing for infra projects, the Reserve Bank of India (RBI) has introduced a new scheme of Partial Credit Enhancement (PCE) to corporate bonds. This scheme has been essentially designed bearing in mind particularly the large financial requirements of the infrastructure sector and the risks associated with it. Impact: Commercial banks can grant non-fund based facilities including partial credit enhancement (PEC) to those customers, who do not avail any fund based facility from any bank in India. Role of Public, Private Banks in maintaining NPA Levels:   

Gross NPA to Gross Advances in public sector banks grew to 9.39 per cent in FY16 Private sector banks maintained lowest gross non-performing assets to gross advances at 2.90 per cent in FY16 Net NPA to Net advances by public sector banks increased from 2.92 percent in FY15 to 5.75 percent in FY16

Gross NPA to Gross Advances (FY-16)

Net NPA to Net Advances (FY-16)

9.39%

5.75%

10.00%

6.00% 5.00%

8.00%

4.26%

6.00%

2.90%

4.00% 3.00%

4.00%

1.38%

2.00%

2.00%

0.54%

1.00%

0.00%

0.00% Public Sector Banks

Private Sector Banks

Foreign Banks

Public Sector Bank

Private Sector Banks

Foreign Banks



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Government Initiative in resolving NPA Issue: Government of India has approved and Ordinance to help banks tackle the problem of mounting bad loans with almost 10 lakh crores. This is denting profits of lenders, slowing credit flow of Industry and hurting Economic growth. The cabinet has approved and Ordinance to amend Banking Regulation Act to speed up the recovery of Bad Loans. Some of the Initiatives taken by Government and Reserve bank of India in recovering NPA’s are: 1. Amendment in banking law to give RBI more powers: The amendment in the banking law will enable setting up of a committee to oversee companies that have been the biggest defaulters of loans. RBI wants strict rules to curb NPA by overseas committee. Also, there could be changes in the laws, which won’t allow banks to extend loans to a defaulting company that has failed to repay to other banks. 2. RBI’s Loan Restructuring Scheme: RBI has come up with number of schemes such as, corporate debt restructuring (CDR), formation of joint lenders forum (JLF), flexible structuring for long-term project loans to infrastructure (or 5/25 Scheme), strategic debt restructuring (SDR) scheme and sustainable structuring of stressed assets (S4A) to check the issues of NPA. This enables banks to tackle the menace of NPA 3. Stringent NPA recovery rules: The Government has taken several actions to recover assets of defaulters. NPA problem has to be tackled before the time a company starts defaulting. Hence Government has amended Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act or Sarfaesi Act. 4. Banks need to take ‘hair cut’: In past few quarters both private and public sector banks have reported sharp fall in profits as they set aside hefty amount of profits for losses on account of NPA. Hence to tackle the problem Government may ask banks to go for more ‘hair cut’ or write off NPA. The government and RBI may also come up with a one-time settlement scheme for top defaulters before initiating actions against them. The Finance ministry and RBI are also considering setting up of ‘bad banks’ to deal with the problem of non-performing loans. Reserve Bank deputy Governor has also recommended the concept of Private asset Management Company and National asset Management Company for resolution of stressed assets. Hence with change in rules and strict regulation by Government and RBI, it will help banks to overcome the issue of NPA’s over a period of time.


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Market Players: 

The major players in banking Industry are

State Bank of India: State Bank of India is largest commercial bank in the country. SBICAP is the country's largest domestic investment bank, offering the entire gamut of investment banking and corporate advisory services. Some of the services offered by SBI are Domestic Treasury, broking services, Internet banking, E-pay, Foreign Inward remittance etc. Size: Total Assets as of FY-16: 345.11 billion US$ Number of ATM’s (FY-16): Over 59,000 Advances & Deposits (US$ billion)

Net Interest Income (US$ billion)

10.4

11.5

12.12

12.51

10

9.4

304.14 233.7

264.4 223.6

261.6 215.7

231.3 200.7

221.5 192.5

222.6 185.1

15

FY-12

FY-13

FY-14

FY-15

FY-16

5 0 FY-12 FY-13 FY-14 FY-15 FY-16 FY-17 Source: Company annual report



Punjab National Bank (PNB): Punjab National Bank is an Indian multinational banking and financial service company. It is a State owned corporation based in New Delhi, India. Founded in 1894. It serves over 80 million customers. Size: Total Assets as of FY-16: 92.12 billion US$ Number of Branches: 6’968 Number of ATM’s: 9,935 Advance & deposits (US$ billion)

2.36

FY-17

2.53

FY-16

2.67

64.54

FY-15

2.57

85.08 63.43

FY-14

2.35

77.13 58.54

95.65

69.44 53.73

60.24 47.49 FY-13


FY-13

FY-14

FY-15

FY-16

FY-17

Source: Dion Global solutions limitd


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

ICICI Bank: ICICI Bank is the country’s largest private sector bank by consolidated assets. It continues to provide an extensive range of banking solutions through its wide distribution network. ICICI bank offers banking products and financial services to corporate and retail customer. It has variety of delivery channels in the area of investment banking, life and non-life insurance, venture capital and asset management. Size: Total Assets as of FY-16: 109 billion US$ Number of Branches: 3573 Number of ATM’s: 11,292 Net Interest Income (US$ In billion)

64.83 66.96

51.06 52.1

45.01 43.97

55.62 59.61

75.4 71.42

Advances & Deposits (US$ billion)

5 4

3.04

2.55

3

3.48

3.89

4.02

FY-16

FY-17

2 1 0 FY-13

FY-14

FY-15

FY-16

FY-13

FY-17

FY-14

FY-15

Source: Company Annual report



HDFC Bank: The bank is the first one to receive an in-principle approval from the Reserve Bank of India (RBI) for establishment of a bank in the private sector. The Bank transacts both traditional commercial banking as well as investment banking. The various divisions of the bank include retail banking, wholesale banking and treasury operations. Size: Total Assets as of FY-16: 108.29 billion US$ Number of Branches: 4,520 Number of ATM’s: 12,000 Advance & Deposits (US$ billion)

75 42

53

44

55

50

61

79


86

61

6 4 2

2.4

FY-12

FY-13

2.9

3.54

4.4

2 0 FY-12

FY-13

FY-14

FY-15

FY-16

FY-14

FY-15

FY-16



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

AXIS Bank: Axis Bank is the third largest private sector bank in India. The bank offers various financial services to customer segments, which induldes large and midcorporates, MSME, agriculture and retail businesses. Axis Bank also has overseas offices in Singapore, Hong Kong, Shanghai, Colombo, Dubai and Abu Dhabi. Size: Total Assets as of FY-16: 80.27 billion US$ Number of Branches: 2,904 Number of ATM’s: 12,743 Advance & Deposits (US$ billion)

Net Interest Income (US$ billion) 52

47 36

47 36

47

55

47 47

3

2.62

2.5

38

2.21 1.85

2 1.5

2.83

1.49

1 0.5 0 FY-12

FY-13

FY-14

FY-15

FY-16

FY-12 FY-13 FY-14 FY-15 FY-16


Research by: Krishna BS Equity Research Analyst ATS Wealth Managers Pvt Ltd. Contact No: 9844709281 Email: [email protected]

Disclaimer: This report is only for the information of our customers. Recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. The information provided herein is not to be constructed as an offer to buy or sell securities of any kind. ATS and/or its group companies do not as assume any responsibility or liability resulting from the use of such information.


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