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Report on Trend and Progress of Banking in India for the year ended
June 30, 2017 submitted to the Central Government in terms of
Section 36(2) of the Banking Regulation Act, 1949
REPORT ON TREND AND PROGRESS
OF BANKING IN INDIA 2016-17
RESERVE BANK OF INDIA© Reserve Bank of India 2017
All rights reserved. Reproduction is permitted provided an acknowledgement of the source is made.
Published by Sunil Kumar for the Reserve Bank of India, Mumbai 400 001 and designed and printed by
him at Jayant Printery LLP. 352/54, Girgaum Road, Charni Road (E), Mumbai - 400 002Contents
Sr. No. Particulars Page No.
Chapter I: Perspectives on the Indian Banking Sector
I Introduction .................................................................................................... 1
II Emerging Issues and Policy Responses............................................................ 2
III The Way Forward............................................................................................. 8
Chapter II: Global Banking Developments
I Introduction .................................................................................................... 11
II The Macro-Financial Environment .................................................................. 11
III Banking Developments: Select Advanced and Emerging Market Economies ... 18
IV World’s Biggest Banks: Profitability, Health and Soundness ............................ 25
V Global Policy Reforms ..................................................................................... 27
VI Summing Up ................................................................................................... 32
Chapter III: Policy Environment
I Introduction .................................................................................................... 33
II Monetary Policy and Liquidity Management .................................................... 33
III Credit Delivery ............................................................................................... 35
IV Financial Inclusion .......................................................................................... 37
V Prudential Regulatory Policy ............................................................................ 38
VI Supervisory Policy ........................................................................................... 43
VII Non-Banking Financial Companies (NBFCs) .................................................. 45
VIII Customer Service / Customer Protection in Banks .......................................... 49
IX Payment and Settlement Systems .................................................................... 50
X Banking Sector Legislations ............................................................................ 51
XI Overall Assessment ......................................................................................... 52
Chapter IV: Insolvency and Bankruptcy Code and Bank Recapitalisation
I Introduction .................................................................................................... 53
II Insolvency and Bankruptcy Code, 2016 .......................................................... 53
III Recapitalisation of Banks ................................................................................ 59
IV Summing Up ................................................................................................... 62
Chapter V: Operations and Performance of Commercial Banks
I Introduction .................................................................................................... 63
II Balance Sheet Operations of Scheduled Commercial Banks............................ 64
III Financial Performance of Scheduled Commercial Banks ................................. 70
IV Soundness Indicators ...................................................................................... 71
V Sectoral Distribution of Bank Credit ............................................................... 80Sr. No. Particulars Page No.
VI Operations of Scheduled Commercial Banks in the Capital Market ................ 82
VII Ownership Pattern in Scheduled Commercial Banks ...................................... 83
VIII Foreign Banks’ Operations in India and Overseas
Operations of Indian Banks ............................................................................. 84
IX Payment System Indicators of Scheduled Commercial Banks ......................... 85
X Customer Service ............................................................................................ 87
XI Financial Inclusion .......................................................................................... 89
XII Regional Rural Banks ...................................................................................... 93
XIII Local Area Banks ............................................................................................ 94
XIV Small Finance Banks ...................................................................................... 95
XV Overall Assessment ......................................................................................... 97
Chapter VI: Developments in Co-operative Banking
I Introduction ................................................................................................... 99
II Urban Co-operative Banks .............................................................................. 100
III Rural Co-operatives ........................................................................................ 113
IV A Comparative Assessment of Short-term and
Long-term Rural Credit Co-operatives ............................................................. 133
V Overall Assessment ......................................................................................... 134
Chapter VII: Non-Banking Financial Institutions
I Introduction .................................................................................................... 137
II Non-Banking Financial Companies .................................................................. 138
III Payments Banks .............................................................................................. 150
IV All India Financial Institutions ....................................................................... 152
V Primary Dealers .............................................................................................. 156
VI Recent Developments ...................................................................................... 159
VII Overall Assessment ......................................................................................... 162
viList of Boxes
Sr. No. Particulars Page No.
I.1 Proportionality in Banking Regulation - A Global Perspective .......................... 4
I.2 The FinTech Revolution: Impetus, Opportunities and Risks ............................ 6
II.1 Prompt Corrective Action across Jurisdictions ............................................... 16
II.2 Role of Macroprudential Policies in the post-
Global Financial Crisis Period ......................................................................... 30
III.1 Narrow Measure of Shadow Banking ............................................................... 46
IV.1 Recovery of NPAs - Role of Different Factors .................................................... 55
V.1 NPAs and Credit Cycles in India - Priority versus Non-Priority Sectors ........... 75
VI.1 What Drives the Profitability of Scheduled and Non-scheduled UCBs?:
A Du Pont Analysis .......................................................................................... 110
VII.1 Factors Influencing NBFCs’ Credit Growth ...................................................... 143
VII.2 Account Aggregator: A Cross-Country Analysis................................................ 161
viiList of Tables
Sr. No. Particulars Page No.
II.1 Ratio of Non-performing Loans and Advances (NPL Ratio, Per cent) ............... 22
II.2 Adoption Status of Basel III - Number of Basel Committee Member
Jurisdictions (End-March 2017) 28
II.3 Implementation of Reforms - Resolution (As of end-June 2017) ..................... 28
II.4 Implementation of Reforms - Over-the-Counter Derivatives
(As of end-June 2017) ..................................................................................... 29
II.5 Implementation of Reforms - Shadow Banking (As of end-June 2017) ............ 29
IV.1 Transactions under Corporate Insolvency Resolution Process......................... 58
IV.2 Initiation of Corporate Insolvency Transactions .............................................. 58
IV.3 Progress in Registration of Insolvency Professionals
(As on September 30, 2017) ............................................................................ 59
IV.4 Recapitalisation: Experience of Advanced Economies ..................................... 61
V.1 Trends in Flow of Financial Resources to the Commercial Sector from
Banks and Non-banks .................................................................................... 65
V.2 Consolidated Balance Sheet of Scheduled Commercial Banks ........................ 66
V.3 Public Issues by the Banking Sector ................................................................ 67
V.4 Resources Raised by Banks through Private Placements ................................. 67
V. 5 International Assets of Banks in India - By Type of Instruments
(Based on LBS Statements) ............................................................................. 67
V.6 International Liabilities of Banks in India - By Type of Instruments
(Based on LBS Statements) ............................................................................. 68
V.7 Maturity (Residual) and Sectoral Classification of
Consolidated International Claims of Banks ................................................... 68
V.8 Consolidated International Claims of Banks on Countries other than India ... 69
V.9 Bank Group-wise Maturity Profile of Select Liabilities / Assets
(As at end-March) ............................................................................................ 69
V.10 Trends in Income and Expenditure of Scheduled Commercial Banks ............. 71
V.11 Return on Assets and Return on Equity of SCBs - Bank Group-wise............... 71
V.12 Cost of Funds and Return on Funds - Bank Group-wise .................................. 72
V.13 Component-wise Capital Adequacy of SCBs (As at end-March) ........................ 73
V.14 Trends in Non-performing Assets - Bank Group-wise ..................................... 74
V.15 Classification of Loan Assets - Bank Group-wise (As at end-March) ................ 76
V.16 Sector-wise NPAs of Banks (As at end-March) ................................................. 77
V.17 Revised PCA Matrix - Indicators and Risk Thresholds .................................... 79
viiiSr. No. Particulars Page No.
V.18 NPAs of SCBs Recovered through Various Channels ........................................ 79
V.19 Details of Financial Assets Securitised by SCs / RCs ....................................... 80
V.20 Sectoral Deployment of Gross Bank Credit ..................................................... 80
V.21 Retail Loan Portfolio of Banks ......................................................................... 81
V.22 Priority Sector Lending by Banks (As at March 31, 2017) ............................... 82
V.23 Overseas Operations of Indian Banks (As at end-March) ................................. 84
V.24 ATMs of Scheduled Commercial Banks (As at end-March 2017) ..................... 85
V.25 Credit and Debit Cards Issued by Scheduled Commercial Banks
(As at end-March 2017) ................................................................................... 86
V.26 Region-wise Complaints Received at Banking Ombudsman Offices ................. 87
V.27 Progress under Financial Inclusion Plans, All SCBs including RRBs ............... 89
V.28 Tier-wise Break-up of Newly Opened Bank Branches ...................................... 91
V.29 Percentage Share of ATMs of SCBs at Various Centres (As at end-March 2017) 91
V.30 Progress of Microfinance Programmes (As at end-March) ................................ 92
V.31 Financial Inclusion in BRICS and Other Emerging Economies, 2016 .............. 93
V.32 Purpose-wise Outstanding Advances by RRBs (As at end-March) .................... 93
V.33 Consolidated Balance Sheet of Regional Rural Banks ...................................... 94
V.34 Financial Performance of Regional Rural Banks .............................................. 94
V.35 Profile of Local Area Banks (As at end-March) ................................................ 95
V.36 Financial Performance of Local Area Banks .................................................... 95
V.37 Consolidated Balance Sheet of Small Finance Banks ...................................... 96
V.38 Purpose-wise Outstanding Advances by Small Finance Banks ........................ 96
V.39 Financial Performance of Small Finance Banks ............................................... 97
VI.1 Tier-wise Distribution of Urban Co-operative Banks (End-March 2017) ......... 102
VI.2 Distribution of UCBs by Deposits and Advances (End-March 2017) ................ 102
VI.3 Liabilities and Assets of Urban Co-operative Banks (End-March) ................... 104
VI.4 Investments by Urban Co-operative Banks ...................................................... 105
VI.5 Rating-wise Distribution of UCBs (End-March 2017) ...................................... 106
VI.6 CRAR-wise Distribution of UCBs (End-March 2017) ....................................... 106
VI.7 Non-performing Assets of UCBs (End-March) ................................................. 108
VI.8 Financial Performance of Scheduled and Non-scheduled
Urban Co-operative Banks .............................................................................. 108
ixSr. No. Particulars Page No.
VI.9 Select Indicators of Profitability of UCBs ......................................................... 110
VI.10 Composition of Credit to Priority Sectors by UCBs (End-March 2017) ............ 112
VI.11 A Profile of Rural Co-operatives (As at end-March 2016) ................................. 114
VI.12 Share in Credit Flow - Rural Co-operatives ..................................................... 114
VI.13 Liabilities and Assets of State Co-operative Banks .......................................... 117
VI.14 Select Banking Indicators of Scheduled State Co-operative Banks ................. 117
VI.15 Financial Performance of State Co-operative Banks ....................................... 117
VI.16 Soundness Indicators of State Co-operative Banks ........................................ 118
VI.17 Regional Disparity in Financial Health of StCBs .............................................. 119
VI.18 Liabilities and Assets of District Central Co-operative Banks .......................... 120
VI.19 Financial Performance of District Central Co-operative Banks ........................ 120
VI.20 Soundness Indicators of District Central Co-operative Banks ......................... 121
VI.21 Regional Disparity in Financial Health of DCCBs ............................................ 122
VI.22 Primary Agricultural Credit Societies - Select Balance Sheet Indicators .......... 123
VI.23 Liabilities and Assets of State Co-operative Agriculture and
Rural Development Banks ............................................................................... 128
VI.24 Financial Performance of State Co-operative Agriculture and
Rural Development Banks ............................................................................... 129
VI.25 Asset Quality of State Co-operative Agriculture and
Rural Development Banks ............................................................................... 130
VI.26 Liabilities and Assets of Primary Co-operative Agriculture and
Rural Development Banks ............................................................................... 131
VI.27 Financial Performance of Primary Co-operative Agriculture and
Rural Development Banks .............................................................................. 132
VI.28 Asset Quality of Primary Co-operative Agriculture and
Rural Development Banks ............................................................................... 132
VI.29 Comparison of Assets, Credit and Capital Size of SCARDBs and StCBs .......... 133
VII.1 Classification of NBFCs Based on Activity ....................................................... 138
VII.2 Consolidated Balance Sheet of NBFCs (End-March) ........................................ 139
VII.3 Credit to Select Sectors by NBFCs (End-March) .............................................. 140
VII.4 Financial Parameters of the NBFC Sector (End-March) ................................... 141
VII.5 Classification of NBFCs’ Assets ....................................................................... 141
VII.6 Ownership Pattern of NBFCs-ND-SI (End-March) ........................................... 142
VII.7 Consolidated Balance Sheet of NBFCs-ND-SI (End-March) ............................. 144
xSr. No. Particulars Page No.
VII.8 Major Components of Liabilities and Assets of NBFCs-ND-SI by
Classification of NBFCs (End-March) .............................................................. 145
VII.9 Sources of Borrowings of NBFCs-ND-SI (End-March) ..................................... 145
VII.10 Financial Performance of NBFCs-ND-SI .......................................................... 145
VII.11 Bank Exposure to NBFCs-ND-SI Sector (End-March 2017) ............................ 146
VII.12 Ownership Pattern of NBFCs-D (End-March) .................................................. 147
VII.13 Consolidated Balance Sheet of NBFCs-D (End-March) .................................... 147
VII.14 Major Components of Liabilities and Assets of NBFCs-D by
Classification of NBFCs (End-March) .............................................................. 148
VII.15 Financial Ratios of NBFCs-D (End-March) ...................................................... 149
VII.16 Brief Profile of Payments Banks ...................................................................... 151
VII.17 Select Financial Parameters of Payments Banks (End-March 2017) ................ 151
VII.18 Select Financial Ratios of Payments Banks (End-March 2017) ........................ 152
VII.19 Ownership Pattern of AIFIs (End-March 2017) ................................................ 152
VII.20 Financial Assistance Sanctioned and Disbursed by AIFIs ................................ 152
VII.21 AIFIs’ Balance Sheet ........................................................................................ 153
VII.22 Resources Raised by AIFIs from the Money Market (End-March) ................... 153
VII.23 Pattern of AIFIs’ Sources and Deployment of Funds ....................................... 154
VII.24 Weighted Average Cost and Maturity of Rupee Resources Raised by AIFIs ....... 154
VII.25 Financial Performance of Select AIFIs ............................................................. 154
VII.26 AIFIs’ Financial Ratios ..................................................................................... 155
VII.27 AIFIs’ Select Financial Parameters ................................................................... 155
VII.28 AIFIs’ Net NPAs ............................................................................................... 155
VII.29 AIFIs’ Assets Classification .............................................................................. 156
VII.30 Performance of PDs in the Primary Market ..................................................... 157
VII.31 Performance of SPDs in the G-secs Secondary Market .................................... 157
VII.32 Sources and Applications of SPDs’ Funds ....................................................... 158
VII.33 Financial Performance of SPDs ....................................................................... 158
VII.34 SPDs’ Financial Indicators ............................................................................. 159
VII.35 Abridged Balance Sheet of NBFCs ................................................................... 159
VII.36 Weighted Average Lending Rates of Various Categories of NBFCs-ND-SI .......... 160
xiList of Charts
Sr. No. Particulars Page No.
II.1 The Macro Backdrop ....................................................................................... 12
II.2 Credit Growth in Select Economies ................................................................. 13
II.3 Credit to Households ...................................................................................... 14
II.4 Return on Assets: Select Economies ............................................................... 14
II.5 Capital to Risk Weighted Assets Ratio (CRAR): Select Economies.................... 15
II.6 Non-performing Loans Ratio: Select Economies .............................................. 15
II.7 Leverage Ratio: Select Economies ................................................................... 18
II.8 Market-based Indicators of Bank Health ......................................................... 18
II.9 Credit and Deposit Growth: USA..................................................................... 19
II.10 Improving Asset Quality: US Banks ................................................................. 19
II.11 Bank Credit and Deposits: UK ........................................................................ 20
II.12 Bank Credit in the UK: Availability and Quality ............................................... 21
II.13 Bank Assets and Lending in the Euro Area ..................................................... 22
II.14 Drivers of Deposit Growth: Euro Area ............................................................. 23
II.15 The Chinese Banking System - A Snapshot ..................................................... 23
II.16 The Brazilian Banking Sector - A Snapshot ..................................................... 24
II.17 The Russian Banking Sector - A Snapshot ...................................................... 25
II.18 Distribution of the World’s Largest Banks: Capital and Assets ........................ 25
II.19 Return and Asset Quality ................................................................................. 26
II.20 Bank Soundness ............................................................................................. 26
II.21 Capital Adequacy versus Profitability versus Asset Quality ............................. 27
IV.1 Capital Infusion by the Government in PSBs ................................................... 62
V.1 Growth in Select Banking Aggregates .............................................................. 64
V.2 Bank Group-wise Growth in Advances ............................................................ 64
V.3 Growth in CASA and Term-deposits, Bank Group-wise .................................. 66
V.4 Trends in Outstanding C-D Ratio (End-March) ............................................... 66
V.5 Trends in Maturity Profile of Assets and Liabilities ......................................... 69
V.6 Growth in Balance Sheet and Off-balance Sheet Transactions ......................... 70
V.7 Composition of Off-Balance Sheet Exposures of the
Banking Sector - 2016-17 ............................................................................... 70
V.8 CRAR - Bank Group-wise ................................................................................ 72
V.9 Leverage Ratio - Bank Group-wise .................................................................. 73
xiiSr. No. Particulars Page No.
V.10 Liquidity Coverage Ratio ................................................................................. 74
V.11 Restructured Standard Advances as per cent of Gross Advances .................... 76
V.12 Share of Loan Accounts with Possible Stress in Total Funded
Amount Outstanding in case of Large Borrowal Accounts ............................... 77
V.13 Slippage Ratio ................................................................................................. 77
V.14 Stressed Assets to Gross Advances in Select Industries
(End-March) .................................................................................................... 78
V.15 GNPA Ratio for Select Sectors ......................................................................... 78
V.16 Provision Coverage Ratio ................................................................................. 78
V.17 Stressed Asset Sale to SCs / RCs ..................................................................... 79
V.18 Growth in Credit to Major Sectors .................................................................. 80
V.19 Growth in Credit to Priority Sectors ................................................................ 81
V.20 Relative Performance of Bank Indices and Nifty 50 ......................................... 83
V.21 Bank Group-wise Share in Total Assets and Profits of
Banking Sector (End-March) ........................................................................... 83
V.22 Public Shareholding in Select PSBs ................................................................. 83
V.23 Instruments of Retail Payments ....................................................................... 85
V.24 Growth of ATMs .............................................................................................. 86
V.25 Trends in Debit and Credit Cards ................................................................... 86
V.26 Progress of Pre-paid Payment Instruments ..................................................... 87
V.27 Population Group-wise Distribution of Complaints Received at BOs ............... 88
V.28 Share of Major Types of Complaints ................................................................ 88
V.29 Number of Complaints per Bank Branch / Account - 2016-17 ......................... 88
V.30 Banking Outlets in Villages (Percentage Share in Total) ................................... 90
V.31 Bank Group-wise Share in PMJDY Accounts (As on December 6, 2017) ......... 90
V.32 Average Balance in PMJDY Accounts ............................................................... 90
V.33 Banking Penetration across Regions ................................................................ 91
V.34 Distribution of ATMs ....................................................................................... 92
VI.1 Structure of Co-operative Credit Institutions in India (End-March 2017) ........ 99
VI.2 The Structure of Co-operatives by Asset Size .................................................. 100
VI.3 Fall in Number of UCBs since 2005 ................................................................. 101
VI.4 Geographical Distribution of UCB Mergers
(Cumulative basis as at end-March 2017) ....................................................... 101
xiiiSr. No. Particulars Page No.
VI.5 Asset Growth of UCBs ..................................................................................... 101
VI.6 Rise of the Tier II UCBs (End-March) .............................................................. 102
VI.7 Changing Distribution of Deposits of UCBs (End-March) ................................ 102
VI.8 Distribution of UCBs by Deposits versus Advances (End-March 2017) ........... 103
VI.9 Distribution of UCBs by Asset Size (End-March) ............................................. 103
VI.10 Asset Share of Scheduled UCBs (End-March) ................................................. 103
VI.11 Credit to Deposit Ratio (End-March) ............................................................... 104
VI.12 Investment to Deposit Ratio (End-March) ........................................................ 105
VI.13 SLR and Non-SLR Investments of UCBs: End-March (y-o-y percentage variation).. 105
VI.14 Distribution of Number and Business of UCBs - by Rating Categories ............ 106
VI.15 UCBs with CRAR above 9 Per cent .................................................................. 107
VI.16 Growth in Net Worth and Assets...................................................................... 107
VI.17 Non-performing Assets: UCBs versus SCBs .................................................... 107
VI.18 NPAs and PCR - UCBs ..................................................................................... 107
VI.19 NPAs to Net Worth Ratio for UCBs (End-March) ............................................. 108
VI.20 Non-interest Income Share of UCBs ................................................................ 109
VI.21 Share of Non-interest Income versus Capital Buffer - Scheduled UCBs ........... 109
VI.22 Profitability Indicators - UCBs ......................................................................... 109
VI.23 Profitability Indicators - SUCBs versus NSUCBs ............................................. 110
VI.24 Priority Sector Lending - UCBs (Share in Total Advances) ............................... 112
VI.25 Advances to Weaker Sections by UCBs ............................................................ 113
VI.26 Share of Short-term versus Long-term Co-operatives in
Total Assets of Rural Co-operatives: End-March ............................................. 115
VI.27 Change in Number of Rural Co-operatives between
March 2015 and March 2016 .......................................................................... 116
VI.28 Soundness Indicators of StCBs ....................................................................... 118
VI.29 Regional Trends in NPAs and Recovery ........................................................... 118
VI.30 Regional Disparity in Financial Health of StCBs .............................................. 119
VI.31 Growth in Loans - StCBs versus DCCBs ......................................................... 119
VI.32 Credit-Deposit Ratio ........................................................................................ 119
VI.33 Soundness Indicators of DCCBs...................................................................... 121
VI.34 NPAs and Recovery - StCBs versus DCCBs (End-March) ................................. 121
xivSr. No. Particulars Page No.
VI.35 Share of Operating Expenses in Total Expenses .............................................. 121
VI.36 Regional Trends in NPAs and Recovery - DCCBs ............................................. 122
VI.37 Regional Disparity in Financial Health of DCCBs ............................................ 122
VI.38 Growth in Outstanding Credit of PACS ............................................................ 123
VI.39 Resource Composition - Short-term Co-operatives .......................................... 123
VI.40 Member Share by Category ............................................................................. 124
VI.41 Borrower to Member Ratio by Category ........................................................... 124
VI.42 Borrower to Member Ratio - Shortfall from 50 Per cent Access ...................... 124
VI.43 Growth in Loans Disbursed by PACS .............................................................. 124
VI.44 Percentage of PACS in Profit and Loss ............................................................. 125
VI.45 Net Profit to Loans and Advances Ratio of the
Short-term Credit Institutions ........................................................................ 125
VI.46 Net Profit of PACS by Region .......................................................................... 125
VI.47 Percentage of PACS in Profit and Loss - Regional Level (End-March 2016) ...... 126
VI.48 DCCB Licensing Waterfall ................................................................................ 127
VI.49 Capital-to-Assets Ratio .................................................................................... 127
VI.50 CRAR: StCBs and DCCBs ................................................................................ 127
VI.51 Balance Sheet Insights - SCARDBs .................................................................. 129
VI.52 NPAs and Recovery - SCARDBs ....................................................................... 130
VI.53 NPA Ratios: A Comparison .............................................................................. 130
VI.54 Region-wise Position of Financial Health of SCARDBs ..................................... 131
VI.55 Profitability Indicators of PCARDBs ................................................................ 132
VI.56 Financial Health of PCARDBs vis-a-vis SCARDBs ........................................... 133
VI.57 StCBs versus SCARDBs - By RoA.................................................................... 134
VII.1 Non-Banking Financial Institutions Regulated by the Reserve Bank of India ... 137
VII.2 Number of Registrations and Cancellations of CoR of NBFCs .......................... 139
VII.3 Exposure to Sensitive Sectors as a per cent of Total Assets (End-March) ........ 140
VII.4 Profitability Ratios of NBFCs (End-March) ...................................................... 141
VII.5 Asset Quality of NBFCs (End-March) .............................................................. 141
VII.6 Capital Adequacy of NBFC Sector (End-March) .............................................. 142
xvSr. No. Particulars Page No.
VII.7A Gross NPAs as a percentage of Gross Advances of NBFCs-ND-SI
(End-March) .................................................................................................... 146
VII.7B Net NPAs of NBFCs-ND-SI (End-March) .......................................................... 146
VII.8 Category-wise CRAR of NBFCs-ND-SI (End-March) ......................................... 146
VII.9A Public Deposits of NBFCs-D (End-March) ....................................................... 148
VII.9B Ratio of Public Deposits of NBFCs-D to SCBs' Aggregate Deposits
(End-March) .................................................................................................... 148
VII.10 Select Financial Parameters of NBFCs-D (End-March) .................................... 149
VII.11 Gross NPA Ratio of NBFCs-D (End-March) ...................................................... 149
VII.12 Gross and Net NPA Ratio of NBFCs-D (End-March) ........................................ 150
VII.13 Capital to Risk (Weighted) Assets Ratio of NBFCs-D (End-March) ................... 150
VII.14 Balance Sheet of Payments Banks (End-March 2017) ..................................... 151
VII.15 Long-term PLR Structure of Select AIFIs ......................................................... 154
VII.16 Average RoA of AIFIs ....................................................................................... 155
VII.17 Capital to Risk (Weighted) Assets Ratio of AIFIs .............................................. 156
VII.18 Average Rate of Underwriting Commission of PDs ........................................... 156
VII.19 Capital and Risk Weighted Asset Position of SPDs ........................................... 159
VII.20 Growth Rates of Credit of NBFCs and Banks .................................................. 160
VII.21 Sectoral Credit Deployment by NBFCs-ND-SI ................................................. 160
VII.22 GNPA Ratio of NBFCs-ND-SI ........................................................................... 160
xviList of Appendix Tables
Sr. No. Particulars Page No.
V.1 Indian Banking Sector at a Glance .................................................................. 164
V.2 Off-Balance Sheet Exposure of Scheduled Commercial Banks in India ........... 165
V.3 Kisan Credit Card Scheme: State-wise Progress (As at end-March 2017) ....... 166
V.4 Bank Group-wise Lending to the Sensitive Sectors (As at end-March) ............. 167
V.5 Shareholding Pattern of Domestic Scheduled Commercial Banks
(As at end-March 2017) ................................................................................... 168
V.6 Branches and ATMs of Scheduled Commercial Banks
(As at end-March 2017) ................................................................................... 170
V.7 Statement of Complaints Received at Banking Ombudsman Office
(For the Period 2016-17) ................................................................................. 173
VI.1 Select Financial Parameters of Scheduled UCBs (As at end-March 2017) ........ 176
VI.2 Major Indicators of Financial Performance of Scheduled UCBs ...................... 177
VI.3 Salient Indicators of Financial Health of State Co-operative Banks -
Region and State-wise (As at end-March) ........................................................ 179
VI.4 Salient Indicators of Financial Health of District Central Co-operative
Banks - Region and State-wise (As at end-March) ............................................ 180
VI.5 Select Indicators of Primary Agricultural Credit Societies -
State-wise (As at end-March 2016) .................................................................. 181
VI.6 Major Financial Indicators of State Co-operative Agriculture and
Rural Development Banks – State-wise (As at end-March)............................... 183
VI.7 Major Financial Indicators of Primary Co-operative Agriculture and
Rural Development Banks – State-wise (As at end-March)............................... 184
VII.1 Credit to Various Sectors by NBFCs (End-March) ........................................... 185
VII.2 Financial Assistance Sanctioned and Disbursed by Financial Institutions ....... 186
VII.3 Financial Performance of Primary Dealers ...................................................... 188
VII.4 Select Financial Indicators of Primary Dealers ................................................ 190
xviiList of Select Abbreviations
AA Account Aggregator BSBDA Basic Savings Bank Deposit
Account
AACS As Applicable to Co-operative
Societies BSE Bombay Stock Exchange
ADR American Depository Receipt CAMELS Capital Adequacy, Asset
Quality, Management, Earnings,
AE Advanced Economy
Liquidity, and Systems and
AEPS Aadhaar-Enabled Payment
Control
System
CAP Corrective Action Plan
AFC Asset Finance Company
CAR Capital to Assets Ratio
AIC Akaike Information Criteria
CARE Credit Analysis and Research
AIFI All India Financial Institution
Limited
ALM Asset Liability Management
CASA Current Account and Savings
AMC Asset Management Company Account
AML / CFT Anti-Money Laundering/ CBR Correspondent Banking
Combating the Financing of Relationship
Terrorism
CBS Core Banking Solution
ANBC Adjusted Net Bank Credit
CCB Capital Conservation Buffer
AQR Asset Quality Review
CCC Certified Credit Counsellor
ARC Asset Reconstruction Company
CCCB Counter-Cyclical Capital Buffer
ATM Automated Teller Machine
CCP Central Counterparty
BC Business Correspondent
CD Certificate of Deposit
BCBS Basel Committee on Banking
C-D Ratio Credit to Deposit Ratio
Supervision
CDIC Canada Deposit Insurance
BCP Business Continuity Planning
Corporation
BCSBI Banking Codes and Standards
CDS Credit Default Swap
Board of India
CEPC Consumer Education and
BFS Board for Financial Supervision
Protection Cell
BHIM Bharat Interface for Money
CET1 Common Equity Tier-1
BIRD Bankers’ Institute of Rural
CIC Core Investment Company
Development
CMB Cash Management Bill
BIS Bank for International
CMS Complaint Management System
Settlements
CoR Certificate of Registration
BO Banking Ombudsman
CP Commercial Paper
BoE-CCS Bank of England’s Credit
Condition Survey CPI Consumer Price Index
BRICS Brazil, Russia, India, China and CRAR Capital to Risk-Weighted Assets
South Africa Ratio
xviiiCRILC Central Repository of FII Foreign Institutional Investor
Information on Large Credits
FINCON Financial Conglomerate Return
CRISIL Credit Rating Information
FIP Financial Inclusion Plan
Services of India Limited
FMR Fraud Monitoring Return
CRR Cash Reserve Ratio
FOBAPROA Fonda Bancario de Proteccion al
DCCB District Central Co-operative
Ahorro
Bank
FPI Foreign Portfolio Investor
DE Designated Entity
FPO Follow-on Public Offer
DICGC Deposit Insurance and Credit
FRDI Financial Resolution and Deposit
Guarantee Corporation
Insurance
DNFBP Designated Non-Financial
Business and Profession FSB Financial Stability Board
DRT Debt Recovery Tribunal FSI Financial Stability Institute
DSR Debt Service Ratio FSLRC Financial Sector Legislative
Reforms Commission
DSTI Debt-Service-to-Income
FSWM Financially Sound and Well
DTI Debt-to-Income
Managed
EBPT Earning Before Provisions and
GCC General Credit Card
Taxes
GDP Gross Domestic Product
ECL Expected Credit Loss
GDR Global Depository Receipt
ECS Electronic Clearance Service
GFC Global Financial Crisis
EMDE Emerging Market and
Developing Economy GNPA Gross Non-Performing Asset
EFD Enforcement Department G-secs Government Securities
EME Emerging Market Economy G-SIB Global Systemically Important
EoL Exchange of Letter
Bank
ESDC European Sovereign Debt Crisis
G-SII Global Systemically Important
Insurer
EURIBOR Euro Interbank Offered Rate
GST Goods and Services Tax
EXIM Bank Export Import Bank of India
HFC Housing Finance Company
FATF Financial Action Task Force
HKMA Hong Kong Monetary Authority
FB Foreign Bank
HP Hodrick-Prescott
FC Financial Conglomerate
HQ Hannan-Quinn Information
FCCB Foreign Currency Convertible
Criterion
Bond
HQLA High Quality Liquid Assets
FCNR(B) Foreign Currency Non-Resident
(Bank) HRM Human Resource Management
FI Financial Institution HTM Held To Maturity
xixIAC Internal Advisory Committee IRDA Insurance Regulatory and
Development Authority
IAIS International Association of
Insurance Supervisors IRF Inter Regulatory Forum
IBA Indian Banks’ Association IRISc Integrated Risk and Impact
Scoring (Model)
IBBI Insolvency and Bankruptcy
IRRBB Interest Rate Risk in the Banking
Board of India
Book
IBC Insolvency and Bankruptcy Code
ISS Interest Subvention Scheme
IRB Interest Rate Benchmark
IT Information Technology
IC Investment Company
JLF Joint Lenders’ Forum
ICAAP Internal Capital Adequacy
JLG Joint Liability Group
Assessment Process
JStCB Jharkhand State Co-operative
ICRR Incremental Cash Reserve Ratio
Bank
ICT Information and
KA Key Attribute
Communications Technology
KAMCO Korean Asset Management
IDFC Infrastructure Development
Company
Finance Corporation
KCC Kisan Credit Card
IDF-NBFC Infrastructure Debt Fund-Non-
KYC Know Your Customer
Banking Financial Company
LAB Local Area Bank
IFC Infrastructure Finance Company
LAF Liquidity Adjustment Facility
IFRS International Financial Reporting
LBS Locational Banking Statistics
Standards
LC Loan Company
IFSC Indian Financial System Code
LCR Liquidity Coverage Ratio
IMF International Monetary Fund
LE Large Exposures
IMPS Immediate Payment Service
LIBOR London Inter-bank Offered Rate
Ind AS Indian Accounting Standards
LIC Life Insurance Corporation of
INFE International Network on
India
Financial Education
LOLR Lender-of-Last-Resort
INFOMERICS Integrated Financial Omnibus
LR Likelihood Ratio
Metrics Research of International
Corporate Systems LTD Long-Term (Subordinated)
Deposit
InvIT Infrastructure Investment Trust
LTRCF Long Term Rural Credit Fund
IOSCO International Organisation of
LTV Loan-to-Value
Securities Commissions
MCLR Marginal Cost of Funds based
IPDI Innovative Perpetual Debt
Lending Rate
Instruments
MFI Micro-Finance Institution
IRACP Income Recognition, Asset
Classification and Provisioning MGC Mortgage Guarantee Company
xxMIS Management Information System NBFC-P2P Non-Banking Financial Company
– Peer to Peer Lending Platform
MMF Money Market Fund
NBFE Non-Banking Financial Entity
MOSPI Ministry of Statistics and
Programme Implementation NBFI Non-Banking Financial
Institution
MoU Memorandum of Understanding
NBNI G-SIFI Non-Bank Non-Insurer Global
MPC Monetary Policy Committee
Systemically Important Financial
MPR Monetary Policy Report Institution
MSC Multi Service Centre NCLAT National Company Law Appellate
Tribunal
MSE Micro and Small Enterprise
NCLT National Company Law Tribunal
MSME Micro, Small and Medium
Enterprise NDS-OM Negotiated Dealing System –
Order Matching System
MSS Market Stabilisation Scheme
NDTL Net Demand and Time Liabilities
NABARD National Bank for Agriculture
NEDFi North Eastern Development
and Rural Development
Finance Corporation Ltd.
NACH National Automated Clearing
NEFT National Electronic Funds
House
Transfer
NAFSCOB National Federation of State
NHB National Housing Bank
Co-operative Banks Ltd.
NII Net Interest Income
NAMCABS National Mission for Capacity
Building of Bankers for NIM Net Interest Margin
Financing the MSME Sector NNPA Net Non-Performing Asset
NAV Net Asset Value NOF Net Owned Fund
NBFC Non-Banking Financial Company NPA Non-Performing Asset
NBFC-AA Non-Banking Financial Company NPCI National Payments Corporation
– Account Aggregator of India
NBFC-D Non-Banking Financial Company NPL Non-Performing Loan
– Deposit-taking
NPS National Pension System
NBFC-IFC Non-Banking Financial Company NRA National Risk Assessment
– Infrastructure Finance
NRE Non-Resident External Rupee
Company
NRI Non-Resident Indian
NBFC-MFI Non-Banking Financial Company
– Micro Finance Institution NRLM National Rural Livelihoods
Mission
NBFC-ND Non-Banking Financial Company
NRNR Non-Resident Non-Repatriable
– Non-Deposit taking
NRO Non-Resident Ordinary
NBFC-ND-SI Non-Deposit taking Systemically
Important Non-Banking NSCB Non-Scheduled Co-operative
Financial Company Bank
xxiNSE National Stock Exchange PMJDY Pradhan Mantri Jan Dhan
Yojana
NSFR Net Stable Funding Ratio
PNCPS Perpetual Non-Cumulative
NSUCB Non-Scheduled Urban Co-
Preference Shares
operative Bank
PoS Point of Sale
NULM National Urban Livelihoods
Mission PP Phillips-Perron
OBE Off-Balance Sheet Exposure PPI Pre-paid Payment Instrument
OC Overseeing Committee PR Principal Regulator
OD Overdraft PRA Prudential Regulatory Authority
OECD Organisation for Economic PSB Public Sector Bank
Co-operation and Development
PSL Priority Sector Lending
OSFI Office of the Superintendent of PSLC Priority Sector Lending
Financial Institutions Certificate
OTC Over-the-Counter PVA Prudent Valuation Adjustment
OTP One-Time Password PVB Private Sector Bank
P2P Peer-to-Peer QIP Qualified Institutional Placement
PACS Primary Agricultural Credit QR Quick Response
Societies
RBI Reserve Bank of India
PAT Profit After Tax
RC Resolution Corporation
PB Payments Bank
RCS Registrar of Co-operative
PBT Profit Before Tax Societies
PCA Prompt Corrective Action RE Regulated Entities
PCARDB Primary Co-operative Agriculture ReBIT Reserve Bank Information
and Rural Development Bank Technology Private Limited
PCE Partial Credit Enhancement REITs Real Estate Investment Trust
PCFC Pre-Shipment Credit in Foreign RFR Risk-Free Reference Rate
Currency RHS Right Hand Scale
PCR Provision Coverage Ratio RNBC Residuary Non-Banking
PD Primary Dealer
Company
PDI Perpetual Debt Instruments
RoA Return on Asset
RoE Return on Equity
PFRDA Pension Fund Regulatory and
Development Authority RRB Regional Rural Bank
PIF Pro-active Intervention RTGS Real Time Gross Settlement
Framework
S4A Scheme for Sustainable
PLR Prime Lending Rate Structuring of Stressed Assets
xxiiSA-CCR Standardised Approach for SPV Special Purpose Vehicle
Measuring Counterparty Credit
SR Security Receipt
Risk
StCB State Co-operative Bank
SARFAESI Securitisation and
STCCS Short-Term Co-operative Credit
Reconstruction of Financial
Structure
Assets and Enforcement of
Security Interest ST-SAO Short-Term (Seasonal
SBN Specified Bank Note
Agricultural Operations)
SC Sub-committee
SUCB Scheduled Urban Co-operative
Bank
SC / RC Securitisation Company/
TAICO Bank Tamil Nadu Industrial Co-
Reconstruction Company
operative Bank Ltd.
SCA Statutory Central Auditor
T-Bills Treasury Bills
SCARDB State Co-operative Agriculture
and Rural Development Bank TBTF Too-Big-to-Fail
SCB Scheduled Commercial Bank TIBOR Tokyo Interbank Offered Rate
SDR Strategic Debt Restructuring TLAC Total Loss-Absorbing Capacity
SEBI Securities and Exchange Board TR Trade Repository
of India TReDS Trade Receivables Discounting
SFB Small Finance Bank System
SFC State Financial Corporation UCB Urban Co-operative Bank
SGSY Swarnajayanti Gram Swarojgar UPI Unified Payment Interface
Yojana
VAR Vector Auto Regression
SHG Self-Help Group
VCF Venture Capital Fund
SIB Systemically Important Bank
WAC Weighted Average Cost
SIDBI Small Industries Development
WACR Weighted Average Call Money
Bank of India
Rate
SLR Statutory Liquidity Ratio
WALR Weighted Average Lending Rate
SMA Special Mention Account
WAM Weighted Average Maturity
SME Small and Medium Enterprise
WGRR Working Group on Resolution
SMERA Small and Medium Enterprises Regimes
Ratings Agency
WLA White Label ATM
SMF Small and Marginal Farmer
WLTF Wholesale and Long-Term
SoC Statement of Co-operation Finance
SPARC Supervisory Program for XBRL eXtensible Business Reporting
Assessment of Risk and Capital Language
SPD Standalone Primary Dealer y-o-y Year-on-Year
xxiiiChapter I
Perspectives on the Indian Banking Sector
Several challenges will likely impinge upon the banking sector in India as it grapples with impairment
in asset quality and convergence with Basel III and international accounting standards concurrently.
Going forward, addressing asset quality concerns and strengthening banks’ balance sheets to
reinvigorate credit growth remain key priorities, within the overall objective of promoting a competitive
and efficient banking sector.
I. Introduction been undergoing some slowdown by its own
historical record during 2017-18, partly reflecting
I.1 After several false starts, global growth
the transitory effects of the implementation of the
and trade have been gaining traction in 2017 so
goods and services tax (GST) from July 2017.
far, supported by accommodative monetary
Macroeconomic stability remains entrenched
policy and conducive financial conditions.
though, with inflation remaining moderate, the
Despite commodity prices firming up, inflation
current account deficit contained well within
has remained quiescent in both advanced and
sustainable limits and the fiscal deficit on the path
emerging economies. Global financial markets
of consolidation.
have been generally buoyant and the effects of
geopolitical events, including announcements, I.3 Turning to the financial sector, impairment
have been muted or short-lived. With in the asset quality of the banking sector remains
accommodative policies in advanced economies unconscionably high, necessitating sizeable
(AEs) supporting asset prices and spurring a provisioning and deleveraging, thereby constraining
search for returns, investor appetite for emerging banks’ capacity to lend. Consequently, profitability
market economies (EMEs) as an asset class has and capital positions of banks have faced some
been stoked, propelling capital flows to them, erosion, especially in the case of public sector
albeit with some discrimination against banks (PSBs). In the process, businesses have
economies with relatively weaker macro- increasingly switched to alternate and more cost-
fundamentals. Nonetheless, risks to the outlook effective sources of funds to meet their financing
are still tilted to the downside, with political and needs, resulting in some disintermediation for
policy uncertainties posing threats to global banks.
financial stability. In this environment, banking
I.4 During the first-half of 2017-18, however,
regulators are preparing for the full implementation
a modest pick-up in bank credit has occurred
of Basel III prudential regulations and the
alongside the improvement in transmission that
adoption of the revised global accounting
was observed post-demonetisation. Growth in
standards. In parallel, developments like FinTech
gross advances of scheduled commercial banks
and the growth of crypto currencies are presenting
(SCBs) improved to 6.2 per cent at end-
both opportunities and challenges.
September 2017 from 5.0 per cent at end-June
I.2 Although among the fastest growing large 2017 due to improved credit delivery by both
economies of the world, the Indian economy has PSBs as well as private sector banks (PVBs).Report on Trend and Progress of Banking in India 2016-17
Stressed assets of SCBs have begun to stabilise II. Emerging Issues and Policy Responses
albeit at an elevated level. The total stressed
I.7 Addressing asset quality concerns and
assets (gross non-performing assets plus
strengthening banks’ balance sheets to reinvigorate
restructured standard advances) as per cent of
credit growth are clearly the highest priority.
gross advances were placed at 12.6 per cent and
Improving accounting standards and nurturing
12.2 per cent during Q1 and Q2 of 2017-18,
competitive efficiency alongside niche competencies
respectively. Among bank groups, stressed assets
in the banking space are other elements of this
of PSBs hovered around 16 per cent, while
drive. Strengthening and harmonising regulations
stressed assets of PVBs remained below 5 per
across financial intermediaries and in adherence
cent. The slippage ratio of SCBs recorded a
to global standards have been other focus areas.
decline over the first half of 2017-18.
Concomitantly, promoting digitisation, managing
Notwithstanding the elevated level of delinquency,
technology-enabled financial innovations and
profitability indicators as reflected in the return
dealing with cyber-security risks will entail
on assets have been stable at around 0.4 per cent.
strategic policy responses.
Capital positions (i.e., capital to risk-weighted
Resolution of Stressed Assets and Strengthening
assets ratio) improved to 13.9 per cent in Q2 of
of Banks’ Balance Sheets
2017-18, being much above the regulatory
minimum (see chapter V for details). I.8 The enactment of the Insolvency and
Bankruptcy Code (IBC), 2016 and promulgation
I.5 On the other hand, balance sheets of non-
of the Banking Regulation (Amendment) Act, 2017
banking financial companies (NBFCs) grew on the
has significantly altered the financial landscape
back of credit expansion mainly by loan companies,
and imbued with optimism and resolve the
asset finance companies and investment
concerted efforts that are underway for resolution
companies. NBFCs’ consolidated balance sheet
of stress in balance sheets of banks and
expanded by 6.5 per cent on a y-o-y basis, in the
corporations in a time-bound and effective
first half of 2017-18 with strong credit growth
manner. The Reserve Bank’s pre-emptive approach
financed through higher borrowings. As against
to recognition and resolution of incipient financial
bank credit growth of 6.2 per cent during the first
distress and the revised system of prompt
half of 2017-18, NBFCs’ credit growth was 14.9
corrective action (PCA) triggered in April 2017 are
per cent, about seven percentage points higher
intended to instill confidence in the system that
than in the previous year. This was driven by
accumulation of excessive financial imbalances in
strong growth in credit to retail and services
the future will be prevented. The Government’s
sectors. Asset quality of NBFCs (non-deposit
in-principle approval in August 2017 for the
taking systemically important), which had
consolidation of PSBs through an ‘Alternative
recorded deterioration in Q1:2017-18, witnessed
Mechanism’ and the massive recapitalisation plan
some improvement in Q2, partly reflecting higher
for PSBs announced in October 2017 as part of a
write-offs (see chapter VII for details).
comprehensive strategy to address banking sector
I.6 Against this backdrop, the rest of this challenges should make them strong and
chapter lays out a perspective on some issues that competitive as they gear up to meet the credit
are likely to shape the banking ecosystem in the needs of a growing economy (see chapter IV for
period ahead and inform the policy agenda. details).
2Perspectives on the Indian Banking Sector
I.9 The Reserve Bank has constituted a High- application of Ind AS effective April 1, 2018, the
level Task Force on Public Credit Registry (PCR) Reserve Bank has introduced a transitional
(Chairman : Shri Yeshwant M. Deosthalee) for arrangement, consistent with the Basel Committee
India to address information asymmetries that provisions, to give banks time to build their
create opacity in credit markets, hindering capital.
efficient credit decisions, impeding effective risk-
Promoting Differentiated Banking
based supervision and excluding the financially
disadvantaged. It will review the current I.11 With differentiated banks such as small
availability of information on credit, the adequacy finance banks (SFBs) and payments banks (PBs)
of existing information utilities and international commencing operations in 2016-17, the Reserve
best practices with the goal of developing a Bank has started exploring the scope of setting up
transparent, comprehensive and near real-time wholesale and long-term finance (WLTF) banks
PCR for India. Besides improving the functioning focused primarily on lending to infrastructure
of the credit market, the PCR is expected to foster sector and small, medium and corporate
financial inclusion, improve the ease of doing businesses. The Discussion Paper of April 2017
business and help control delinquencies in the envisions the role for WLTF banks to include
banking system1. mobilising liquidity for banks and financial
institutions through securitisation, acting as
Developing Robust Accounting Standards (IFRS-
market makers, providing refinance to lending
converged Ind AS)
institutions, and operating in capital markets as
I.10 International Financial Reporting aggregators. The envisioned heterogeneous
Standards (IFRS) draw upon the lessons gleaned banking structure will complement and compete
from the global financial crisis and attempt to with universal banking institutions and enhance
close gaps in accounting practices. In India, the financial inclusion while meeting the diverse credit
need for uniformity in identification of non- needs of a growing economy.
performing assets (NPAs) at the system level has
Strengthening and Harmonising Banking Sector
imparted urgency to the institution of the IFRS-
Regulation
converged Indian accounting standards (Ind AS).
Banks are required to make provisions for I.12 The Reserve Bank has adopted Basel III
expected credit loss (ECL) from the time a loan norms for implementation in a phased manner.
is originated, rather than waiting for ‘trigger Apart from an improved capital framework and
events’ to signal imminent losses. Recognising liquidity ratios like the liquidity coverage ratio
and providing for actual and potential loan losses (LCR) and the upcoming net stable funding ratio
at an early stage in the credit cycle could (NSFR), the Reserve Bank has also been aligning
potentially reduce procyclicality and foster the regulatory and supervisory frameworks for
financial stability2. As overall provisions are NBFCs, all India financial institutions (AIFIs) and
expected to increase significantly on initial co-operative banks with that of commercial banks
1 Acharya, Viral V. (2017), “A Case for Public Credit Registry in India”, Theme Talk delivered at the 11th Statistics Day Conference
held at the Reserve Bank of India, Central Office, Mumbai on July 4.
2 Patel, Urjit R. (2017), “Financial Regulation and Economic Policies for Avoiding the Next Crisis”, 32nd Annual G30 International
Banking Seminar, Inter-American Development Bank, Washington, D.C., October 15.
3Report on Trend and Progress of Banking in India 2016-17
with the objective of eschewing regulatory banks through consolidation, the tiers in the co-
arbitrage.3 Moreover, the Ind AS standards operative structure are also being reduced.
prescribed for commercial banks, have been made
I.13 The medium-term goal is to move towards
mandatory for both AIFIs and NBFCs from April
activity-based regulation rather than entity-based
2018. A formal PCA framework has been
regulation. In this context, the evolution of
introduced for NBFCs from March 30, 2017 and regulatory practices in other jurisdictions vis-à-vis
a comprehensive Information Technology (IT) the Basel III guidelines in the post-global financial
framework from June 8, 2017. Multiple categories crisis period offers interesting insights that could
of NBFCs are being rationalised into fewer inform the approaches being envisaged in India
categories. Along with strengthening co-operative (Box I.1).
Box I.1: Proportionality in Banking Regulation – A Global Perspective
It is argued that the post-crisis global regulatory response less complex banks. With the introduction of risk-based
has resulted in a robust but complex regulatory framework supervision, the principle of proportionality has played an
focused significantly on addressing systemic risks posed by important role in day-to-day bank supervision. A comparison
financial institutions while being onerous on non-systemic of the proportionality approaches (beyond what is offered
entities. In turn, this has triggered an intense debate on the by the Basel framework) that have already been applied or
principle of ‘proportionality’ in banking regulation, i.e., how are planned in six jurisdictions, namely, Brazil, the
best to tailor regulatory requirements to non-internationally European Union (EU), Hong Kong SAR, Japan, Switzerland
active banks, especially smaller and less complex ones and the United States (US) brings out interesting facets
(Carvalho, et. al., 2017). (Table 1).
The proportional regulation approach is not new. Under The US and Brazil apply Basel-based standards to large
Basel II, the characterisation of market risk marked the international banks, although the alternative prudential
beginning by offering both a standardised approach and an requirements applied to other banks are not necessarily less
internal model-based approach. Pillar 2 under Basel II stringent. Banks are divided into specific categories based
contains elements of proportionality as supervisors are on size/international activity in Brazil, Japan and Switzerland
allowed to take into account size, complexity, business model and banks in the same category are subjected to the same
and risk profiles of individual banks in exercising their set of regulations, while in the EU, the US and Hong Kong,
judgement. In this context, the Basel framework suggests rules corresponding to specific Basel standards are adjusted
that national jurisdictions can adopt domestic regulations for banks meeting the set criteria. Exemptions from the Basel
that exceed the minimum. standards have often been applied to the liquidity framework,
disclosure requirements, counter-party credit risks, large
Some countries have decided to apply the Basel standards
exposure framework and measurement of market risk. The
on capital, liquidity and disclosure requirements to a wider
principle-based regulations like Pillar 2 and interest rate
set of banks, while some others have opted for the
risk in the banking book offer scope to further reduce the
proportional use of regulations depending on the risks they
regulatory burden.
pose to financial stability. Several jurisdictions have
implemented specific regulatory standards for smaller and
(Contd....)
3 In view of the inherent risk, there is higher minimum capital requirements of 15 per cent for the newly licensed SFBs, along with
subjecting them to all prudential norms and regulations as applicable to universal commercial banks. PBs are also subjected to 15
per cent minimum capital requirements along with a minimum leverage ratio of 3 per cent as against 4.5 per cent for commercial
banks at present. The prescribed minimum capital requirements for NBFCs also stands at 15.0 per cent. Further, all co-operative
banks are also required to achieve and maintain a minimum CRAR of 9 per cent from March 31, 2017 as part of harmonisation
of capital regulations. As part of the revised regulatory framework for the AIFIs, the Reserve Bank proposes to extend various
elements of Basel III standards, after due consultations with stakeholders.
4Perspectives on the Indian Banking Sector
Table 1: Targeted Areas for Proportional Regulations – The advocacy for proportionality in regulation, inter alia,
Select Jurisdictions includes (i) the costs imposed by regulation on regulatory
agencies, regulated entities and customers; (ii) unintended
Basel Pillars/ Brazil European Hong Japan Switzer- United
Issues Union Kong land States consequences such as changes in business models of
SAR banks; (iii) the potential for disproportionate regulation to
induce arbitrage within the financial system, with the
Pillar 1
danger of migration of activities towards less-regulated
Liquidity Yes Yes Yes Yes Yes Yes
regulation institutions and the capital market; (iv) the possibility of
(LCR and NSFR) disproportionate regulation undermining competition by
Counterparty Yes* Yes* Yes No Yes Yes increasing barriers to entry for new entrants, especially
credit risk small players; and (v) the potential for generating wider
Large exposures Yes* Yes Yes* No Yes Yes* costs to the economy when regulations distort some of the
framework basic functions of the financial system. Thus, proportionality
Credit risk Yes* No Yes No Yes Yes is about balancing costs and benefits of regulation
Market risk Yes* Yes Yes Yes Yes Yes (European Banking Authority’s Banking Stakeholder
Minimum capital No No No Yes No No Group, 2015). Proportionality should entail rules which
ratios are simpler but not necessarily less stringent (Carvalho,
et. al., 2017).
Pillar 2
Interest rate risk Yes* Yes No No Yes* Yes References:
in the banking
Carvalho, Ana Paula Castro, S. Hohl, R. Raskopf and S.
book
Ruhnau (2017), “Proportionality in Bank Regulation: A
Capital planning Yes Yes No Yes Yes Yes
Cross-country Comparison”, FSI Insights No.1, August,
and supervisory
review** Financial Stability Institute, Bank for International
Settlements (BIS).
Pillar 3
European Banking Authority’s Banking Stakeholder Group
Disclosure Yes* Yes* Yes No Yes Yes
requirements (2015), Report on Proportionality in Bank Regulation,
December.
*: Expected; **: Including stress testing.
Source: Carvalho, Ana Paula Castro, S. Hohl, R. Raskopf and S. Reserve Bank of India (2016), “Basel III Capital Regulations”,
Ruhnau (2017), “Proportionality in Bank Regulation: A Cross-country March 31, Available at https://rbidocs.rbi.org.in/rdocs/
Comparison”, FSI Insights No.1, August, Financial Stability Institute,
content/pdfs/58BS300685FL.pdf
Bank for International Settlements (BIS).
Promoting Digitisation and Managing Technology permeate to ‘last mile’ touchpoints and boost
Enabled Financial Services financial inclusion. The Government’s Start-Up
India programme, which aims to nurture
I.14 Recent initiatives4 have opened up vast innovations, and the India Stack platform, which
opportunities for both the incumbent financial offers a state-of-the-art technological framework
institutions as well as for FinTech5 to introduce to businesses, startups and developers aimed at
large scale innovations in financial services that presence-less, paperless and cashless service
4 Pradhan Mantri Jan Dhan Yojana (PMJDY) for promoting financial inclusion, Aadhaar-enabled eKYC verification and linking with
bank accounts to facilitate seamless financial transactions and development of robust payment infrastructure such as unified
payments interface (UPI) for instant real-time digital payments.
5 FinTech is defined as technology-enabled innovation in financial services that could result in new business models, applications,
processes or products with an associated material effect on the provision of financial services (FSB, 2017).
5Report on Trend and Progress of Banking in India 2016-17
delivery, provide a conducive environment for currency, challenging various forms of traditional
accelerated growth of FinTech6, which would pave financial intermediation and even the conventional
way for leveraging new technology in the provision monetary system. International standard setting
of financial services.
bodies are increasingly focusing attention on
I.15 From a global perspective, FinTech understanding the opportunities and risks
innovations are bringing in alternatives to fiat associated with the FinTech revolution (Box I.2).
Box I.2: The FinTech Revolution: Impetus, Opportunities and Risks
Globally, technology-enabled innovations in financial services Table 1: Size of FinTech Credit Market by Jurisdiction
(popularly known as FinTech) have been growing rapidly in (US$ Million)
the past few years, at both retail and wholesale levels. From
2013 2015
an analytical perspective, FinTech activities are classified
into five categories of financial services: (i) payments, clearing China 5,547 99,723
and settlement; (ii) deposits, lending and capital raising; USA 3,757 34,324
(iii) insurance; (iv) investment management; and (v) market
UK 906 4,126
support.
Japan 79 326
The FinTech landscape has been evolving. Global investment Australia 12 276
in FinTech increased rapidly till 2015. Subsequently, despite Germany 48 205
moderation, it remains robust, registering US $8.2 billion France 59 201
in aggregate in Q3 2017 across 274 deals (The Pulse of Canada 8 71
FinTech Q3 2017, KPMG). Simultaneously, there is South Korea 1 38
significant adoption of FinTech across major markets (Chart
Singapore 0 21
1). FinTech activities are also growing rapidly, as reflected
India 4 20
in the sharp increase in the market size of FinTech credit in
certain jurisdictions, although they remain small relative to Source: Financial Stability Board (2017), Report on ‘FinTech
Credit: Market Structure, Business Models and Financial Stability
overall credit (Table 1).
Implications’, May 22.
Driving the FinTech revolution are forces, such as (i)
consumer preference for convenience, speed, cost financial regulations and supervisory requirements. The
effectiveness and user-friendliness in financial interactions; emergence of FinTech is also attributed to the high cost of
(ii) technological advancement related to internet, big data, financial intermediation by incumbents, despite significant
mobile telephony, and computing power; and (iii) changing improvements in information technology (IT), pointing
towards inefficiency of the existing system. Estimates suggest
that the unit cost of financial intermediation in the US has
remained around 2 per cent for the past 130 years, with only
a marginal decline since the crisis (Philippon, 2017). It is
similarly high in other major countries like Germany, the
UK and France (Bazot, 2013). This implies that the benefits
of improvements in IT have not percolated to the end-users
of financial services.
Although the size of FinTech is small relative to the global
financial services sector at present (BCBS Consultative
Document, BIS, August 2017), it has the potential to
transform the way that financial services are delivered and
designed as well as fundamentally alter the underlying
(Contd....)
6 The PwC’s FinTech Trends Report, 2017 notes that over 95 per cent of financial services incumbents in India seek to explore
FinTech partnership.
6Perspectives on the Indian Banking Sector
processes of payments, clearing, and settlement (Brainard, expertise and study alternative configurations of digital
2016). Today, it has permeated across the entire financial currencies.
services value chain and in the process has demonstrated
Although many of these issues are not new, they are
the potential to directly compete with/challenge the
important for promoting financial stability, fostering
traditional financial intermediation by banks. The true
responsible innovation and developing a more inclusive
promise of FinTech springs from its adeptness at
financial system. As regards regulation, a consensus is
unbundling banking into its core functions of settling
emerging that it should aim at creating a conducive
payments, performing maturity transformation, sharing
environment for FinTech to grow without compromising
risk and allocating capital (Carney, 2017). This potential is
investor trust and confidence, efficiency and integrity of the
being driven by new entrants – payment service providers,
market and the stability of the financial system.
aggregators and robo advisers, peer-to-peer lenders and
innovative trading platforms. A stocktake of regulatory approaches to FinTech by the FSB
reveals that the most common model is the “regulatory
As many FinTech innovations have not yet been tested sandbox”, where new products or services can be tested in
through a full financial cycle, it is important to analyse both a (controlled) environment. This is used by Australia,
the potential benefits and risks from the perspective of Canada, Hong Kong, Korea, Netherlands, Singapore and the
financial stability. The potential benefits include (i) UK, while Mexico, Turkey and Saudi Arabia are considering
decentralisation and increased intermediation by non- this model, and Indonesia is in the process of establishing
financial entities; (ii) greater efficiency, transparency, a regulatory sandbox. Other approaches include “innovation
competition and resilience of the financial system; and (iii) accelerators” and “innovation hubs” as well as other forms
greater financial inclusion and economic growth, particularly of interaction, in order to promote innovation and improve
in emerging market and developing economies (FSB, 2017). interactions with new FinTech firms.
Potential risks include (i) micro-financial risks such as credit
References:
risk, leverage, liquidity risk, maturity mismatches and
operational risks, especially cyber and legal risks; and (ii) Bazot, G. (2013), “Financial Consumption and the Cost of
macro-financial risks such as unsustainable credit growth, Finance: Measuring Financial Efficiency in Europe (1950-
increased interconnectedness or correlation, procyclicality 2007)”, Working Paper, Paris School of Economics.
and contagion incentives for greater risk-taking by incumbent
Brainard, Lael (2016), “The Opportunities and Challenges
institutions.
of FinTech”, Remarks at the Conference on Financial
Innovation at the Board of Governors of the Federal Reserve
The FSB (2017) has identified ten issues, three of which are
System, Washington, D.C., December.
considered as priorities for international cooperation, viz.,
managing operational risks from third-party service Carney, Mark (2017), “The Promise of FinTech – Something
providers; mitigating cyber risks; and monitoring macro- New Under the Sun?”, Speech delivered at the Deutsche
financial risks. Moreover, it recommends that national Bundesbank G20 Conference on “Digitising Finance,
authorities should pay attention to cross-border legal issues Financial Inclusion and Financial Literacy”, Wiesbaden,
and regulatory arrangements, develop governance and Germany, January 25.
disclosure frameworks for big data analytics, assess the
Financial Stability Board (2017), “Financial Stability
regulatory perimeter and update it on a timely basis.
Implications from FinTech: Supervisory and Regulatory
Regulators should also encourage shared learning with a
Issues that Merit Authorities’ Attention”, June.
diverse set of private sector parties. Open lines of
communication need to be developed across relevant Philippon, Thomas (2017), “The FinTech Opportunity”, BIS
authorities, build staff capacity in new areas of required Working Papers, No. 655, August.
Bringing FinTech under the regulatory ambit Managing Cyber Security Risks
should provide a level-playing field and encourage
I.16 The policy push towards digitisation of the
financial innovations. In this context, the Reserve
Bank is working on framing an appropriate financial system to realise the goal of a less-cash
response to the regulatory challenges posed by economy hinges crucially on the safety and
developments in FinTech in India. security of financial transactions enabled by a
7Report on Trend and Progress of Banking in India 2016-17
robust cyber-security framework. In recognition, occurrence in future. In this regard, the setting up
the Reserve Bank has been advising banks to of a transparent and comprehensive PCR will help
improve their security preparedness on a address information asymmetry and enhance
continuous basis. As proposed in the Sixth Bi- efficiency of the credit market9. Embedded in the
monthly Monetary Policy Statement, 2016-17 on jump in India’s ranking in the World Bank’s ‘Doing
February 8, 2017, an inter-disciplinary Standing Business Report 2018’ (to 100 from 130 in the
Committee has been constituted to, inter alia, previous year) was an improvement in the ‘ease
review the threats inherent in the existing/emerging of getting credit’ (increase in score from 65 to 75).
technology on an ongoing basis and suggest
I.19 With a comprehensive time-bound
appropriate policy interventions to strengthen resolution mechanism in place under the IBC
cyber security and resilience. efforts are underway to broaden reforms. The
Financial Resolution and Deposit Insurance Bill,
III. The Way Forward
2017 introduced in the Lok Sabha on August 10,
I.17 In the fast changing financial landscape, 2017 seeks to provide speedy and efficient
banks will need to rework their business resolution of distress for certain categories of
strategies, innovate on products tailored to financial service providers and recommends
customers’ needs, and improve efficiency in the establishment of a Resolution Corporation (RC)
delivery of customer-centric financial services to for protection of consumers of specified service
regain their role as principal financial providers and of public funds. This is also
intermediaries. Given India’s relatively low credit expected to address the moral hazard problem
penetration7, this may even be a desirable outcome associated with various forms of government
so as to enhance credit flow and revive the guarantees.
investment cycle.
I.20 In an increasingly interconnected financial
I.18 As regards stress in the banking system, system, banks and financial institutions can
benefit each other by improving corporate
banks can take advantage of the IBC to clean up
governance. This is more in the nature of self-
their balance sheets and improve performance on
regulation with safeguards to ensure that
a sustained basis to remain competitive. Instead
principles and rules laid down by the regulators
of waiting for regulatory directions, banks can file
are followed conscientiously10.
for insolvency proceedings on their own8 to realise
promptly the best value for their assets. In I.21 Banks have been preparing to fully comply
conjunction, banks need to strengthen their due with the new IFRS-converged Indian accounting
diligence, credit appraisal and post-sanction loan standards beginning April 1, 2018 by building
monitoring to minimise the risks of such adequate capital to meet the increase in provisioning
7 Bank credit to non-financial corporations in India stood at around 48 per cent of GDP in Q1 2017 as against over 93 per cent for
the G-20 (Bank for International Settlements (BIS)).
8 Acharya, Viral V. (2017), “The Unfinished Agenda: Restoring Public Sector Bank Health in India”, Speech delivered at the 8th R. K.
Talwar Memorial Lecture, September.
9 Acharya, Viral V. (2017), op. cit.
10 Patel, Urjit R. (2017), op. cit.
8Perspectives on the Indian Banking Sector
requirements on account of shift to the ECL GDP, 45 per cent of manufacturing output, 40 per
reporting system. cent of exports, and employment for 120 million
persons), FinTech lending companies and market-
I.22 Bank customers/borrowers are likely to
based lending could provide an alternative source
demand more transparency in fees levied and
of finance and fill the large funding gap faced by
interest rates charged on various financial
small businesses12, a phenomenon observed
services/products. In this context, the
across EMEs13. The availability of large digital
recommendations of the Reserve Bank’s “Internal
databases on potential borrowers, mobile density,
Study Group to Review the Working of the
e-commerce and usage of smart-phone based
Marginal Cost of Funds Based Lending Rate
services is likely to reduce the cost of assessing
(MCLR) System” to shift from internal benchmarks
creditworthiness of SMEs. Banks may also adopt
like the base rate or MCLR-based loan rate setting
financial technologies for making credit decisions
to an external benchmark warrant consideration.
and/or even enter into strategic collaborations with
The Group also recommends that the spread over
agile FinTech firms.
the external benchmark should remain fixed all
through the term of the loan, the reset period on 1.25 A Trade Receivables Discounting System
all floating rate loans should be reduced from once (TReDS) has been introduced as an institutional
in a year to once in a quarter, and banks should mechanism for facilitating the financing of trade
be encouraged to accept bulk deposits at floating receivables of MSMEs. All the three entities that
rates directly linked to the external benchmark. had received in-principle approval were issued
final Certificates of Authorisation and have
I.23 Banks face sustained competitive pressure
commenced operations during the year.
to increase efficiency and productivity by leveraging
on technological developments and product I.26 In a digital environment, it becomes
innovations. In this regard, banking with the incumbent on banks to have an effective cyber-
unbanked may probably give banks an edge over security policy as part of their overall risk
other financial intermediaries by leveraging on management framework. Cyber-attacks entail a
their branch networks. Customers at the bottom reputational risk for banks, as they undermine
of the pyramid may hold the key to big business customer confidence. The Reserve Bank has been
opportunities. FinTech developments globally are issuing guidelines from time to time to enhance
targeting hitherto excluded sections of the cyber-security awareness and to collaborate with
population and/or small businesses11. the industry in upgrading cyber-security resilience
on an ongoing basis.
I.24 Given the potential of the micro, small and
medium enterprises (MSMEs) sector in India I.27 To sum up, the Indian economy is
(around 51 million units contribute 8 per cent of undergoing structural transformation. At this
11 According to PwC’s FinTech Trends Report, 2017, there are roughly 1500 FinTech startups, big and small, operating in India, and
almost half were set up in the past two years.
12 A Report by Deloitte “FinTech in India: Ready for Breakout” released in July 2017 estimates the credit gap in India’s MSE segment
(with annual revenue up to `30 million) at `8.33 trillion.
13 According to the World Bank (SME Finance Brief, September 1, 2015), the total credit gap for both formal and informal SMEs in
EMEs is as high as US$ 2.6 trillion.
9Report on Trend and Progress of Banking in India 2016-17
juncture, reaping the full benefits of demographic, products in an efficient and cost-effective
technological and financial developments appear manner. Supportive prudential regulations
critical for sustaining high and inclusive growth. aimed at p romoting financial innovations
This requires strategic coordination between without compromising safety of financial
conventional banks and new players like small transactions, integrity of financial markets and
finance banks, payments banks and also stability of the financial system are imperative
FinTech entities for providing financial services/ to facilitate this silent revolution.
10Chapter II
Global Banking Developments
Global reforms have improved resilience of banking systems around the world even as concerns
pertaining to bank profitability and asset quality remain. Bank balance sheet clean-up is still underway
in some jurisdictions, while in others, banks are moving towards supporting growth. Performance of
the 100 largest global banks was broadly the same in 2016 relative to the previous year. Considerable
progress has been made on the global regulatory reform agenda, though it is still far from complete.
I. Introduction Section III. The performance of the 100 largest
global banks is examined in Section IV. Section V
II.1 In the wake of the global financial crisis
reviews the progress on the global reform agenda.
(GFC), the European Sovereign Debt Crisis
Section VI gives the concluding observations and
(ESDC) and right up to 2016, the persisting
provides an outlook.
fragility of the banking system has engaged intense
attention at national and multinational levels,
II. The Macro-Financial Environment
remaining as it does a major downside risk to
II.3 Global growth shed its sluggishness in the
global growth. The massive retrenchment of bank
first half of 2016 and led by AEs it gradually
lending, as these entities deleverage and buffer up
gathered momentum in the second half. In the
is a major factor underlying the shrinking of global
first three quarters of 2017, it gained traction and
capital flows from the pre-crisis peak. In 2016,
became broad-based healing commodity exporting
cross-border claims of Bank for International
large EMEs and lifting them out of recessionary
Settlements (BIS) reporting banks declined to 41.5
conditions. Even as AEs and EMEs are recoupling
per cent of GDP from 42.3 per cent in 2015. Global
their growth profiles, inflation conditions are
credit conditions eased in early 2017 and
converging below targets in AEs and softening in
international bank credit continued to grow in late
EMEs in conjunction with their unemployment
2016 and early 2017 but grew negatively in Q2:
rates. World trade has also picked up in line with
2017. Credit to non-banks was the key driver of
the upturn in global activity. This has implications
the growth in international bank claims. Currently,
for EMEs seeking to harness the engine of world
the global banking system is repairing and
trade to integrate into the global economy and
conforming to a new set of global rules. Though
achieve their growth aspirations. General
progress has been made in making banks safer,
government debt levels in AEs remain elevated
sounder and resilient, the global reform agenda
exceeding GDP while in EMEs they are less than
is far from complete.
half of GDP on average (Chart II.1). External
II.2 Against this backdrop, Section II sets out imbalances have narrowed at the global level
the macroeconomic backdrop against which it abstracting from noteworthy imbalances at the
analyses the performance of the global banking country level. Geo-political dynamics are likely to
system in terms of key financial soundness shape the emerging outlook alongside the spill
indicators. Developments in the banking systems overs from the normalisation of the monetary
of some advanced economies (AEs) and emerging policy and the downsizing of balance sheets by
market economies (EMEs) are presented in systemic central banks.Report on Trend and Progress of Banking in India 2016-17
II.4 Bank credit, a key leading indicator of rapid growth in credit relative to its peers even
real activity1 in view of the close movement with its economic activity moderating relative to
between real and financial cycles remains the recent past.
divergent across jurisdictions. In the Euro area,
II.5 These dynamics in credit growth have
declining or low credit growth is exhibiting
influenced household debt, which continues to
hysteresis. Even constituent countries, which
grow in some AEs and EMEs and ebb in others
engineered quick balance sheet clean-ups are
with China, UK, USA, India and Russia experiencing
experiencing some recent moderations after a
an increase in 2016 over 2015 (Chart II.3).
brief credit rebound (Chart II.2). Country specific
Key Financial Soundness Indicators
issues in EMEs have had a moderating impact
on credit growth. While asset quality concerns II.6 The banking systems in some jurisdictions
restrained credit growth in Russia and India, low are still in repair while in other jurisdictions banks
growth and dwindling demand from corporates are moving towards supporting growth even as
pushed overall credit growth into the negative in they seek to increase capital and become profitable.
Brazil. By contrast, China is still experiencing A core set of indicators measuring profitability,
1 See M. Garcia-Escribano and Fei Han (2015), ‘Credit Expansion in Emerging Markets: Propeller of Growth?’, IMF Working Paper,
WP/15/212, September.
12Global Banking Developments
13Report on Trend and Progress of Banking in India 2016-17
buffers to insulate from stress in assets and in
meeting the Basel III standards’ requirements.
RoAs across banks in AEs have been improving
since 2009 but they declined during 2016
reflecting country-level dynamics. Most strikingly,
Greek banks registered positive RoAs after being
in the red for two years largely due to a decrease
in loan-loss provisions and an increase in net
interest and non-interest incomes. RoAs of banks
in Italy and Portugal turned negative in 2016 as
revenues declined and asset impairments
increased. RoAs of banks in the UK and USA
remained stable but low largely due to moderation
in operating income growth (Chart II.4).
II.8 In EMEs, banks’ RoAs reflected a
combination of elevated loan delinquencies, high
credit costs and general lack of demand. These
asset quality and capital adequacy indicate the
factors weighed on banks’ profitability in
progress made over time and also summarise the
Brazil,China, India and Mexico. Banks in Russia,
current health of the banking systems.
South Africa and Turkey improved their
Return on Assets
performance in 2016 over the previous year with
II.7 With banking activity facing significant banks in Russia exhibiting a sharp turnaround.
headwinds, banks’ return on assets (RoAs)2 Banks in Indonesia continued to be the most
remained subdued inhibiting their ability to profitable largely due to relatively high net interest
expedite balance sheet repairs and augment capital margins.
2 Ratio of net income to average total assets.
14Global Banking Developments
Capital Adequacy position of Indian banks improved in 2016 over
the previous year.
II.9 Capital adequacy proxied by the ratio of
regulatory capital to risk-weighted assets (CRAR)
Asset Quality
generally improved across banks in AEs during
2016 though country-specific issues led to II.10 The non-performing loans (NPL) ratio3 – a
reduction in bank capital in Italy and Portugal. measure of asset quality – declined across banks
Similarly, CRAR positions of EME banks improved in most AEs, barring Greece, Italy and Portugal,
and they continued to maintain capital above the facing the overhang of the crisis-induced duress.
regulatory minimum (Chart II.5). Banks in the UK Among other countries there was a considerable
continued to maintain the highest capital ratio improvement in asset quality in Germany, the UK
among AEs. Banks in Indonesia remained the and USA (Chart II.6). In most EMEs, the NPL ratio
most capitalised banks among EMEs. The capital generally increased relative to 2010. Sector-
3 Ratio of non-performing loans to total loans.
15Report on Trend and Progress of Banking in India 2016-17
specific issues encumbered banks’ asset quality impacted asset quality in China. Asset quality
in India, while banks in Russia and Brazil were concerns prompted policy action in many
constrained by general economic weaknesses. jurisdictions in the form of ‘Prompt Corrective
Stress induced by heightened corporate leverage Action’ (Box II.1).
Box II.1: Prompt Corrective Action across Jurisdictions
Prompt Corrective Action (PCA) refers to the imposition of PCAs across the Globe
appropriate regulatory sanctions on troubled financial
USA: PCA of supervisory actions was introduced for insured
institutions as and when they begin to exhibit symptoms of
depository institutions, which were not adequately
stress. The fundamental premise behind the PCA framework
capitalised. Banks were placed in one of the five zones (well
is based on the ‘to act before it’s too late’ principle. A set of
capitalised; adequately capitalised; undercapitalised;
criteria is used to determine the severity of a bank’s stress
significantly undercapitalised; and critically undercapitalised)
and restrictions are placed on its management and activities
based on three capital ratios (common equity Tier 1 (CET1);
accordingly. PCA’s core lies in a sequence of increasingly
Tier I and total risk-based capital ratios) (IMF, 2015). Every
harsh restrictions as the problem worsens so that banks
zone other than the well capitalised zone, has a set of
have little incentive to delay corrective actions. It reduces
mandatory and discretionary provisions with increasing
the moral hazard associated with the Lender-of-Last-Resort
severity (Table 1).
(LOLR) and makes banks liable to improve their overall
financial health.
Table 1: The PCA Framework in Various Jurisdictions
USA UK Canada India
Number of 5 5 4 3
Stages
Names of Stages Stage 1: Stage 1: Low risk to viability Stage 1: Early warning Three thresholds defined
Well Capitalised Stage 2: Stage 2: for each indicator
Stage 2: Moderate risk to viability Risk to financial viability or
Adequately Capitalised Stage 3: solvency
Stage 3: Undercapitalised Risk to viability absent action Stage 3:
Stage 4: by the firm Future financial viability in
Significantly Undercapitalised Stage 4: serious doubt
Stage 5: Imminent risk to viability of firm Stage 4:
Critically Undercapitalised Stage 5: Non-viability/ insolvency
Firm in resolution or being imminent
actively wound up
Key Parameters Capital and leverage Risk to viability Financial viability or solvency Capital, asset quality,
profitability
Indicators Used Total Capital, Tier 1 capital, Elements of the supervisory Combination of an institution’s CRAR/CET 1 ratio, net
CET 1 ratio, leverage, assessment framework that overall net risk, capital and NPA ratio and return on
supplementary leverage. reflect the risks faced by a firm earnings, risk management assets. Leverage ratio is
and its ability to manage them or control deficiencies, which tracked additionally as
— external context, business present a serious threat to its a part of the framework.
risks, management and financial viability or solvency.
governance, risk management
and controls, capital and
liquidity.
Method of Thresholds are defined for each Quantitative and qualitative Quantitative and qualitative Thresholds are defined
Categorisation indicator. analysis is carried out assessment of banks is carried for each indicator.
for Proactive Intervention out.
Framework (PIF) scores.
Rule-based Every stage, other than the well UK’s PIF gives guidance to Every phase has an indicative Rule-based regime with
capitalised zone, has a set of banks on possible supervisory set of actions. Authorities may specified mandatory
mandatory and discretionary actions for the PIF stage they choose to implement their actions for each phase
provisions with increasing are in. powers on a case-to-case basis. and a common menu of
severity. discretionary actions.
(Contd....)
16Global Banking Developments
UK: The PCA framework in the UK [labelled the proactive adhere to international best practices, the Reserve Bank
intervention framework (PIF)] has five stages each denoting started the PCA scheme in December 2002. It worked out a
a different proximity to failure and every firm sits in a
schedule of corrective actions based on three indicators –
particular stage at each point in time. A firm’s PIF stage is
capital ratios, the net NPA ratio and RoA.
reviewed at least annually and, if need be, at higher frequency
depending on material developments (BOE, 2016). As a firm On the directions of the Financial Stability and Development
moves to a higher PIF stage – as the Prudential Regulatory Council (FSDC) sub-committee, the framework was reviewed
Authority (PRA) determines that the firm’s viability has
recently and a revised PCA framework was implemented
deteriorated – supervisory actions become more stringent.
with effect from April 2017. The indicators to be tracked for
PRA assesses the risk to viability using qualitative and
capital, asset quality and profitability are capital to risk-
quantitative indicators.
weighted assets ratio (CRAR); the common equity Tier 1
Canada: The PCA framework in Canada is a flexible
ratio; net NPA ratio; and RoA. New risk thresholds have also
intervention regime, which has no predetermined set of
been defined and a breach of these will lead to the invocation
mandatory actions for every phase. The Guide to Intervention
for Federally Regulated Deposit-Taking Institutions indicates of PCA and mandatory and discretionary action. Further, a
what action / intervention will typically occur at what stage. common menu of discretionary actions has been laid out for
The office of the Superintendent of Financial Institutions each PCA bracket (RBI, 2017).
(OSFI) and / or the Canada Deposit Insurance Corporation
(CDIC) have the freedom to deal with specific problems or References:
institutions on a case-to-case basis, thus making the
Bank of England (2016), The Prudential Regulation
framework flexible.
Authority’s Approach to Banking Supervision. London,
India: In contrast to these frameworks, the PCA framework March.
in India is more broad-based and rule-based. It emphasises
the importance of capital ratios, asset quality and profitability. IMF (2015), United States – Financial Sector Assessment
A priori, information about discretionary and mandated Programme. Country Report No. 15/89, Washington DC,
actions makes banks aware of the sanctions that they might April.
have to face once they breach risk thresholds. The Banking
Regulations Act, 1949 empowers the Reserve Bank to take Reserve Bank of India (2017), Revised Prompt Corrective
action when early warning signals of distress are visible. To Action (PCA) Framework for Banks, April.
Leverage Ratio Financial Market Indicators
II.11 The ratio of capital to unweighted total II.12 Market-based indicators of bank health
assets, also called the leverage ratio, works as an and profitability have shown steady improvement
adjunct to risk-weighted capital ratios in tracking reflecting progress in banks’ balance sheet repairs,
the banks’ capital adequacy. The GFC proved that improved prospects of bank profitability and
risk weights were not perfect and that a firm’s sanguine market sentiments. Banks’ equity prices
assets must be backed by at least some minimum generally maintained an upward momentum
amount of capital. The leverage ratio has generally through 2016 with banks in Europe and the US
improved across banks in AEs and EMEs largely experiencing the largest gains relative to banks in
due to a regulatory push under Basel III which EMEs, especially since mid-2016 (Chart II.8).
sets a threshold of 3 per cent. Among AEs, banks Similarly, bank credit default swap (CDS) spreads
in the US and Greece maintained the most capital narrowed, reflecting investors’ increasing comfort
about their health. Banks in the UK and North
relative to unweighted assets while banks in
America had the lowest CDS spreads. European
Indonesia and Malaysia had high leverage ratios
banks’ declining CDS spreads underscore the
among the EMEs (Chart II.7).
17Report on Trend and Progress of Banking in India 2016-17
progress made in bank balance sheet clean-ups, The US Banking System
especially in Italy, Spain and Portugal.
II.14 Credit growth in the US banking system
III. Banking Developments: Select Advanced was positive from Q1:2012 and broad-based
and Emerging Market Economies favouring sectors like real estate and commercial
and industrial loans. However, in 2017 credit
II.13 Developments in the systemic banking
systems in the US, UK and Euro area have a growth in the US moderated as tightening credit
bearing on the global economy and are constantly standards took a toll on commercial real estate,
evolving. On the other hand, the state of banking credit cards and auto loans, coupled with muted
systems in China, Brazil and Russia depicts the demand for commercial and industrial loans.
condition of banks in peer EMEs, which are at Deposit growth, on the other hand, has grown at
various stages of the economic cycle and are a slightly higher pace relative to credit in 2017,
grappling with their own issues. so far (Chart II.9).
18Global Banking Developments
II.15 Asset quality, represented by delinquency rates for sub-prime credit card and auto loans
rates,4 improved as the US economy recovered from Q2:2016.
and a policy-led bank balance sheet clean-up was
The UK Banking System
initiated. Delinquency rates on real estate loans
contributed the most to the overall delinquency II.16 Amidst uncertain conditions surrounding
rates. With these declining sharply from the post- Brexit, banks in the UK remained resilient with
GFC peaks, improvements in asset quality are improving capital and leverage ratios and falling
reflected in a lesser number of institutions and funding costs. Bank lending picked up and deposit
lower amounts of assets failing (Chart II.10). growth remained robust (Chart II.11). The
Nonetheless, there was an uptick in delinquency recovery in credit growth was largely led by growth
4 Delinquent loans are those that are past due 30 days or more and still accruing interest as well as those with a non-accrual status.
They are measured as a percentage of loans outstanding at the end of the period.
19Report on Trend and Progress of Banking in India 2016-17
in loans to households, with pick-up in loans to poised to support growth. Increasing demand for
other financial corporations in recent quarters. loans, easing credit standards and lower rejection
Within household credit, rapid growth in consumer rates on loans for enterprises continued to
credit amidst easier mortgage market lending support credit growth. Commensurately, assets
standards raised concerns about loan serviceability of Euro area banks increased for four quarters
in view of the relatively slower growth in nominal ending Q1:2017, even as they took lesser recourse
household incomes. to wholesale funding (Chart II.13a). Lending
surveys suggest a general easing of credit
II.17 Similarly, growth in loans to businesses
conditions in the Euro area (Chart II.13b).
improved in 2017 so far, due to the recent recovery
However, despite these developments, credit to
led by the growth in loans to large businesses
the non-financial sector in major Euro area
(Chart II.12a). The Bank of England’s Credit economies, barring France, remained below the
Condition Survey (BOE-CCS) suggests that going levels seen before the Euro area sovereign debt
forward growth in loan availability to SMEs is crisis (Chart II.13c).
likely to be small but positive while credit
II.19 Nonetheless, asset quality remained
availability for medium-sized enterprises is
impaired in the Euro area by country-specific
expected to be inert (Chart II.12c). There are also
issues and structural challenges such as ‘over-
concerns relating to defaults on unsecured
banking’, which have implications for bank
individual credit (Chart II.12d). Uncertainties
profitability (Table II.1). Marking considerable
about Brexit and low profitability will continue to
progress in bank balance sheet repairs in the Euro
condition the interplay between banks and
area, banks in Italy and Portugal were recapitalised
financial stability.
in 2016, followed by a few banks in Spain and
Italy in June and July 2017. Weak bank profitability,
The Euro Area Banking System
however, remains a challenge. On average, the cost
II.18 As the much-expected cyclical recovery of equity is more than the return on equity for the
takes hold in Europe, banks in the Euro area are EU banking system.
20Global Banking Developments
II.20 In a scenario of low-for-long interest rates, The Chinese Banking System
growth in bank deposits in the Euro area has been
II.21 As the Chinese economy reorients towards
declining from mid-2015 across all components
barring household deposits (Chart II.14). a more balanced and sustainable growth model,
Consequently, banks’ net income margins may the pace of its credit expansion has come off the
remain under pressure. post-GFC highs though it remains higher than its
21Report on Trend and Progress of Banking in India 2016-17
peer economies (Chart II.15a, also see Chart II.2). the world, while it remains negative in other peer
China’s credit-to-GDP gap is one of the highest in economies. Sustained high credit growth pushed
Table II.1: Ratio of Non-performing Loans and Advances (NPL Ratio, Per cent)
Country Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17
Austria 8.1 8.0 8.0 7.7 7.4 6.9 6.5 6.0 5.8 5.1 4.6 4.3
Belgium 4.2 4.3 4.0 4.0 3.9 3.9 3.7 3.6 3.4 3.2 2.9 2.8
Cyprus 55.3 50.8 49.5 49.6 50.0 48.9 48.5 47.4 46.7 45.0 43.8 42.7
Estonia* - - - - - - 1.6 1.5 1.4 1.3 1.3 1.3
Finland 2.2 1.6 1.6 1.5 1.4 1.6 1.5 1.5 1.5 1.6 1.6 1.7
France 4.6 4.2 4.3 4.2 4.2 4.0 4.0 3.9 3.9 3.7 3.5 3.4
Germany 3.9 3.9 3.7 3.5 3.6 3.6 3.6 3.4 3.2 3.1 2.9 2.7
Greece 37.4 39.7 40.0 42.0 43.5 46.2 46.6 46.9 47.1 45.9 46.2 46.5
Ireland 23.3 21.6 21.0 20.4 19.6 17.8 15.1 14.6 14.4 12.2 11.5 11.7
Italy 16.3 17.0 16.7 16.8 16.9 16.8 16.6 16.4 16.4 15.3 14.8 12.0
Latvia 6.0 5.7 5.6 5.5 4.9 4.0 3.9 3.7 3.6 3.2 2.9 2.7
Lithuania 7.2 6.3 6.4 6.0 5.5 5.1 4.9 4.5 4.1 3.8 3.7 3.3
Luxembourg 1.3 1.4 1.3 1.5 1.4 1.1 1.2 1.0 1.2 1.1 1.1 1.1
Malta* - - 7.3 7.2 7.5 6.2 6.8 5.4 4.6 4.4 4.2 3.9
Netherlands 3.1 3.3 3.2 2.9 2.8 2.8 2.7 2.7 2.6 2.5 2.4 2.5
Portugal 17.0 18.0 18.2 18.1 18.8 19.6 19.8 20.1 19.8 19.5 18.5 17.6
Slovakia 5.7 5.4 5.5 5.4 5.2 5.2 5.0 4.8 4.6 4.2 4.1 3.8
Slovenia* - - - - 24.6 21.5 19.7 19.2 16.3 14.4 13.5 13.3
Spain 8.8 8.1 7.7 7.1 6.8 6.3 6.3 6.0 5.9 5.7 5.5 5.4
* Data is not disclosed for a few quarters because it was reported for less than three institutions.
Note: Deep red signifies the highest NPL ratio across time for a country while deep green represents the lowest NPL ratio.
Source: European Banking Authority.
22Global Banking Developments
the outstanding credit to about twice the Chinese
GDP, which was about 25 per cent higher than
trend at end-2016 (Chart II.15b). Combined with
an elevated debt service ratio, this may be an early
indication of the building up of stress in the
Chinese banking system (Chart II.15c). In line with
declining asset quality, the profitability of the
Chinese banking system is also under pressure
although Chinese banks have comfortable capital
positions (Chart II.15d). Nonetheless, many
financial institutions continued to depend heavily
on wholesale funding and ‘shadow credit,’5 with
sizeable asset-liability mismatches and burgeoning
liquidity and credit risks. The recent turbulence
in money markets in China highlighted the
vulnerabilities in the interconnected system as
Credit-to- Debt Service DSR if Interest
GDP Gap Ratio (DSR) Rates Rise by
250 bps
Brazil -3 2.9 4.5
Russia -2.8 2.3 3.6
India -7.8 0.8 1.9
China 24.6 5.4 8.8
South Africa -2.5 -0.2 1.1
Credit/GDP gap>10 DSR>6 DSR>6
2≤Credit/GDP gap≤10 4≤DSR≤6 4≤DSR≤6
5 The International Monetary Fund (2017), Global Financial Stability Report: Is Growth at Risk ? Washington, DC, October.
23Report on Trend and Progress of Banking in India 2016-17
stress in one sector translated into strains in commensurate increase in provisions is likely to
related sectors. cushion the impact of adverse asset quality on
financial stability in Brazil. During 2017 so far,
II.22 Policies addressing high credit growth and
the banking sector’s performance has improved
excess capacity in state-owned enterprises are in
as the economy emerges from the recession. NPLs
place in China, which are likely to shore up
have declined, RoAs have improved and banks’
macroeconomic and financial stability. On the
capital position has strengthened further.
other hand, large and complex exposures of intra-
financial institutions warrant policy attention. The Russian Banking System
Achieving a fine balance between the objectives of
II.24 The Russian economy is emerging from a
maintaining high growth and the need for
recession largely induced by external factors.
deleveraging is engaging policy authorities in
Increase in oil prices will aid its recovery with
China.
commensurate improvements in the performance
The Brazilian Banking System
of the banking sector. All components of credit
II.23 The 2016 recession in Brazil brought about have increased in 2017 so far with personal loans
a challenging operating environment for banks returning to positive growth (Chart II.17a). The
which was reflected in declining credit and bank resilience of Russia’s banking sector has improved
profitability and increasing NPL ratios (Chart II.16 as limits have been set on related-party
a and b). Outstanding credit started declining in transactions, policies have been put in place to
Q2: 2016 with the magnitude of decline increasing reduce dollarisation and a tiered supervisory
for loans to industry in 2017 so far, pushing the framework has been set up (Chart II.17b). Banks’
credit-to-GDP gap further into the negative. profitability has improved largely on increase in
Corporate credit risks materialised in 2016, net interest margins and lower provisioning in
mainly among large corporates. However, stabilising non-performing loans.
24Global Banking Developments
IV. World’s Biggest Banks: Profitability, increased their share in total assets led by Chinese
Health and Soundness6 banks while banks in the UK suffered the largest
loss of share between 2015 and 2016.
II.25 The sample of the world’s top 100 banks
when ranked by Tier 1 capital remained largely Profitability and Asset Quality
the same in 2016 as in the preceding year.
II.26 Profitability of the largest 100 banks as
Commensurate with the increasing role of EME
measured by return on assets, was more or less
banks in the global economy, their number among
the top 100 banks (when ranked by Tier 1 capital) unchanged between 2015 and 2016; 95 banks
has been rising, which was also mirrored in their recorded positive RoAs in 2016 as compared to
shares in total banking assets (Chart II.18). 96 banks in 2015 (Chart II.19a), although a larger
Interestingly, nearly all EME banks in the top 100 number of banks had RoAs between 2-3 per cent
6 Data drawn from the Banker Database of the Financial Times. The analysis pertains to the largest 100 banks when ranked by Tier
1 capital.
25Report on Trend and Progress of Banking in India 2016-17
in 2016 relative to 2015. Improving asset quality, to 50 banks in 2015 (Chart II.20a). Moreover, all
with fewer banks having NPLs of more than 5 per the top 100 banks maintained a CAR of more than
cent in 2016 as compared to 2015, is driving the 3 per cent, the regulatory minimum prescribed
gradual return to profitability (Chart II.19b). under Basel III.
II.27 Alongside the improvements in asset II.28 In addition to the improvements in CAR,
quality, banks’ stronger capital positions enabled banks’ capital position relative to assets adjusted
a concomitant reduction in financial leverage. In for risk also improved in 2016. Banks with capital
2016 more banks in the top 100 maintained to risk-weighted assets ratios (CRAR)7 of more
higher capital relative to assets than in the than 16 per cent, that is, double the level
previous year; 53 banks had capital assets ratios prescribed under Basel III, increased in 2016 over
(CARs) of at least 6 per cent in 2016 as compared the previous year (Chart II.20b). Nonetheless,
7 CRAR is measured as the sum of Tier 1 and Tier 2 capital, both net of deductions, divided by total risk-weighted assets, expressed
as a per cent.
26Global Banking Developments
banks with higher capital were not the most Making Financial Institutions More Resilient
profitable as declining asset quality has been
II.31 Considerable progress has been made in
taking its toll through income losses and
implementing the Basel III norms (Table II.2). As
provisions (Chart II.21a and b).
a result, banks now have a larger capital base and
more liquid assets than before thereby building
V. Global Policy Reforms
resilience without impeding credit supply. All
II.29 Drawing lessons from the GFC, a number major internationally active banks have met risk-
of reforms are underway to reduce the likelihood based capital and leverage ratio requirements well
and severity of future cataclysms while nurturing in advance of the deadline and global liquidity
an open and integrated global financial framework standards are catalysing the change in bank
in supporting the G20 objectives of strong, funding models. Further, jurisdictions in which
sustainable and balanced growth. global systemically important banks (G-SIBs) are
headquartered have implemented higher loss
Regulatory Reforms
absorbency requirements.
II.30 The reform programme has four core
Ending-Too-Big-To-Fail
elements: (i) making financial institutions more
resilient; (ii) ending the too-big-to-fail (TBTF); (iii) II.32 The identification processes for G-SIBs
making derivatives markets safer; and (iv) and global systemically important insurers
transforming shadow banking into resilient (G-SIIs) are in place and the annual review of the
market-based finance. The main elements of list of G-SIBs and G-SIIs enables continuous
reforms have been agreed to and the reforms are assessment of these institutions (Table II.3).
at various stages of implementation. Apart from G-SIBs are subject to higher capital buffer
these reforms, work is also underway to strengthen requirements and have to meet total-loss absorbing
governance frameworks to reduce misconduct capacity (TLAC) requirements in addition to Basel
risks, assess and address the decline in III’s regulatory capital standards. G-SIBs have
correspondent banking and analysing FinTech’s increased capital by about US$ 1 trillion since
potential financial stability implications. 2009 while reducing assets thereby fortifying
27Report on Trend and Progress of Banking in India 2016-17
Table II.2: Adoption Status of Basel III - Table II.3: Implementation of Reforms –
Number of Basel Committee Member Resolution (As of end-June 2017)
Jurisdictions (End-March 2017)
Minimum Transfer / Recovery Transfer /
TLAC bail-in / and bridge / run-
Basel standard BCBS Status as of end-
requirement temporary resolution off powers
agreed March 2017
for G-SIBs stay powers planning for insurers
date of
(home for banks for
implemen- Draft Final Final
jurisdictions) systemic
tation rules rules rules
banks
issued issued in
(not in force
Brazil
force)
China
Risk-based capital standards
Germany
Definition of capital Jan 2013 -- -- 27 India
Capital conservation buffer Jan 2016 -- -- 27 Indonesia
Counter-cyclical buffer Jan 2016 1 -- 26 Russia
Capital requirements for equity Jan 2017 11 -- 8 South Africa
investments in funds
Turkey
Standardised approach for Jan 2017 13 1 5 UK
measuring counterparty credit
risk (SA-CCR) USA
Securitisation framework Jan 2018 11 3 -- Legend:
Margin requirements for non- Sep 2016 2 -- 18
Final rule for external Total Loss Absorbing Capacity (TLAC) requirement
centrally cleared derivatives
for G-SIBs published and implemented. Element of resolution regime
Capital requirements for CCPs Jan 2017 11 1 5 in the FSB Key Attributes of Effective Resolution Regimes for Financial
Institutions (Key Attributes) that is implemented / in place. For the
Liquidity standards powers columns, all three of the resolution powers for banks (transfer,
bail-in and temporary stay) and insurers (transfer, bridge and run-off)
Liquidity coverage ratio (LCR) Jan 2015 -- -- 27
are available. Both recovery and resolution planning processes are in
LCR disclosure requirements Jan 2015 1 -- 16 place for systemic banks.
Net stable funding ratio (NSFR) Jan 2018 16 1 1 Final rule for external TLAC requirement for G-SIBs published but
NSFR disclosure requirements Jan 2018 12 -- 1 not yet implemented, or draft rule published. Element of resolution
regime in the Key Attributes that is partially implemented / in place.
Other Basel III standards For the powers columns, one or two of the resolution powers for banks
(transfer, bail-in and temporary stay) and insurers (transfer, bridge and
Leverage ratio Jan 2018 2 1 19 run-off) are available. Recovery planning is in place for systemic banks,
Leverage ratio disclosure Jan 2015 1 -- 26 but resolution planning processes are not.
requirements
Draft rule for external TLAC requirement for G-SIBs not published.
G-SIB requirements Jan 2016 -- -- 19 Element of resolution regime in the Key Attributes that is not
implemented / in place. For the powers columns, none of the three
D-SIB requirements Jan 2016 1 -- 26
resolution powers for banks (transfer, bail-in and temporary stay) and
Pillar 3 disclosure requirements Dec 2016 3 9 8 insurers (transfer, bridge and run-off) are available. Neither recovery
nor resolution planning processes are in place for systemic banks.
Large exposures Jan 2018 11 -- 2
Requirements reported as non-applicable.
Source: Basel Committee on Banking Supervision (2017), Implementation
of Basel Standards, July.
Source: Financial Stability Board (2017), Implementation and Effects
of the G20 Financial Regulatory Reforms, 3rd Annual Report, July.
balance sheets. In addition, liquidity and loan-to-
deposit ratios have improved. Thus, reliance on the International Association of Insurance
wholesale funding has fallen, even as about two- Supervisors (IAIS) is developing an activities-
third of G-SIBs’ non-core assets have been based approach to systemic risk assessment for
disposed-off.8 A new assessment framework for the insurance sector. Work is also underway to
G-SIBs was put forth by the Basel Committee on identify non-bank non-insurer global systemically
Banking Supervision (BCBS) in March 2017 and important financial institutions (NBNI G-SIFIs).
8 International Monetary Fund (2017), Global Financial Stability Report: Is Growth at Risk ? Washington, DC, October.
28Global Banking Developments
Making Derivatives Markets Safer improve data quality and remove legal barriers to
reporting and accessing trade repositories’ data.
II.33 Meaningful progress has been made in
implementing reforms in over-the-counter (OTC) Transforming Shadow Banking into Resilient
derivatives market, particularly for trade reporting Market-based Finance
and interim higher capital requirements for non-
II.34 The risk elements of shadow banks, which
centrally cleared derivatives (Table II.4). About
precipitated the GFC have abated and currently
three-fourth of the jurisdictions have implemented
do not pose financial stability risks. Vulnerabilities
comprehensive central clearing frameworks while
in the repo market and money market funds
about half of the jurisdictions have implemented
(MMFs) have also been addressed (Table II.5).
comprehensive margin requirements and trading
Implementation of the policy measures
platform frameworks. Progress has also been
recommended by the International Organisation
made in improving transparency via the use of
of Securities Commissions (IOSCO) is reducing
trade repositories, while central counterparties
the risk of runs in money market funds. These
(CCPs) have been rendered more resilient through
recommendations have been implemented in the
prescription of higher capital. Further to the
US and China in addition to five other FSB
progress made, work is underway to improve
Table II.5: Implementation of Reforms –
CCPs’ resilience, recovery planning and
Shadow Banking (As of end-June 2017)
resolvability. Efforts are also being made to
Money market funds (MMFs) Securitisation
Table II.4: Implementation of Reforms –
Brazil **
Over-the-Counter Derivatives
China
(As of end-June 2017)
Germany **
India
Trade Central Platform Margin
reporting clearing trading Indonesia **
Russia **
Brazil F
South Africa **
China R, D, F Turkey **
Germany UK ** *
India D, F USA
Indonesia R
Legend:
Russia
MMFs – Final implementation measures in force for valuation, liquidity
South Africa D, F
management and (where applicable) stable net asset value (NAV).
Turkey D, F Securitisation – Final adoption measures taken (and where relevant in
force) for implementing an incentive alignment regime and disclosing
UK
requirements.
USA
Draft/final implementation measures published or partly in force for
Legend: valuation, liquidity management and (where applicable) stable NAV.
Securitisation – Draft/final adoption measures published or partly in
Legislative framework in force and standards/criteria/requirements force for implementing an incentive alignment regime and disclosing
(as applicable) in force for over 90 per cent of relevant transactions. requirements.
Regulatory framework being implemented. MMFs – Draft implementation measures not published for valuation,
liquidity management and (where applicable) stable NAV. Securitisation
No regulatory framework in place. – Draft adoption measures not published for implementing an incentive
alignment regime and disclosing requirements.
R: Legal barriers to domestic participants’ reporting to trade repositories
(TRs) for which cure / mitigant is not available. * / ** : Implementation is more advanced than the overall rating in one
D: Access to domestic TR data by domestic authorities other than or more / all elements of at least one reform area (MMFs), or in one or
primary authority not permitted, or permitted with material conditions. more / all sectors of the market (securitisation). The 2017 update was
undertaken by IOSCO using the assessment methodology in its 2015
F: Direct or indirect access to domestic TR data by foreign authorities peer reviews in these areas.
not permitted, or permitted only with material conditions.
Source: Financial Stability Board (2017), Implementation and Effects Source: Financial Stability Board (2017), Implementation and Effects
of the G20 Financial Regulatory Reforms, 3rd Annual Report, July. of the G20 Financial Regulatory Reforms, 3rd Annual Report, July.
29Report on Trend and Progress of Banking in India 2016-17
jurisdictions. Advancements have been made in (iv) strengthening tools for due diligence by
implementing fair valuation of MMF portfolios correspondent banks. FSB’s Correspondent
though progress in liquidity management has been Banking Data Report highlights a decline in the
limited. There has also been increased participation number of correspondent banking relationships
in efforts to track trends and risks in non-banks’ (CBRs), especially for the US dollar and the euro.
activities. Reasons for the termination of CBRs include
industry consolidation; lack of profitability;
Addressing Misconduct Risks
overall risk appetite; and various causes related
II.35 FSB is implementing an action plan to to anti-money laundering and countering the
address misconduct risks through a range of financing of terrorism (AML / CFT) or sanctions
preventive measures, focusing on: (i) improvements regimes.
in financial institutions’ governance and
FinTech’s Implications
compensation structures; (ii) improvements in
II.37 In its report to the G20 on Financial
global standards of conduct in the fixed income,
Stability Implications from FinTech in June 2017,
commodities and currency markets; and (iii)
FSB highlighted 10 areas that merit authorities’
reforms in major financial benchmark
attention of which three are seen as priorities for
arrangements to reduce the risk of their
international collaboration to safeguard financial
manipulation.
stability while fostering more inclusive and
Correspondent Banking sustainable finance: (i) managing operational risks
from third-party service providers; (ii) mitigating
II.36 FSB is implementing a four-point
cyber risks; and (iii) monitoring macro-financial
action plan to assess and address the decline in
risks that could emerge as FinTech’s activities
correspondent banking, comprising of:
increase.
(i) examining the dimensions and implications
of the issue; (ii) clarifying regulatory expectations Macroprudential Policies
as a matter of priority including guidance by the II.38 In a renewed focus on re-regulation the
Financial Action Task Force (FATF) and the macroprudential policies have been refined
Basel Committee on Banking Supervision; (Box II.2). The first two Basel frameworks were
(iii) domestic capacity-building in jurisdictions largely microprudential in nature. Under Basel
that are home to affected respondent banks; and III, a comprehensive macroprudential framework
Box II.2: Role of Macroprudential Policies in the post-Global Financial Crisis Period
Macroprudential policies have three interlocking dynamic loan loss provisioning requirement (DPR) have been
intermediate objectives: (a) increasing the resilience of the used to cover ‘expected losses’ over a cycle whereas the
financial system to aggregate shocks; (b) containing the counter-cyclical capital buffer (CCCB) has been primarily
build-up of systemic vulnerabilities over time; and (c) used to dampen the pro-cyclicality of bank lending and to
controlling structural vulnerabilities within the financial cover ‘unexpected losses’. This improves the financial
system. In an overarching sense, a macroprudential policy system’s resilience and shields the real economy from the
involves the use of primarily prudential tools to limit adverse effects of constricted liquidity conditions during
systemic risks (IMF-FSB-BIS 2011). crises. Complementing these tools is the leverage ratio, which
seeks to augment the banking system’s resilience by
In the post GFC period, macroprudential policies have been
capturing leverage over and above normal prudential metrics
used in both advanced and emerging market economies to
to ensure that the banks are not leveraged excessively beyond
reduce the ‘agency problems’ of moral hazard and adverse
their capacity to absorb losses.
selection (Chart 1). Broad-based capital tool buffers like the
(Contd....)
30Global Banking Developments
Sectoral capital requirements nudge banks towards been addressed and liquidity risks have reduced (Yellen,
internalising the cost of lending to particularly vulnerable 2017). Macroprudential policies could also potentially
sectors. On the other hand, loan-to-value (LTV) caps address involve output costs and may inhibit growth by affecting
elements of adverse selection and moral hazard and break credit supply and investments. There is also recognition that
the feedback loop between bank lending and asset prices. there could be newer risks outside the current pedagogy of
Debt-service-to-income (DSTI) ratios and the debt-to-income policy prescriptions which could destabilise the world
(DTI) ratios increase households’ resilience to income and economy. One such risk is the latent run-like behaviour in
interest rate shocks. They can be augmented by increasing bond markets (Francia et al., 2016). At best, macroprudential
risk weights on unsecured household borrowings to check policies reduce the likelihood of a crisis without eliminating
leakages. it completely. Other policies need to work in conjunction to
safeguard financial stability.
Information content in the credit-to-GDP gap, that is,
positive deviations of the credit-to-GDP ratio from its long- References:
term trend, is used as an early warning signal. In addition,
Darbar, S.M and K. Habermeier (2015), ‘Experiences with
positive deviations of asset prices from their long-term
Macroprudential Policy—Five Case Studies’, WP/15/123,
trends also signal impending banking distress. Increase in
International Monetary Fund, June.
property prices relative to rents and income point to a
potential build-up of vulnerabilities. The debt service ratio HKMA (2011), ‘Loan-to-value Ratio as a Macroprudential
has been found to be a better performing early warning Tool – Hong Kong SAR’s Experience and Cross-country
indicator for shorter horizons. Funding large amount of Evidence’, BIS Papers No. 57, Bank for International
credit from non-core sources signals the degree of risk Settlements, October.
being taken by banks.
IMF (2014), “Staff Guidance Note on Macroprudential Policy”,
Though the evidence on the effectiveness of a macroprudential December.
policy is still emerging, a number of studies suggest a
IMF-FSB-BIS, (2011), “Macroprudential Policy Tools and
favourable outcome. Resilience and credit growth are found
Frameworks: Progress Report to G20”, October.
to be supported by capital-based tools while sectoral capital
requirements have been found to increase buffers (IMF, Ramos-Francia, M and S. Garcia-Verdu (2016),
2014). Tools such as LTV, loan-to-income (LTI) and DSTI “Macroprudential Policy Regulation: Some Continuing
ratios have been successful in breaking the feedback loop Challenges”, BIS Policy Papers no. 86, September.
between credit and asset prices in Singapore (Darbar et
Yellen, J.L (2017), ‘Financial Stability a Decade After the
al., 2015) and Hong Kong (HKMA, 2011)
Onset of the Crisis’, Remarks at Fostering a Dynamic Global
The loss-absorbing capacity of many global banks has Recovery – a Symposium, Federal Reserve Bank of Kansas
increased, risks related to maturity transformation have City, Jackson Hole, Wyoming, August.
31Report on Trend and Progress of Banking in India 2016-17
has been put in place and it continues to evolve related market data with expert judgment.
taking into account countries’ experiences and Similarly, administrators of LIBOR and TIBOR
knowledge gained in the implementation of these have adjusted the methodologies of these
policies. benchmarks to account for a lack of substantial
data. Work is also underway to identify new or
Pillar 3 Disclosure Requirements
existing RFRs, which could be used in place of
IRBs in a range of contracts, particularly
II.39 The BCBS issued a new standard for
derivatives. However, limited progress has been
disclosures under Pillar 3 in March 2017. This
made in transitioning from IRBs to RFRs even
standard consolidates all existing BCBS disclosure
when RFRs are available.
requirements into the Pillar 3 framework and
makes two enhancements to the existing framework
VI. Summing up
– it introduces a dashboard of a bank’s key
II.41 Considerable progress has been made in
prudential metrics, which will provide users of
improving banks’ health in AEs since the global
Pillar 3 data with an overview of a bank’s
financial crisis. By contrast, country-specific
prudential position. It also has a new disclosure
factors have led to a spike in non-performing loans
requirement for those banks, which record
in some EMEs. Banks’ capital positions have
prudent valuation adjustments (PVAs) to provide
improved and financial leverage is now contained.
users with a granular breakdown of how a bank’s
Credit growth is picking up in AEs with banks’
PVAs are calculated. Further revisions to the Pillar
balance sheets repairs whereas supply and
3 standards include revised disclosure
requirements for market risk arising from the demand-side factors have led to a slowdown in
revised market risk framework published by credit growth in a number of EMEs. Against the
BCBS in January 2016. backdrop of global growth regaining strength and
spread, bank profitability remains low and in
Reforming Major Interest Rate Benchmarks
some cases below the cost of capital for banks,
II.40 In 2014 a combination of attempted
hindering their ability to organically augment
manipulation of interest rate benchmarks (IRBs)
capital bases and expand credit more strongly.
and a decline in liquidity in key unsecured
The emergence of FinT ech also poses a danger to
interbank markets led FSB to make
bank profitability in some cases while providing
recommendations aimed at enhancing IRBs and
an avenue for cutting costs through efficiency gains
promoting the development of nearly risk-free
and hence boosting profitability in others. While
reference rates (RFRs). A number of measures
reforms have made the global banking system
are being taken to test and improve the robustness
safer and more resilient and macroprudential
of methodologies of the Euro Interbank Offered
policies have reduced vulnerabilities and supported
Rate (EURIBOR), the London Interbank Offered
Rate (LIBOR) and the Tokyo Interbank Offered traditional policies, risks remain. In particular,
Rate (TIBOR). The European Money Market greater acceptance of crypto-currencies is
Institute has been developing a hybrid model for becoming a formidable risk to the traditional
EURIBOR, which will combine transactions and banking system.
32Chapter III
Policy Environment
The prudential and supervisory policies of the Reserve Bank aimed at fostering improvements in the
overall health of the banking system and promoting financial stability. The Reserve Bank continued
with initiatives to improve financial intermediation in the economy. Various developmental and
regulatory policy measures are being taken for further strengthening the banking structure and
enhancing the efficacy of the payment and settlement systems. Various structural reforms were
introduced during the year to improve the business environment and increase formalisation of the
economy. These are expected to be growth augmenting over the medium to long-term.
I. Introduction policy measures for non-banking financial
companies, customer services and payments and
III.1 Amidst visitations of turbulence in global
settlements. Section X provides details of banking
financial markets and an environment rife with
sector legislations and the last section gives
geo-political tensions, the relative calm engendered
concluding observations.
macroeconomic stability in India in the year 2016-
17 enabled financial sector policies to focus on
II. Monetary Policy and Liquidity
repair, consolidation and intensification of the
Management
agenda of reforms. Even as aligning the regulatory
III.3 Monetary policy in India underwent a
framework with the work of the Basel Committee
regime change during 2016-17. The amendments
on Banking Supervision (BCBS) under the Basel
to the Reserve Bank of India (RBI) Act, which came
III framework remained a priority, including
into force on June 27, 2016, provided it the
through the G20 processes, the Reserve Bank
legislative mandate to operate the monetary policy
fine-tuned its regulatory and supervisory policies
framework with its objective explicitly defined as
to ensure a sound, resilient and inclusive banking
‘to maintain price stability while keeping in mind
system. Effective financial sector oversight on the
the objective of growth.’ On August 5, 2016, the
basis of three pillars – regulation, surveillance and
Government notified the inflation target as 4 per
enforcement, improving cyber security with
cent year-on-year growth in CPI-combined
greater digitisation and provision of better
inflation with upper and lower tolerance levels of
customer services to the vulnerable sections of
6 and 2 per cent, respectively. The amended RBI
the population – were concomitantly pursued.
Act also provides for the formation of a six-
III.2 Against this backdrop, the chapter member Monetary Policy Committee (MPC)
enumerates policy initiatives undertaken in the entrusted with the decision on setting the policy
banking sector during 2016-17 and 2017-18 so rate. In turn, the Reserve Bank was enjoined to
far. Policy initiatives in the area of monetary policy, set out the operating framework in the public
liquidity management, credit delivery and financial domain explaining implementation of the MPC’s
inclusion are outlined from section II to section decision. The Reserve Bank’s monetary policy
IV. Section V and VI discuss prudential regulatory statement laid out the operating framework of the
and supervisory policies. Section VII to IX cover monetary policy and the adjustments thereto haveReport on Trend and Progress of Banking in India 2016-17
been reported in subsequent policy statements/ market sales under the market stabilisation
monetary policy reports (MPRs). The operating scheme (MSS); and (iii) variable rate reverse repos
framework aims at modulating liquidity conditions of various tenors ranging from overnight to 91-day.
so as to ensure that the operating target – the The peak level of liquidity absorbed reached
weighted average call money rate (WACR) – evolves `7,956 billion on January 4, 2017.
in close alignment with the policy rate.
III.6 The incremental cash reserve ratio (ICRR)
III.4 Liquidity operations were recalibrated absorbed surplus liquidity of `4,000 billion. With
under a revised framework announced in April the Central Government enhancing the limit on
2016 which, inter alia, included smoothening issuance of securities under MSS from `300
liquidity supply through timely use of open market billion to `6,000 billion on December 2, 2016 by
purchase / sale auctions in conjunction with the Central Government, the Reserve Bank
normal liquidity facilities and fine-tuning withdrew the ICRR. Anticipating liquidity surplus
operations. The objective was to progressively
declining due to remonetisation, the Reserve Bank
balance liquidity in the system to a position closer
increasingly resorted to reverse repo operations
to neutrality. As a result, the net position under
to absorb the surplus liquidity released through
the liquidity adjustment facility (LAF) switched
maturing MSS securities, especially from January
from an average daily liquidity injection (or system
14, 2017 onwards. In Q4: 2016-17 (since January
level deficit) of `813 billion during Q1: 2016-17
7), remonetisation progressed at an accelerated
to an average daily absorption (or system level
pace, with currency in circulation increasing
surplus) of `63 billion in October 2016. In the
cumulatively by about `4,373 billion. This reduced
process, scheduled redemptions of FCNR (B)
the liquidity surplus in the system to `3,141
deposits during September-November 2016 were
billion as on March 31, 2017.
managed without any perturbations in market
III.7 Anticipating that the surplus liquidity
liquidity.
conditions may persist throughout 2017-18, the
III.5 Beginning November 9, 2016 the
Reserve Bank provided guidance on liquidity in
demonetisation of high value specified bank notes
April 2017, which contained the following
(SBNs) resulted in currency in circulation
elements: (i) use of Treasury Bills (T-bills) and
declining by 50 per cent by January 6, 2017.1 As
dated securities under the MSS up to `1 trillion;
low-cost current account and savings account
(ii) issuances of cash management bills (CMBs) of
(CASA) deposits surged into the banking system,
appropriate tenors up to `1 trillion in accordance
a wall of system level liquidity moved through
with the memorandum of understanding (MoU)
domestic financial markets threatening financial
with the Government of India; (iii) open market
stability. To manage surplus liquidity, the Reserve
operations; and (iv) fine tuning reverse repo / repo
Bank used a mix of both conventional and
operations to modulate day-to-day liquidity.
unconventional instruments: (i) temporary
application of an incremental cash reserve ratio III.8 For 2017-18, the limit on issuances of
(ICRR) of 100 per cent on an increase in banks’ securities under the MSS was reduced by the
net demand and time liabilities (NDTL) between Government to `1 trillion from `6 trillion. As the
September 16 and November 11, 2016; (ii) open Government front-loaded spending ahead of the
1 The estimated value of SBNs received as on June 30, 2017 was `15.28 trillion out of the total value of `15.44 trillion of demonetised
bank notes.
34Policy Environment
monsoon, CMBs of different tenors were issued Interest Subvention Scheme on Short-term
to manage temporary mismatch in government Crop Loans
cash balance position. The Reserve Bank withdrew
III.10 With a view to ensuring availability of
liquidity to the tune of `1 trillion from the system
agricultural credit (including loans taken against
through the issuance of T-bills of tenors ranging
Kisan Credit Card (KCC)) at a reasonable cost / at
from 312 days to 329 days under the MSS. The
a reduced rate of 7 per cent per annum to farmers,
remaining liquidity surplus was absorbed
the Government of India, through its budget
primarily through the variable rate reverse repo announcement for the year 2006-07, had
auctions. During 2017-18 (up to November 10), introduced an interest subvention scheme (2 per
currency in circulation increased by `3.2 trillion. cent) for short term crop loans up to `0.3 million.
However, its impact on reducing the surplus This scheme is being implemented through public
liquidity in the system was more than offset by sector banks and private sector banks
higher expenditure by the government and large (reimbursement through the Reserve Bank),
redemption of government securities, beside RBI’s regional rural banks and co-operatives
foreign exchange market operations. The average (reimbursement through NABARD). Currently,
daily absorption of liquidity increased to `4,562 besides 2 per cent interest subvention, 3 per cent
billion (including LAF, MSS and CMBs) during Q1: incentive is given for prompt repayment of loan
2017-18 from `3,141 billion as at end-March reducing the cost to 4 per cent. This scheme is
2017, but declined to `4,290 billion during Q2: continuing for the year 2017-18 with the aim of
delinking farmers from non-institutional sources
2017-18. As surplus liquidity conditions persisted,
of credit.
open market sales of `900 billion were conducted
during 2017-18, so far. The festival related III.11 Besides, while earlier this interest
currency demand and gradual build-up in subvention was available for a maximum period
Government cash balances reduced the net of one year, in order to discourage distress sale of
average absorption of liquidity to `2,280 billion crops by farmers, the benefit of interest subvention
during Q3: 2017-18 (up to November 14). has been made available to small and marginal
Meanwhile, the LAF corridor was reduced to farmers having KCC for a further period of up to
ensure a firm alignment of the weighted average six months (post-harvest) on the same rate as
call rate (WACR) with the policy rate. The WACR available to crop loans against negotiable
traded closer to the repo rate, but with a softening warehouse receipts. 2 per cent interest subvention
bias from the second week of May 2017, reflecting is also available for the first year on restructured
loans to provide relief to farmers affected by
persistent surplus liquidity conditions.
natural calamities.
III. Credit Delivery
Kisan Credit Card (KCC) Scheme
III.9 During 2016-17, policy measures III.12 Kisan Credit Card Scheme aimed
regarding credit delivery focused on ensuring at providing adequate and timely credit support
smooth flow of credit to the productive and from the banking system under a single window
vulnerable sectors of the economy. They also to the farmers for their cultivation and other needs
aimed at addressing information asymmetry had been in operation since August 1998. Based
through greater transparency and availability of on the recommendations of Working Group
information. (Chairman: Shri T.M.Bhasin), and as accepted by
35Report on Trend and Progress of Banking in India 2016-17
the Government of India, the Reserve Bank has policy initiatives undertaken by the Government
revised the guidelines for Kisan Credit Card dated and the Reserve Bank. Equipping the officials with
May 11, 2012, and August 7, 2012 (the latest technological skills for efficacious discharge of
master circular guidelines being dated July 03, their duties is also part of the programme. As on
2017). Tenant farmers, oral lessees and share September 30, 2017, 7,497 bank officials had
croppers are also covered under the scheme. The undergone training under this initiative.
scheme provides for sanction of the limit for 5
III.15 With effect from August 11, 2016, factoring
years with simplified renewal every year. All the
transactions on ‘with recourse’ basis became
banks have been advised to implement the
eligible for priority sector classification by banks
scheme. The issue of smart-cum debit card,
carrying out the business of factoring
mandated under the revised guidelines, will enable
departmentally to increase liquidity support for
the farmers to access multiple delivery channels
the MSME sector. Factoring transactions taking
Credit Flow to the MSME Sector place through the Trade Receivable Discounting
System (TReDS) platform are also eligible for
III.13 In April 2016, the first Bi-Monthly
classification under the priority sector.
Monetary Policy Statement for 2016-17 announced
that the Reserve Bank will lay out a framework III.16 In August 2015, banks were advised to
for accreditation of credit counsellors who could incorporate in their lending policy to Micro and
act as facilitators to improve the access of Small Enterprises (MSEs) with their boards’
entrepreneurs to the formal financial system. approval a clause for fixing a separate additional
Accordingly, on July 11, 2017, the Small limit specifically for meeting the unforeseen /
Industries Development Bank of India (SIDBI) seasonal increase in working capital requirements,
launched the Certified Credit Counsellors (CCCs) at the time of sanctioning / renewing working
capital limits. In view of possible cash flow
scheme for micro, small and medium enterprises
mismatches faced by MSE borrowers due to the
(MSMEs). This scheme aims to mitigate information
withdrawal of the legal tender status of SBNs of
asymmetry and the perception of high credit risks
`500 and `1,000 denominations, banks were
associated with the MSME sector.
advised to use the facility of providing above-
III.14 The National Mission for Capacity Building
additional limit (approved by their boards)
of Bankers for financing the MSME Sector
‘working capital’ to their MSE borrowers. This
(NAMCABS) is being strengthened with a view to
was a one-time measure up to March 31, 2017
scaling up capacity building of commercial bank
which was normalised from the fresh working
officials engaged in MSME lending. An impact
capital assessment cycle.
assessment survey conducted during August-
Priority Sector Lending Certificates
September, 2016 to assess the impact of NAMCABS
workshops revealed that branches manned by III.17 An important development during 2016-17
trained personnel generally outperformed other was the operationalisation of the Priority Sector
branches, especially in lending to micro enterprises. Lending Certificates (PSLCs) scheme in April
It was, therefore, decided to continue with an 2016. This scheme is a mechanism to incentivise
enhanced and comprehensive capacity building banks to lend to different categories of the priority
programme christened as NAMCABS Version 2. sector and thereby boost overall priority sector
The programme has been made more comprehensive lending. PSLCs allow the market mechanism to
by incorporating latest developments in terms of drive priority sector lending by leveraging the
36Policy Environment
comparative strength of different banks. This interventions to enhance financial inclusion and
scheme allows a bank, to sell the over-achievement increase financial literacy in the country from time
of its target in a particular sector through PSLCs to time. This policy received further fillip during
to another bank, which can buy it to meet its target 2010 with the adoption of financial inclusion
in that sector, while selling its own over-achievement plans, which are self-set targets in blocks of three
of the target in another sector to another bank years which are developed by the Boards of the
and so on. The Reserve Bank has provided a banks to expand the outreach in terms of outlets
platform to enable trading in PSLCs through its and access to a bouquet of products which, inter
core banking solution (CBS) portal (e-Kuber). alia, includes KCCs and General Credit Cards
High-level Task Force on Public Credit (GCCs). In August 2014, the Government of India
Registry launched an ambitious financial inclusion
mission; the Pradhan Mantri Jan Dhan Yojana
III.18 A public credit registry brings about
(PMJDY) to ensure access to basic financial
transparency in credit markets and helps both
services of banking / savings and deposit accounts,
creditors and borrowers. As announced by the
remittances, credit, insurance and pension in an
Reserve Bank in August 2017 under the Statement
affordable manner. Up to December 6, 2017, 307
on Developmental and Regulatory Policies, a High-
million accounts have been opened with a balance
level Task Force on Public Credit Registry (PCR)
of `698 billion.
for India (Chairman: Shri Yeshwant M. Deosthalee)
has been constituted. It has representatives from III.20 Against this backdrop, several policy
various stakeholders, including the Reserve Bank, measures were initiated during the year to ensure
banks, non-banking financial companies (NBFCs), last mile access to financially excluded sections.
industry bodies, and experts in information To strengthen the business correspondent (BC)
technology. The Task Force will review the current model, the Reserve Bank developed a framework
availability of information on credit, the adequacy for the BC registry. This registry shall capture
of existing information utilities, and identify gaps information on both existing and potential
that could be filled by a PCR. It will study best
business correspondents and will help in the
international practices to determine the scope of
effective monitoring and oversight of BC
the PCR and the type of information and credit
operations. This should help to further strengthen
markets that the PCR should cover. The Task
the BC eco-system through appropriate policy
Force will also propose a state-of-the-art
initiatives.
information system, allowing for existing systems
III.21 BCs also play a crucial role in initiating
to be strengthened and integrated, and suggest a
first-time customers into the domain of mainstream
modular, prioritised roadmap for developing a
banking. Proper guidance and handholding is key
transparent, comprehensive and near-real-time
to their continuing and deepening relationship
PCR for India. The Task Force will submit its
report within six months from the date of its with banking. Accordingly, the Reserve Bank has
constitution, i.e., by April 4, 2018. developed a framework for BC certification with
basic and advanced level courses to enhance their
IV. Financial Inclusion functional and behavioural competencies.
III.19 The Reserve Bank of India in co-ordination III.22 The Indian Banks’ Association (IBA) is in
with the Government of India and other the process of putting in place a BC Registry and
stakeholders has come up with various policy is taking forward the process of BC certification.
37Report on Trend and Progress of Banking in India 2016-17
V. Prudential Regulatory Policy III.26 In November 2016, the Reserve Bank
revised its guidelines on resolution of stressed
III.23 The regulatory policies of the Reserve Bank
assets to further strengthen the regulatory
are aimed at orderly development and conduct of
framework for dealing with stressed assets. Some
banking operations, fostering overall financial
of the significant measures include harmonisation
stability and protecting depositors’ interests.
of the stand-still clause applicable in the case of
Given the bank-dominated financial system in
the Strategic Debt Restructuring (SDR) Scheme
India, the Reserve Bank is also striving to develop
with other guidelines; a scheme for sustainable
a more competitive, efficient and heterogeneous
structuring of stressed assets (S4A); flexible
banking structure that can meet varied customer
restructuring of existing long-term project loans
needs in an efficient manner.
to infrastructure and core industries; guidelines
for projects under implementation; and
Revitalising Stressed Assets
clarification on the deemed date of commencement
III.24 Early recognition, and time-bound of commercial operations.
resolution or liquidation of stressed assets is
III.27 Banks were advised on April 18, 2017 to
critical for de-clogging bank balance sheets and
make suitable disclosures in the prescribed
for efficient reallocation of capital2. The Reserve
format, wherever either (a) the additional
Bank and the Government of India have been
provisioning requirements assessed by the
working together to comprehensively address the
Reserve Bank exceeded 15 per cent of the
challenge through a multi-pronged approach.
published net profits after tax for the reference
Specific measures are aimed at strengthening the
period or (b) the additional gross non-performing
legal, regulatory, supervisory and institutional
assets (NPAs) identified by the Reserve Bank
framework with the ultimate objective of facilitating
exceeded 15 per cent of the published incremental
quick resolution of stressed assets in a time-
gross NPAs for the reference period. It is expected
bound manner.
that this will ensure greater transparency and
promote better discipline in compliance with the
III.25 Several measures have been put in place
Reserve Bank’s prudential norms on income
for resolution of stressed assets through optimal
recognition, asset classification and provisioning
structuring of credit facilities, the ability to change
(IRACP).
ownership / management, and greater transparency
in the sale of stressed assets. The system of The Financial Resolution and Deposit
Prompt Corrective Action (PCA) under which Insurance Bill, 2017
specific regulatory actions are taken by the III.28 The Bill aims to establish a framework to
Reserve Bank if banks breach certain trigger carry out the resolution of specified categories of
points was revised recently. The endeavour is to financial service providers in distress, to provide
ensure timely supervisory action by following a deposit insurance to consumers of banking
rule-based approach. In order to ensure effective institutions and for designation of Systemically
supervisory action on serious violations / Important Financial Institutions by the Central
breaches, a separate Enforcement Department Government. The draft Bill on Financial Resolution
has been established. and Deposit Insurance consolidates the resolution
2 Patel, Urjit R. (2017), “Resolution of Stressed Assets: Towards the Endgame”, Inaugural Session of the “National Conference on
Insolvency and Bankruptcy: Changing Paradigm”, Mumbai, August 19.
38Policy Environment
provisions presently scattered in different statutes III.32 In line with the revised BCBS framework
and introduces new requirements as classification on interest rate risk in the banking book, the
of financial service providers into various Reserve Bank issued draft guidelines on
categories of risk to viability, submission of governance, measurement and management of
resolution / restoration plans, etc. and new
interest rate risks in banking books on February
methods for resolution, in accordance with
2, 2017 for feedback / comments.
prevalent international practices. It proposes
creation of a new specialised authority – Resolution Prudential Regulatory Measures
Corporation, tasked with the responsibility of
III.33 With effect from October 20, 2016 it was
carrying out speedy and efficient resolution of
advised that exposure to housing finance
financial service providers. The authority will take
companies (HFCs) be risk-weighted as per the
over the deposit insurance functions presently
rating assigned by the rating agencies registered
exercised by the Deposit Insurance and Credit
with Securities and Exchange Board of India
Guarantee Corporation (DICGC).
(SEBI) and accredited by the Reserve Bank of
Adoption of the Basel III Capital Framework
India.
for Banks
III.34 As a counter-cyclical measure, the loan to
III.29 There has been significant progress
value (LTV) ratio, risk weights and standard asset
towards implementation of Basel III risk-based
provisioning rate for individual housing loans
capital standards, the liquidity standards, the
sanctioned on or after June 7, 2017 were also
standards for global and domestic systemically
rationalised.
important banks (SIBs), the leverage ratio, the
large exposure framework and the interest rate III.35 With effect from June 13, 2017, banks are
risk in the banking book (IRRBB). Basel III Capital permitted to use the ratings of INFOMERICS
Regulations will be fully phased in for Indian
Valuation and Rating Private Limited for risk
banks by March 31, 2019, i.e., close to the
weighting their claims for capital adequacy
internationally agreed date of January 1, 2019.
purposes in addition to the existing six domestic
III.30 In the context of the transition to a credit rating agencies (CARE, CRISIL, FITCH
Liquidity Coverage Ratio (LCR) of 100 per cent by India, ICRA, Brickwork Ratings and SMERA).
January 1, 2019 the Statutory Liquidity Ratio
III.36 Guidelines for computing exposure for
(SLR) was reduced by 50 basis points from 20.0
counterparty credit risk arising from derivative
per cent to 19.5 per cent of banks’ net demand
transactions and on capital requirements for bank
and time liabilities (NDTL) from the fortnight
exposures to central counterparties were issued
commencing October 14, 2017.
on November 10, 2016 with a view to
III.31 To align exposure norms for Indian
comprehensively capture the credit risk from all
banks with the BCBS standards, the Reserve
avenues. This will come into force from
Bank issued guidelines on the Large Exposures
April 1, 2018.
(LE) Framework on December 1, 2016, in terms
of which banks’ exposure to a single and group III.37 As part of effective risk management,
counterparty should normally not be more than banks are required, inter alia, to have separate
20 and 25 per cent of Tier 1 capital, respectively. credit risk management from the credit sanction
The LE Framework will be effective from April process. Given this, guidelines on role of the Chief
1, 2019. Risk Officer, Chief Financial Officer and Chief
39Report on Trend and Progress of Banking in India 2016-17
Technical Officer were issued on April 27, 2017 (including 1 per cent buffer over the erstwhile
to bring uniformity and alignment with best minimum CRAR of 9 per cent). As the total
practices. capital requirements have increased due to
the Capital Conservation Buffer (CCB)
Developmental Regulatory Measures
prescriptions, the minimum CRAR
III.38 With effect from April 18, 2017 banks have
requirement has been aligned with the revised
been allowed to invest in Real Estate Investment
capital stipulations.
Trusts (REITs) and Infrastructure Investment
• Banks have been allowed to become
Trusts (InvITs) within the overall ceiling of 20 per
Professional Clearing Members (PCMs) of
cent of their net worth permitted for direct
commodity derivatives segment of SEBI
investments in shares, convertible bonds/
registered exchanges subject to certain
debentures, units of equity-oriented mutual funds
conditions. Further, banks’ subsidiaries have
and exposure to venture capital funds. Banks
been allowed to offer broking services in the
should put in place a board approved policy on
commodity derivatives segment of the
exposures to REITs/ InvITs, which lays down an
exchange subject to adhering to certain
internal limit on such investments within the
conditions.
overall exposure limits with respect to the real
estate and infrastructure sectors. In addition, III.40 Banks were allowed to provide partial
banks will not invest more than 10 per cent in the credit enhancement (PCE) to bonds issued by
unit capital of an REIT/ InvIT. corporates / special purpose vehicles (SPVs) for
funding all types of projects with a view to
III.39 Following policy changes on “Financial
encouraging corporates to avail of bond financing,
Services provided by Banks” have been
subject to the Reserve Bank’s guidelines. After a
implemented with effect from September 25,
review, on May 18, 2017, banks were advised
2017:
that capital requirements in the books of PCE
• In order to align prudential norms for
provider may be re-calculated without reference
investments in Category I and II Alternative
to the constraints of capital floor and difference
Investment Funds(AIFs), banks were allowed
in notches if the reassessed standalone credit
to invest up to 10 per cent of the unit capital
rating at any time during the life of the bond
of an AIF-II (on similar line to AIF-I) beyond
showed an improvement over the corresponding
which they will require prior approval from
rating at the time of the bond issuance. To
RBI. However, investments by banks in
facilitate this, it was also advised that corporate
Category III AIFs have been specifically
bonds shall be rated by a minimum of two
prohibited. Further, with a view to restrict
external credit rating agencies at all times and
indirect exposure of the bank, a ceiling on the
rating reports, both initial and subsequent, shall
investments by banks’ subsidiaries in AIF-III
disclose both standalone credit rating and the
up to the regulatory minima prescribed by
enhanced credit rating. The aggregate exposure
SEBI on Sponsor / Manager commitment has
limit towards the PCE for a given bond issue from
been prescribed.
the banking system was increased to 50 per cent
• The minimum CRAR required for allowing from 20 per cent of the bond issue size, with a
general permission to banks’ investments in limit of up to 20 per cent of the bond issue size
financial services companies was 10 per cent for an individual bank.
40Policy Environment
III.41 Banks were permitted to raise funds Building a Diversified Banking System
through issuance of rupee denominated bonds
III.44 A discussion paper on wholesale and long-
overseas for the purposes of Perpetual Debt
term finance banks was released in April 2017. It
Instruments (PDI) qualifying for inclusion as
explores the scope of setting up more such
Additional Tier 1 capital and debt capital
differentiated banks alongside payments banks
instruments qualifying for inclusion as Tier 2
(PBs) and small finance banks (SFBs).
capital to provide a fillip to the market for the
III.45 The on-tap licensing policy for universal
rupee denominated bonds overseas and for
banks and guidelines for small finance and
providing an additional avenue for Indian banks
payments banks are a further step in building a
to raise capital / long-term funds. Banks were also
heterogeneous banking system. As different banks
permitted to issue rupee denominated bonds
operate differently, they will be able to offer
overseas for financing infrastructure and affordable
services to a wider range of customers, enhancing
housing.
consumer welfare based on their reach, liquidity,
Customer Protection – Limiting Liability of capitalisation and market power. As part of the
efforts to promote financial inclusion through a
Customers in Unauthorised Electronic
greater focus on small credit and payment /
Banking Transaction
remittance facilities, the Reserve Bank issued
III.42 With the widespread use of electronic
licenses to eight small finance banks and six
banking and rise in complaints relating to
payments banks during 2016-17 taking the
unauthorised / fraudulent transactions, a need
number of licensees to 10 SFBs and seven PBs.
was felt to have a comprehensive policy to limit Nine SFBs and four PBs have commenced
the liability of customers, particularly those who operations. PBs were also permitted to act as BCs
are not at fault. In this regard, a set of guidelines for other banks. Separate operating guidelines
have been issued to the banks in July 2017 for were issued in October 2016 for PBs and SFBs
limiting the customer liability in unauthorised/ considering the differentiated nature of their
fraudulent electronic transactions. businesses and focus on financial inclusion.
Implementation of Indian Accounting Anti-Money Laundering and Combating
Financing of Terrorism and Know Your
Standards (Ind AS)
Customer
III.43 Directions were issued to SCBs (excluding
III.46 Financial Action Task Force3 (FATF) has
RRBs) to comply with Indian Accounting Standards
made a series of recommendations for combating
(Ind AS) for financial statements beginning April
money laundering and financing of terrorism.
01, 2018 with comparatives for the periods ending
FATF conducts Mutual Evaluation of its Members
March 31, 2018 or thereafter. All-India Financial
and other countries from time to time. India is a
Institutions (AIFIs) (Exim Bank, NABARD, NHB
member of FATF. India’s Mutual Evaluation was
and SIDBI) were also advised to follow the Ind AS
last conducted in the year 2010. The next Mutual
for financial statements beginning April 01, 2018
Evaluation is expected to be conducted in the year
(with previous year comparatives). 2020-214.
3 FATF is an inter-government body that sets the standards for measures to counter terror financing, money laundering and other
threats to international financial system.
4 http://www.fatf-gafi.org/media/fatf/documents/assessments/Global-assessment-calendar.pdf
41Report on Trend and Progress of Banking in India 2016-17
III.47 An important part of preparation for FATF incorporating an implementation path and
mutual evaluation is conduct of National Risk monitoring plan under the supervision and
Assessment (NRA) where risk of various sectors monitoring of their boards.
of the economy such as Banking, Insurance,
Specialisation on Banks’ Boards
Capital Markets, Designated Non-Financial
III.50 In order to further align expertise in banks’
Business and Profession (DNFBP) sectors are
boards with the changing contours of the banks’
assessed. In this regard, the Government has set
business, the fields of specialisation of directors
up a Working Group (WG) of its leading agencies
on the boards of commercial banks (excluding
for a NRA of various sectors, based on a
RRBs) were broadened to include: (i) information
methodology formed by the World Bank. The WG
technology; (ii) payment and settlement systems;
is assisted by various teams such as teams for
(iii) human resources; (iv) risk management; and
banking sector, insurance sector, capital market
(v) business management to help bring in persons
sector, other financial institutions, DNFBPs,
with professional knowledge and experience in
financial inclusion, etc. The exercise begins with
these fields to the boards.
the collection of data on sectors that are prone to
III.51 Considering the rapid innovation in
money laundering. The country then has to
banking and technology and also the crucial role
prepare an action plan based on the level of risks
of key managerial personnel such as the Chief
identified.
Risk Officer (CRO), Chief Financial Officer (CFO)
III.48 The sectoral ‘Working Group for Threat and the Chief Technology Officer (CTO) in the
and Vulnerability Assessment of Banking Sector’ bank’s risk governance structure, minimum
was constituted in August 2015. The Group is qualifications were stipulated so that adequately
chaired by the Reserve Bank and has members qualified persons are chosen by the banks for
from various Government agencies as well as these critical functions.
banks. Data for the exercise is being obtained from Branch Authorisation Policy
Government agencies, Regulated Entities and III.52 The branch authorisation policy has been
various Departments of the Reserve Bank in order extensively liberalised over the years consistent
to have a comprehensive coverage of the entire with public interest and the financial inclusion
banking sector. Based on the exercise, the NRA objective. During the year, in a major step towards
report of the banking sector shall be finalised. financial inclusion, the term “Branch” has been
replaced by “Banking Outlet”, which includes both
Capacity Building in Banks and AIFIs
physical (brick and mortar) branches and
III.49 The Committee on Capacity Building
Business Correspondent (BC) outlets. These
(Chairman: Shri G. Gopalakrishna) has made
‘Banking Outlets’ can be manned either by the
extensive recommendations pertaining to the bank’s staff or its BCs. Thus, the ‘fixed point BC
overall human resource management (HRM) outlets’ have been brought on par with the physical
functions. The Committee has also made a (brick and mortar) branches under the revised
number of recommendations for certification of framework. This revised definition will enable
staff. Banks were advised to prepare a banks to expand their network in remote rural
comprehensive policy on the implementation of areas in a cost-effective manner. Further, specific
the Committee’s recommendations for incentive has also been provided to banks for
certification of staff by end-December 2016, opening ‘Banking Outlets’ in Tier 3 to Tier 6
42Policy Environment
centres of north-eastern states, Sikkim and in disclosures, norms for appointing of statutory
left-wing extremism (LWE) affected districts by auditors, review of the prompt corrective action
treating them as equivalent to opening banking (PCA) and enforcement frameworks.
outlets in unbanked rural centres (URC)5. This
Developments in Risk-based Supervision
helps the banks in meeting the stipulation of
III.55 Introduced in 2012-13, the risk-based
opening ‘at least 25 per cent of the total number
supervision under the Supervisory Programme
of ‘banking outlets’ opened during a financial year
for Assessment of Risk and Capital (SPARC) for
in URCs.
banks operating in India has been successfully
implemented over four supervisory cycles. The
VI. Supervisory Policy
framework is inspired by international supervisory
Board for Financial Supervision (BFS) practices but has been conceptualised internally
III.53 The Board for Financial Supervision (BFS) and developed by the Reserve Bank. It is a risk-
centric forward-looking approach, which provides
constituted in November 1994 continues to
a comprehensive, consistent and objective basis
exercise the role of an integrated supervisor over
for supervisory assessment of risk and capital
the financial system covering banks (both
using the integrated risk and impact scoring
commercial and co-operative), local area banks
(IRISc), a proprietary risk scoring and aggregation
(LABs), AIFIs, NBFCs and primary dealers (PDs).
model. By 2016-17, all SCBs operating in India
During July 2016 to June 2017, 11 meetings of
(excluding RRBs and LABs) had been brought
the BFS were held to inter alia review the results
under SPARC framework.
of supervisory assessments of 96 banks and four
AIFIs. Besides prescribing the course of action to III.56 Over the years, the Reserve Bank has been
be pursued for institution-specific supervisory working for enhancing the efficacy and robustness
concerns, BFS also provided guidance on several of supervisory processes and improving
regulatory and supervisory policy issues. supervisory communication. It has also undertaken
a number of capacity building initiatives to
III.54 Keeping in view the directions of the BFS,
sensitise banks on the importance of the risk-
various initiatives were undertaken to strengthen
based approach and the SPARC framework. A
the existing risk-based supervisory framework for
variant model for small foreign banks having one/
banks. Thematic studies were conducted on areas
two branch operations in India was developed and
like levy of commissions and charges by banks
implemented successfully over two years driven
for various facilities availed by customers and
by the proportionality principle. The development
trends in superannuation at senior level in PSBs.
of a suitable framework for supervising newly
Best practices relating to IT infrastructure, CRILC
licensed SFBs and PBs is underway.
reporting and core banking solutions were shared
Revised Prompt Corrective Action (PCA)
with commercial banks. Some of the major issues
Framework for Banks
deliberated upon by the BFS include the
turnaround of banks with weak financial positions, III.57 The Reserve Bank introduced the PCA
compliance culture, the need for enhanced framework for banks in December 2002. In
5 An ‘unbanked rural centre’ (URC) is a rural (Tier 5 and 6) centre that does not have a CBS-enabled ‘banking outlet’ of a scheduled
commercial bank, a small finance bank, a payments bank or a regional rural bank nor a branch of local area bank or licensed
co-operative bank for carrying out customer-based banking transactions.
43Report on Trend and Progress of Banking in India 2016-17
December 2014, the Sub-Committee of the Supervisory Co-operation (EoLs) / Statement of
Financial Stability and Development Council Co-operation (SoC)) with overseas supervisors
(FSDC-SC) directed that an early intervention to strengthen supervisory cooperation. So far,
mechanism in the form of a PCA framework be the Reserve Bank has executed MoUs / EoLs /
put in place for all regulated entities. Accordingly, SoCs with 43 overseas supervisors. In addition,
an Internal Working Group was constituted by the proposals for establishing supervisory co-
Reserve Bank to undertake a comprehensive operation arrangements with respect to 10 other
review of the existing PCA framework for banks, overseas supervisors are in various stages of
keeping in view the recommendations of the consideration. A framework for periodical
Working Group on Resolution Regimes (WGRR) sharing of supervisory information with respect
for Financial Institutions in India (January 2014), to foreign banks operating in India with home
the Financial Sector Legislative Reforms supervisory authorities was also put in place
Commission (FSLRC) (March 2013) as well as
during 2016-17.
international best practices. Capital, asset quality
III.59 The Reserve Bank has established
and profitability remain as key areas for monitoring
supervisory colleges for State Bank of India, ICICI
under the revised framework. Further, leverage
Bank Ltd., Bank of India, Bank of Baroda, Axis
would be monitored in addition. The triggers for
Bank Ltd., and Punjab National Bank, given their
various indicators include Common Equity Tier-1
significant international presence. The main
(CET1) ratio along with CRAR, the net NPA ratio,
objectives of supervisory colleges are enhancing
and return on assets (RoA). Certain risk thresholds
information exchange and cooperation among
have been defined – the breach of which will lead
home and host supervisors and improving an
to the invocation of PCA and result in mandatory
understanding of the risk profile of the banking
and discretionary actions as applicable. The PCA
group thereby facilitating more effective
framework will apply without exception to all
supervision of internationally active banks. The
banks operating in India, including small banks
meetings of the supervisory colleges are held once
and foreign banks operating through branches or
in two years.
subsidiaries. The PCA framework does not
preclude the Reserve Bank of India from taking Appointment of Statutory Central Auditors
any other action it deems fit in addition to the (SCAs) – Modification of Rest Period
corrective actions prescribed in the framework.
III.60 The Rest and Rotation Policy for appointing
The provisions of the revised PCA framework were
SCAs for banks has been mandated to ensure that
implemented with effect from April 1, 2017, based
the audit functions are examined by a new team
on the financials of the banks for the year-ended
with a fresh perspective. The policy also aims to
March 31, 2017.
deter auditors and auditees from compromising
Developments in Cross-border Supervision
adherence to audit principles. All private and
III.58 The Reserve Bank has made significant foreign banks were advised on July 27, 2017 that
progress on supervisory information sharing and an audit firm after completing four-year tenure in
cooperation with banking supervisory authorities a particular private / foreign bank will not be
of overseas jurisdictions, entering into bilateral eligible for appointment as SCA of the same bank
agreements (MoUs / Exchange of Letters on for a period of six years.
44Policy Environment
Framework for Dealing with Loan Frauds III.64 Currently, the IRF has identified a set of
11 FCs in the Indian financial sector based on
III.61 The process of migration of the batch
their significant presence in two or more segments
processed fraud database to a web-based reporting
architecture through XBRL is largely complete of the financial sector. They include five bank-led
with banks and select financial institutions (FIs) FCs, four insurance company-led FCs and two
starting the live reporting of Fraud Monitoring securities company-led FCs.
Returns (FMR) from April 1, 2017. Banks will
Supervisory Enforcement Framework
submit fraud reports within the specified period
in straight through processing mode, which will III.65 In view of the need for a unified and well-
facilitate faster dissemination of fraud data. Banks articulated supervisory enforcement policy and
will also update developments in fraud cases on process, the Supervisory Enforcement Framework
‘as and when required’ basis instead of doing it
for action against non-compliant banks was
on a quarterly basis.
approved by the Board for Financial Supervision.
Inter Regulatory Forum (IRF) of Domestic The framework should help make enforcement
Regulators actions in the Reserve Bank transparent,
predictable, standardised, consistent and timely
III.62 An Inter Regulatory Forum (IRF) of
domestic regulators was set up with the approval and also improve overall compliance with the
of the Sub Committee of Financial Stability and regulatory framework in the banking system.
Development Council (FSDC-SC) for monitoring
III.66 As announced in the February 2017 Sixth
of financial conglomerates (FCs). IRF has
Bi-monthly Monetary Policy Statement 2016-17,
representation from other financial sector
it was decided to establish a separate Enforcement
regulators / supervisors. A MoU was signed
Department in the Reserve Bank for developing a
between regulatory authorities to facilitate the
sound framework and processes for enforcement
process of cooperation and exchange of information
among peer regulators for strengthening the action. The Enforcement Department (EFD)
supervision of FCs and assessing risks to systemic commenced functioning on April 03, 2017.
stability.
VII. Non-Banking Financial Companies
III.63 For each FC group that has a significant
(NBFCs)
presence in at least two financial market segments,
a designated entity (DE) is identified by the IRF III.67 NBFCs play an important role in the Indian
as the nodal entity to act on behalf of FC for
financial system by complementing and competing
facilitating communication and compliance with
with banks and by bringing in efficiency and
the principal regulator (PR), under whose
diversity into financial intermediation. The
jurisdiction the designated entity falls. The PR is
Reserve Bank’s regulatory perimeter is applicable
solely responsible for consolidated supervision
to companies conducting non-banking financial
under the FC monitoring framework. The IRF
activity, such as lending, investment or deposit
coordinated oversight comprises of: i) periodic
acceptance as their principal business. The
discussion meeting of all regulators with the
designated entity of the FC and key group entities; regulatory and supervisory architecture is,
and ii) submission of quarterly off-site returns however, focused more on systemically important
(FINCON returns) to the principal regulator of non-deposit taking NBFCs (with asset size `5
the FC. billion and above) and deposit accepting NBFCs
45Report on Trend and Progress of Banking in India 2016-17
with light touch regulation for other non-deposit housing finance companies (HFCs), mutual funds,
taking NBFCs. Certain categories of entities insurance companies, stock broking companies,
carrying out NBFI activities are exempt from the merchant banking companies and venture capital
Reserve Bank’s regulation as they are being funds (VCFs), which are often referred to as the
regulated by other regulators. They include ‘shadow banking system’ (Box III.1).
Box III.1: Narrow Measure of Shadow Banking
The term ‘shadow bank’ was coined by Paul McCulley in
Table 1: Classification of Shadow Banks based on
2007 in the context of the US non-bank financial institutions
Economic Function
engaged in maturity transformation. A formal definition
of shadow banking was given by the Financial Stability Economic Definition Entity Types Equivalent
Board (FSB) as credit intermediation involving entities and Function Indian Entities
activities outside the regular banking system.
EF1 Management Fixed income
of collective funds, mixed
Since 2011, the FSB has been conducting an annual
investment vehicles funds, credit hedge
monitoring exercise to track developments in the shadow with features funds, real estate
that make them funds
banking system under a two-step approach – first, to cast the
susceptible to runs
net wide by considering all non-bank credit intermediation
to ensure that data gathering and surveillance cover all areas EF2 Loan provisions Finance companies, NBFCs, HFCs
that are dependent leasing companies,
where risks to the financial system might potentially arise,
on short-term factoring
and thereafter, to narrow the focus for policy purposes to funding companies,
the subset of non-bank credit intermediation where there consumer credit
companies
are developments that increase the potential for systemic
risk and there are indications of regulatory arbitrage. The EF3 Intermediation of Broker-dealers
narrowing down methodology is based on the FSB’s High- market activities
that is dependent
Level Policy Framework for Strengthening Oversight and on short-term
Regulation of Shadow Banking Entities published in 2013. funding or on
secured funding of
As per the narrowing down methodology, non-bank financial client assets
entities are classified with reference to five economic
EF4 Facilitation of credit Credit insurance Mortgage
functions: (1) management of collective investment vehicles creation companies, guarantee
with features that make them susceptible to runs; (2) loan financial companies
guarantors,
provisions that are dependent on short-term funding; (3) monolines
intermediation of market activities that is dependent on
short-term funding or on secured funding of client assets; EF5 Securitisation- Securitisation Securitisation/
based credit vehicles reconstruction
(4) facilitation of credit creation (for example, through intermediation and companies
credit insurance); and (5) securitisation-based credit funding of financial
entities
intermediation and funding of financial entities. The narrow
measure of shadow banking does not include banks,
insurance companies, pension funds, public financial representing US$ 22.2 trillion worth of assets at end-2015
institutions and the central bank (Table1). or 65 per cent of the narrow measure. EF3 was the second
largest economic function making up 11 per cent of the
As per the Shadow Banking Monitoring Report 2016 of
narrow measure, followed by EF5 (9 per cent), EF2 (8 per
the FSB, the total financial assets of the financial entities
cent) and EF4 (0.4 per cent).
classified as shadow banking under the economic approach
grew moderately by 3 per cent, i.e., US$ 34.2 trillion in In India, EF2 constituted 99.7 per cent of the five economic
27 jurisdictions as at end-2015. The US has the largest functions.
shadow banking sector representing 40 per cent of the
References:
total financial assets. Jurisdictions in the US, the UK and
the euro area represented 65 per cent of the total global FSB (2013), Policy Framework for Strengthening Oversight
shadow banking at end-2015. and Regulation of Shadow Banking Entities, August.
Based on the economic function approach, EF1 was by FSB (2017), Global Shadow Banking Monitoring Report
far, the largest among the five economic functions globally, 2016, May.
46Policy Environment
New Categories of NBFCs from the domestic market to the extent of up
to 10 per cent of their total outstanding
III.68 The NBFC segment has evolved considerably
borrowings on April 21, 2016.
over a period of time in terms of operations,
heterogeneity, asset quality, profitability and With effect from July 28, 2016, guidelines
regulatory architecture. The Reserve Bank has relating to relief measures to be provided in
been working on consolidating the various areas affected by natural calamities were
categories of NBFCs. At present, there are 12
extended to NBFCs.
categories of NBFCs6. The latest addition is the
III.71 To address operational issues faced by
NBFC – Peer to Peer Lending Platform (NBFC-P2P).
NBFC-MFIs and to align with other stipulations
III.69 Guidelines on NBFC-P2P have been issued
on pricing of credit, on February 2, 2017, NBFC-
by the Reserve Bank in October 2017. The Reserve
MFIs were advised to use the average borrowing
Bank issued a discussion paper on regulation of
cost for the preceding quarter plus a margin
the peer-to-peer (P2P) lending platform as a NBFC.
instead of the average borrowing cost during the
The Government notified P2P as a NBFC activity
financial year plus a margin for computation of
on September 18, 2017 following which regulations
interest rate to be charged on loans.
were issued on October 4, 2017. The new
III.72 Effective July 6, 2017, it was decided to
regulations are expected to bring a major shift in
extend the marketing and distribution network of
crowd funding in India.
the National Pension System (NPS) through NBFCs
Revised Regulatory Framework for NBFCs
with asset size of `5 billion and above subject to
III.70 A revised regulatory framework for NBFCs certain conditions to maximise coverage under
was put in place in November 2014, which NPS. NBFCs will ensure that the NPS subscriptions
subsequently led to the issuance of regulatory collected by them from the public are deposited
directions to bridge the gap between banking and on the day of the collection (T+0 basis; with T
non-banking regulations. The year saw being the date of receipt of clear funds, either by
consolidation of the revised framework with focus cash or any other mode).
on addressing risks, reducing regulatory arbitrage
III.73 NBFCs are increasingly outsourcing some
and simplifying regulations to facilitate smooth
of their operations on a continuing basis. In the
compliance culture among NBFCs. A few such
process, NBFCs are exposed to various risks such
measures are enumerated as under:
as strategic risk, reputation risk, compliance risk,
Infrastructure Debt Fund-NBFCs (NBFC- operational risk, legal risk, exit strategy risk,
IDFs) were earlier allowed to raise resources counterparty risk, country risk, contractual risk,
through issuance of bonds of minimum five- access risk, concentration risk and systemic risk.
year maturity. To improve efficacy of the Asset Taking into consideration the need to put in place
Liability Management (ALM), NBFC-IDFs necessary safeguards for addressing the risks
were allowed to raise funds through shorter associated with outsourcing activities, guidelines
tenor bonds and commercial papers (CPs) on “Managing Risks and Code of Conduct in
6 NBFCs can be divided into 12 categories, viz., 1) Asset Finance Company (AFC); 2) Loan Company (LC); 3) Investment Company
(IC); 4) Core Investment Company (CIC); 5) Factoring – NBFC; 6) Infrastructure Debt Fund Non-Banking Financial Company (IDF
– NBFC); 7) Infrastructure Finance Company (IFC); 8) Non-Banking Financial Company-Micro Finance Institutions (NBFC-MFIs);
9) Non-Operative Financial Holding Company (NOFHC); 10) Mortgage Guarantee Companies (MGC); 11) NBFC-Account Aggregator
(AA); and 12) NBFC-Peer to Peer Lending platform (NBFC-P2P).
47Report on Trend and Progress of Banking in India 2016-17
Outsourcing of Financial Services by NBFCs” have iii. The scope of funding by way of investment in
been issued on November 9, 2017. The underlying security receipts (SRs) has been expanded by
principles behind these directions are that the including non-institutional investors, which
regulated entity shall ensure that outsourcing may be specified by the Reserve Bank in
arrangements neither diminish its ability to fulfil consultation with SEBI.
its obligations to customers and Reserve Bank nor
iv. The Reserve Bank’s statutory powers to
impede effective supervision by the Reserve Bank. formulate directions on: (i) the fee and other
NBFCs have to take steps to ensure that the service charges, which may be charged or incurred
provider employs the same high standard of care for management of financial assets acquired
in performing the services as is expected to be by any ARC; and (ii) transfer of SRs issued
employed by the NBFCs, if the activities were by qualified buyers have been strengthened.
conducted within the NBFCs and not outsourced.
v. The Reserve Bank has been empowered to
Accordingly, NBFCs shall not engage in outsourcing
carry out audit and inspection of the ARCs.
that would result in their internal control,
It has also been empowered to remove the
business conduct or reputation being compromised
chairman or any director or appoint additional
or weakened.
directors on the board of directors of an ARC
Asset Reconstruction Companies (ARCs) or appoint any of its officers as an observer
to observe the working of the board of
III.74 At present there are 24 ARCs in the
directors of such an ARC.
country, which are regulated and supervised by
vi. The amount of penalty on the defaulting ARCs
the Reserve Bank under the provisions of the
for failure to comply with any direction issued
Securitisation and Reconstruction of Financial
by the Reserve Bank has been substantially
Assets and Enforcement of Security Interest Act,
enhanced.
2002 (SARFAESI Act, 2002). After an amendment
vii. The Reserve Bank has been designated as
to the SARFAESI Act 2002 carried out in August
both the Adjudicating Authority and the
2016 through the Enforcement of Security
Appellate Authority for imposing penalties on
Interest and Recovery of Debts Laws and
ARCs.
Miscellaneous Provisions (Amendment) Act,
viii. No secured creditor, including ARCs, are
2016, securitisation companies and
entitled to exercise the rights of enforcement
reconstruction companies will be known as
of securities under Chapter III of the SARFAESI
ARCs. Some salient features brought out through
Act, 2002 unless the security interest created
the amendment are:
in its favour by the borrower has been
i. As an ARC, a sponsor is required to be a fit registered with the Central Registry.
and proper person in accordance with the
III.75 Keeping in view the greater role envisaged
criteria as may be specified in the guidelines
for ARCs in resolving stressed assets, the
issued by the Reserve Bank.
minimum net owned fund requirement for ARCs
ii. An ARC is required to obtain prior approval was raised by the Reserve Bank from `0.02 billion
of the Reserve Bank for appointing any to `1 billion with effect from April 28, 2017. 15
director on its board of directors or as ARCs were inspected in the year 2015-16 and 10
managing director or chief executive officer. in 2016-17.
48Policy Environment
Harmonisation in Regulatory and Supervisory Policy keeping the spirit of the Charter intact or
Policies dovetail the existing customer service policies
suitably to integrate the Charter and its tenets with
III.76 Non-Banking Financial Company – Micro
the approval of the board. During 2016-17, all
Finance Institution (NBFC-MFI) was introduced
banks confirmed that their customer service
as a new category of NBFC in December 2011.
policies were accordingly fine-tuned to incorporate
During 2014-15 and 2015-16, a number of new
the principles of the Charter of Customer Rights.
NBFCs-MFI were registered and the sector showed
In consultation with the Indian Banks’ Association
healthy growth in total assets. It was, therefore,
(IBA), the Reserve Bank also reviewed and
decided to put in place a system of inspection for
standardised 10 most commonly used forms by
these companies. Accordingly, 46 MFIs were
bank customers. The IBA released standard
inspected during 2015-16 and 36 in 2016-17.
specimens of these forms during the year to banks
III.77 A formal PCA framework was introduced
for implementation.
for NBFCs on March 30, 2017. The framework
III.80 After a review of the criteria for determining
envisages corrective action for NBFCs that will be
customer liability in unauthorised electronic
triggered once an NBFC exhibits weaknesses in
banking transactions, final guidelines on customer
its financials in terms of capital strength,
protection – limiting the liability of customers were
profitability or asset quality. NBFCs brought under
issued on July 6, 2017. Taking into consideration
PCA will be required to formulate and implement
the need to prevent misuse of the cheque drawing
a corrective action plan.
facility and avoiding penalising customers for
III.78 A comprehensive information technology
unintended dishonour of cheques, all SCBs
framework for NBFCs was issued on June 8,
(including RRBs) were advised to have in place an
2017, which contains guidelines for systemically
appropriate and transparent policy approved by
important NBFCs (asset size greater than `5
the board or its committee with respect to
billion) on IT governance, information and cyber
dishonour of cheques. Banks were advised to
security, IT risk assessment, change management,
provide adequate relevant details of transactions
IS audit, business continuity planning (BCP) and
in the passbooks and / or statements of accounts
IT services outsourcing. The guidelines are to be
and also incorporate information about deposit
adopted by systemically important NBFCs by June
insurance cover along with the limit of coverage
30, 2018. Along with these, a different and simpler
upfront in passbooks.
set of IT guidelines were also issued for smaller
NBFCs (asset size less than `5 billion) covering Revision of the Banking Ombudsman Scheme
BCP, adequacy to file returns, management
III.81 A comprehensive review of the Banking
information systems and user policies.
Ombudsman (BO) Scheme was undertaken in
2015-16 and an amended scheme came into effect
VIII. Customer Service / Customer
from July 1, 2017 incorporating changes relating
Protection in Banks
to the pecuniary jurisdiction of the BO,
III.79 A significant initiative in the area of compensation and introduction of additional
consumer education and protection was the grounds of complaint on mis-selling and electronic
operationalisation of the Charter of Customer and mobile banking. The Reserve Bank also
Rights. The Reserve Bank had advised banks to opened and operationalised five new offices of the
formulate either an exclusive Customer Rights BO in Dehradun, Jammu, Ranchi, Raipur and an
49Report on Trend and Progress of Banking in India 2016-17
additional office in New Delhi. The total number wider adoption of electronic payments gained
of BO offices has now reached 20. momentum during 2016-17. With the rapid
advancement of technology and the advent of new
III.82 The Reserve Bank is in the process of
developments and innovations in the payment
setting up an Ombudsman Scheme for NBFCs,
landscape, the Reserve Bank enhanced its focus
which will initially cover all deposit-taking NBFCs
and also those with customer interface and asset on the safety and resilience of the payment systems
size of `1 billion and above. ARCs, infrastructure to ensure the smooth functioning of critical and
finance companies, infrastructure debt funds, systemically-important payment and settlement
core investment companies and NBFC-Factors systems.
will not be covered under the scheme for the time
Cyber Risk and Cyber Security
being. Based on experience, the coverage of the
Ombudsman Scheme may be reviewed over time.
III.86 The Reserve Bank performed a
Complaint Management System comprehensive IT examination of major banks
to assess their cyber risk resilience and response.
III.83 In addition to complaints being received
The Reserve Bank is also setting up a fully-owned
in the offices of BOs, the Reserve Bank also
subsidiary – the Reserve Bank Information
receives complaints against regulated entities
Technology Private Limited (ReBIT) – that will
from their customers through the consumer
only focus on the cyber security needs of the
education and protection cells (CEPCs) set up in
Reserve Bank and its regulated entities. ReBIT
every office. The Reserve Bank has initiated the
setting up of a comprehensive complaint will: (i) carry out research in the area of cyber
management system (CMS) with a view to security, (ii) help the Reserve Bank monitor its
harnessing IT for managing the increasing volume networks, including RTGS and NEFT, (iii) help
of complaints that it receives. This web-based the Reserve Bank monitor computer systems of
application will integrate the grievance redressal banks and their cyber security mechanisms
mechanism in the Reserve Bank on a single IT during its regular inspections, and (iv) undertake
platform to bring about better coordination and specialised projects for the Reserve Bank on
effectiveness and this will also help the Reserve cybersecurity. Guidelines on cyber security
Bank to manage the complaints more efficiently frameworks in banks were issued by the Reserve
and also provide a robust management
Bank on June 2, 2016, which inter alia, require
information system (MIS).
banks to have a board approved cyber security
III.84 On receiving reports that banks were policy, a cyber-crisis management plan, gap
discouraging or turning away senior citizens and assessment vis-à-vis the baseline requirements
differently-abled persons from availing banking indicated in the guidelines, robust vendor risk
facilities in branches, banks were instructed to management and reporting of unusual cyber
put in place explicit mechanisms for meeting the security incidents within 2-6 hours. An inter-
needs of such persons so that they do not feel disciplinary Standing Committee on Cyber
marginalised. Instructions in this regard were Security is being constituted to review the threats
issued in November 2017.
inherent in existing / emerging technologies, study
adoption of various security standards / protocols
IX. Payment and Settlement Systems
and interface with stakeholders and suggest
III.85 The Reserve Bank’s continued efforts appropriate policy interventions to strengthen
towards migrating to a ‘less-cash society’ with cyber security and resilience.
50Policy Environment
Payments System mobile banking facility (which can be used on any
handset and does not require internet connection
III.87 Trade Receivables Discounting System
by the customers), which is integrated with the
(TReDS) is an institutional mechanism for
UPI.
facilitating the financing of trade receivables of
MSMEs payable by corporate buyers through III.90 In line with one of the major objectives of
multiple financiers. All the three entities: Vision-2018 for the payment and settlement
Receivables Exchange of India Limited (formed systems and with a view to encourage innovative
by NSE Strategic Investment Corporation Limited payment solutions in the country, instructions
and Small Industries Development Bank of were issued to authorised card networks in the
India), Mynd Solutions Pvt Ltd and A. TREDS country in September 2016 for enabling
Limited (joint venture of Axis Bank and Mjunction interoperability in Quick Response (QR) based
card payments. Subsequently, the QR code based
Services Ltd), were issued final Certificate of
acceptance infrastructure was expanded to
Authorisation and have commenced operations.
facilitate payments based on UPI virtual address,
To support the settlement obligations emanating
Aadhaar number and Account Number + IFSC.
from these systems, the many-to-many settlement
This was launched as Bharat QR in February
feature has also been enabled in the National
2017.
Automated Clearing House (NACH) operated by
the National Payments Corporation of India III.91 In-principle approval has been accorded
(NPCI). to NPCI to launch a pilot of BHIM-Aadhaar Pay to
provide a channel for customers to make digital
III.88 As on November 2, 2017, 55 non-bank
payments using their Aadhaar-seeded bank
entities and 56 banks are permitted to issue and
accounts at merchant locations. BHIM-Aadhaar
operate the payments system for pre-paid payment
Pay is a smart phone-based application. The
instruments (PPIs). In light of the developments
transactions are processed as part of the existing
in the field and with a view to foster innovation
Aadhaar Enabled Payment System (AEPS) with a
and competition, ensure safety and security,
separate transaction type assigned to them.
customer protection, etc., a comprehensive review
of all the instructions relating to the issuance and III.92 Additional settlements in the National
operation of PPIs was undertaken and Master Electronic Funds Transfer (NEFT) system at half-
Direction (MD) on the subject was issued on hour intervals were introduced on July 10, 2017
October 11, 2017. The MD gives a path for to enhance the efficiency of the system and add to
implementation of interoperability of PPIs customer convenience. The half-hourly settlements
speed up the funds transfer process and provide
including non-bank PPIs.
faster credit to destination accounts.
III.89 The Unified Payments Interface (UPI), for
mobile banking transactions provides twin
X. Banking Sector Legislations
benefits of convenience of operations for customers
The Banking Regulation (Amendment) Act,
(providing just a registered virtual address instead
2017
of details of bank accounts for making / receiving
payments) and enabling merchant ‘pull’ payments. III.93 The Banking Regulation (Amendment) Act,
It is application-based and usable on smartphones 2017 has amended the Banking Regulation Act,
with internet access. During the year, NPCI was 1949, which has inter alia conferred power upon
given approval to go live for UPI. NPCI was also the Central Government for authorising the
accorded approval to introduce USSD 2.0 (*99#) Reserve Bank to issue directions to any banking
51Report on Trend and Progress of Banking in India 2016-17
company or banking companies to initiate in India by assigning them unique identity
insolvency resolution process in respect of a numbers called Aadhaar numbers.
default, under the provisions of the Insolvency and
XI. Overall Assessment
Bankruptcy Code, 2016. The said amendment
III.97 During the year there was continued
specifically empowered the Reserve Bank to issue
emphasis on improving the institutional framework
directions to banking companies for resolution of
for a sound banking system in the country. A
stressed assets and also allow the Reserve Bank
multi-pronged approach was used to collectively
to specify one or more authorities or committees
address the problem of stressed assets in the
to advise banking companies on resolution of
system. The risk-based supervisory process of
stressed assets.
the Reserve Bank flags risks arising out of weak
Amendments to the Payment and Settlement credit discipline and it suggests remedial actions.
Systems Act, 2007 The new Enforcement Department in the Reserve
Bank has been mandated to develop a rule-based,
III.94 The Finance Act, 2017 amended certain
consistent framework to deal with breaches of law,
provisions of the Payment and Settlement
rules and directions. Effective deterrence enforced
Systems Act, 2007. The amendment provides
through such actions is expected to contribute to
that the Payments Regulatory Board will exercise
the strengthening of the overall credit culture. The
functions relating to the regulation and supervision
PCA system under which specific regulatory
of payments and settlement systems under the
actions are taken by the Reserve Bank if banks
Act instead of the existing Board for Regulation
breach certain trigger points was revised to ensure
and Supervision of Payments and Settlement.
timely supervisory action.
The new Board shall have the Governor of the
III.98 Important policy measures were initiated
Reserve Bank as Chairperson.
during the year to make the payment and
The Specified Bank Notes (Cessation of settlement systems more robust and customer-
Liabilities) Act, 2017 friendly and for moving payment transactions
from cash / paper modes to electronic modes.
III.95 The act, inter alia, provides for specified
Implementation of Ind AS and the Basel III
bank notes (SBNs)7 to cease to be liabilities of the
framework will be areas of focus during 2017-18.
Reserve Bank or the Central Government,
The Reserve Bank also envisages steps for
exchange of SBNs and prohibition on holding,
improving financial literacy levels including
transferring or receiving SBNs, penalty etc.
implementing Tier II of the capacity building
programmes for financial literacy counsellors
Aadhaar (Targeted Delivery of Financial
and bank branch heads in rural areas. Moving
and Other Subsidies, Benefits and Services)
forward, the focus of the Reserve Bank will be
Act, 2016
on financial stability and financial inclusion
III.96 The Aadhaar (Targeted Delivery of combined with a vigil of systemic risks and risks
Financial and Other Subsidies, Benefits and arising out of global financial interconnectedness
Services) Act, 2016 provides for targeted delivery so as to ensure a healthy, resilient and inclusive
of subsidies and services to individuals residing banking sector.
7 The term “specified bank note” means a bank note of the denominational value of `500 or `1,000 of the series existing on or before
the 8th day of November, 2016.
52Chapter IV
Insolvency and Bankruptcy Code and
Bank Recapitalisation
The enactment of the Insolvency and Bankruptcy Code, 2016 and the announcement of
the recapitalisation plan for the public sector banks are likely to have far-reaching implications
for the banking sector. Both will likely contribute to a stronger and more resilient banking sector
in India.
I. Introduction the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest
IV.1 The fulcrum of a robust and resilient
(SARFAESI) Act, 2002 has not been utilised well
banking sector is a comprehensive bankruptcy
by banks. Similarly, action through the Sick
regime. It enables a sound debtor-creditor
Industrial Companies (Special Provisions) Act,
relationship by protecting the rights of both, by
1985 and the winding up provisions of the
promoting predictability and by ensuring efficient
Companies Act, 1956 have neither aided prompt
resolution of indebtedness. A watershed
recovery by lenders nor swift restructuring of
development in India in this context is the
indebted firms.
enactment of the Insolvency and Bankruptcy Code
(IBC) in May 2016. IV.5 In this setting, a landmark development is
the IBC, 2016 enacted and notified in the Gazette
IV.2 An allied development and logical
of India in May 2016. It becomes the single law
concomitant is bank recapitalisation. In view of
that deals with insolvency and bankruptcy by
the impending move towards the full
consolidating and amending various laws relating
implementation of Basel III requirements and the
to reorganisation and insolvency resolution. The
need to meet the credit demands of a growing
IBC covers individuals, companies, limited
economy, buffering up the capital position of
liability partnerships, partnership firms and other
public sector banks has assumed priority.
legal entities as may be notified (except financial
IV.3 Against this backdrop, Section II analyses
service providers) and is aimed at creating an
the salient features of the IBC 2016 with some
overarching framework to facilitate the winding
insights derived from the cross-country experience.
up of business or engineering a turnaround or
Recapitalisation of public sector banks is
exit. The IBC aims at insolvency resolution in a
addressed in Section III in the milieu of cross-
time-bound manner (180 days, extendable by
country comparisons and India’s own historical
another 90 days under certain circumstances)
experience with recapitalisation in the 1990s.
undertaken by insolvency professionals.
Concluding observations are set out in Section IV.
Salient Features of IBC, 2016
II. Insolvency and Bankruptcy Code, 2016
IV.6 The institutional infrastructure under the
IV.4 In India, the extant legal and institutional IBC, 2016 rests on four pillars, viz., insolvency
machinery for dealing with debt default, either professionals; information utilities; adjudicating
through the Indian Contract Act, 1872 or through authorities (National Company Law Tribunal
special laws such as the Recovery of Debts Due to (NCLT) and Debt Recovery Tribunal (DRT)); and
Banks and Financial Institutions Act, 1993 and the Insolvency and Bankruptcy Board of IndiaReport on Trend and Progress of Banking in India 2016-17
(IBBI). Under the provisions of the Code, also establishes a fund (the Insolvency and
insolvency resolution can be triggered at the first Bankruptcy Fund of India) for the purposes of
instance of default and the process of insolvency insolvency resolution, liquidation and bankruptcy
resolution has to be completed within the of persons. A default-based test for entry into the
stipulated time limit. insolvency resolution process permits quick
intervention when the corporate debtor shows
IV.7 The first pillar of institutional infrastructure
early signs of financial distress.
is a class of regulated persons – the ‘Insolvency
Professionals’. They assist in the completion of IV.12 On the distribution of proceeds from the
insolvency resolution, liquidation and bankruptcy sale of assets, the first priority is accorded to the
proceedings and are governed by ‘Insolvency costs of insolvency resolution and liquidation,
Professional Agencies’, who will develop followed by the secured debt together with
professional standards and code of ethics as first workmen’s dues for the preceding 24 months.
level regulators. Central and State Governments’ dues are ranked
lower in priority. The code proposes a paradigm
IV.8 The second pillar of institutional
shift from the existing ‘debtor in possession’ to a
infrastructure are ‘Information Utilities’, which
‘creditor in control’ regime. Priority accorded to
would collect, collate, authenticate and disseminate
secured creditors is advantageous for entities such
financial information. They would maintain
as banks.
electronic databases on lenders and terms of
lending, thereby eliminating delays and disputes IV.13 When a firm defaults on its debt, control
when a default actually takes place. shifts from the shareholders / promoters to a
IV.9 The third pillar of the institutional Committee of Creditors to evaluate proposals from
infrastructure is adjudication. The NCLT is the various players about resuscitating the company
forum where cases relating to insolvency of or taking it into liquidation. This is a complete
corporate persons will be heard, while DRTs are departure from the experience under the Sick
the forum for insolvency proceedings related to Industrial Companies Act under which delays led
individuals and partnership firms. These to erosion in the value of the firm.
institutions, along with their Appellate bodies,
IV.14 Empirical evidence shows that a conducive
viz., the National Company Law Appellate
institutional environment and an appropriate
Tribunal (NCLAT) and the Debt Recovery
insolvency regime are key factors in recovery of
Appellate Tribunal (DRAT), respectively, will seek
stressed assets, apart from loan characteristics
to achieve smooth functioning of the bankruptcy
(Box IV.1).
process.
IV.15 In order to further strengthen the insolvency
IV.10 The fourth pillar is the regulator, viz., ‘The
resolution process, the Government has notified
Insolvency and Bankruptcy Board of India’. This
The Insolvency and Bankruptcy Code (Amendment)
body has regulatory oversight over insolvency
Ordinance, 2017 on November 23, 2017. The
professionals, insolvency professional agencies
Ordinance provides for prohibition of certain
and information utilities.
persons from submitting a resolution plan and
IV.11 For individuals, the Code provides for two specifies certain additional requirements for
distinct processes, namely, “Fresh Start” and submission and consideration of the resolution
“Insolvency Resolution”, and lays down the plan before its approval by the committee of
eligibility criteria for these processes. The Code creditors.
54Insolvency and Bankruptcy Code and Bank Recapitalisation
Box IV.1: Recovery of NPAs – Role of Different Factors
During 2015-17, the average recovery ratio1 of Indian banks
was 26.4 per cent with recovery by private sector banks
(PVBs) (41.0 per cent) being much higher than by public
sector banks (PSBs) (25.1 per cent). During this period, the
average amount recovered through various existing legal
recovery channels, i.e., SARFAESI Act 2002, DRTs and Lok
Adalats was only 10.8 per cent of the total amount involved
(Charts 1 and 2).
Various micro (loan specific) and macro (economy specific)
factors have been identified as determinants of recovery of
stressed assets – higher quota of collateral; the size of the
company (Grunert and Weber, 2009); the state of the business
cycle (Frye, 2000); and growth in GDP and loan supervision
(Dermine, et al., 2006; Bello, et al., 2013). In the case of
India, recovery of bad loans was found to be positively
associated with secured loans, term loans and banks’
and applying the proceeds to recover the debts due to it, or
exposure to real estate (Misra, et al., 2016).
(ii) relinquishing rights on these assets to the liquidation
Panel data regression on recovery (measured as reduction trust and receiving the proceeds obtained from the
in NPAs) at the bank level2 using a random effects model for liquidator’s sale of assets. It also provides for the contingency
a set of 71 banks for the period 2001-17 shows that a high that the secured creditor may not be able to recover all the
proportion of secured loans and term loans, improvement debt through the proceeds obtained from the sale of
in the insolvency regime, availability of alternative sources encumbered assets. Such creditors find a place in the
of funds such as debentures issued by corporates and an liquidation waterfall, albeit junior to unsecured creditors
easing of the monetary policy stance improve the recovery and other secured creditors, and may get back additional
of stressed assets. Factors such as term loans or secured amounts through proceeds of overall liquidation. The time-
loans assume importance in case of PSBs whereas the ability bound and creditor-friendly nature of the process are
to raise resources from alternative sources like debentures expected to raise the level of bank recovery going forward.
matter in the case of PVBs. Moreover, loan write-offs, the
insolvency environment and the macroeconomic environment References:
were found to be equally important for both the bank groups. Bello, M. O., A. O. Adewusi, T. B. Oyedokun, T. A. Ashaolu
and N. B. Ezeokoli (2013), “Analysis of Recovery Determinants
In liquidation proceedings, IBC, 2016 provides secured
of Defaulted Mortgages in Nigerian Lending Industry,”
creditors the right to choose between (i) enforcing / realising/
settling / compromising / dealing with their security interests European Journal of Business and Management, Vol. 5,
No. 2, pp 50–61.
Dermine, J. and C. Neto de Carvalho (2006), “Bank Loan
Losses-given-default: A Case Study,” Journal of Banking &
Finance, No. 30, pp 1219–43.
Frye, J. (2000), “Depressing Recoveries,” Policy Studies,
Federal Reserve Bank of Chicago, October.
Grunert, Jens and Martin Weber (2009), “Recovery Rates of
Commercial Lending: Empirical Evidence for German
Companies,” Journal of Banking & Finance, No. 33, pp
505–13.
Misra, Rekha, Rajmal and Radheshyam Verma (2016),
“Determinants of Recovery of Stressed Assets in India: An
Empirical Study”, Economic & Political Weekly, Vol. 51,
Issue No. 43, 22 October.
1 Reduction in GNPAs during the year to outstanding GNPAs at the beginning of the year.
2 NPA reduction = -0.387 + 0.696 Termloan – 0.103 Unsecured + 0.024 Insolvency +
it it it it
(0.16) (0.049)*** (0.048)** (0.006)***
0.037 Debenture – 0.013 Callrate + ε
it it it
(0.041) (0.009)
R2(overall) = 0.72. Figures in parentheses are robust standard errors. ***: p<0.01; **: p<0.05.
55Report on Trend and Progress of Banking in India 2016-17
Bankruptcy Practices: A Cross-Country may initiate the corporate insolvency resolution
Comparison3 process on default of `0.1 million and above. In
some countries like Australia, Canada, Greece,
IV.16 Bankruptcy regimes vary across countries,
Brazil and Russia, creditors may file only for
ranging from debtor-friendly ones in France and
liquidation. In the US, the UK, France, Germany,
Italy to creditor-friendly ones in the UK, Sweden
South Africa and China, creditors may file for both
and Germany. While reorganisation is generally
restructuring and liquidation.
considered to favour debtors, liquidation primarily
protects creditors. The insolvency and the debt IV.19 Management of the company: The US
resolution regime in the US can be classified as a follows a debtor-in-possession regime in which
hybrid one, with well-defined laws and procedures the debtor retains management control of the
for both liquidation (Chapter 7) and restructuring company and has the exclusive right to propose
(Chapter 11). Reorganisation and insolvency a plan of reorganisation during the first 120 days.
resolutions across a few advanced and emerging In the UK, the administrator takes over the
economies provide an interesting backdrop for management of the company. The administrator
evaluating the Indian initiative. plays a central role in the rescue process and has
the power to do anything necessary or expedient
IV.17 Pre-packaged rescue: The US and the
for the management of the affairs, business and
UK allow pre-packaged rescue in which the
property of the company. In India, the powers of
debtor company and its creditors conclude an
the board of directors of the corporate debtor are
agreement for the sale of the company’s business
suspended and the Adjudicating Authority (i.e.,
prior to the initiation of formal insolvency
NCLT) appoints an interim resolution professional.
proceedings. The actual sale is executed on the
From that date, the management of the affairs of
commencement of the bankruptcy proceedings.
the corporate debtor vests in the interim resolution
In India such a pre-packaged rescue is not
professional. A committee of creditors will
allowed without the involvement of the court or
approve the appointment of the interim resolution
the NCLT.
professional within 30 days of his/her appointment
IV.18 Initiation of bankruptcy: The US does
by the Adjudicating Authority, and subsequently
not require proof of insolvency for a company to
approved by the Committee of Creditors with a
undergo rescue procedures under Chapter 11 of
majority vote of not less than 75 per cent of the
the Bankruptcy Code. In the UK, if a creditor wants
creditors by value.
to initiate a bankruptcy proceeding, it needs to
IV.20 Scheme of rehabilitation: In the US, each
produce clear evidence that an undisputed amount
class of impaired creditors needs to consent to
is due and a statutory demand has to be filed on
the resolution plan through a vote of two-thirds
the debtor. In India, a financial creditor, an
of that class in volume and half the allowed claims.
operational creditor or the corporate debtor itself
3 Material for preparing this sub-section has been drawn from
i. Adalet McGowan, M. and D. Andrews (2016), “Insolvency Regimes and Productivity Growth: A Framework for Analysis”, OECD
Economics Department Working Papers No. 1309.
ii. Bolton, Patrick (2003), “Towards a Statutory Approach to Sovereign Debt Restructuring: Lessons from Corporate Bankruptcy
Practices around the World”, IMF Staff Paper, WP/03/13.
iii. Cirmizi, Elena, Leora Klapper and Mahesh Uttamchandani (2010), “The Challenges of Bankruptcy Reform”, World Bank Policy
Research Working Paper 5448, October.
iv. Government of India (2015), “Interim Report of the Bankruptcy Law Reform Committee”, Ministry of Finance.
56Insolvency and Bankruptcy Code and Bank Recapitalisation
The US Bankruptcy Code also provides for ‘cram IV.22 Rescue financing and grant of super-
down’ of dissenting creditors. In the UK, acceptance priority: In most jurisdictions, the grant of super-
of the proposal requires a simple majority (by priority for rescue financing is allowed either
value) of the creditors present and voting. In through specific legislative provisions or judicial
Germany, the plan needs to be approved by each interpretation. The breakup of economically
class of creditors. In France, two committees of valuable businesses is primarily due to the debt
creditors plus a bond holders’ committee are overhang. To address this issue, the Bankruptcy
established. One creditor committee consists of Code of the US provides for the possibility of
all financial institutions that have a claim against ‘super-priority’ being granted to creditors who
the debtor and the second creditors committee provide finance to companies in distress. The UK
consists of all the major suppliers of the debtor. does not provide for super-priority funding. India’s
Consent must be given by each committee and IBC also does not provide for super-priority
requires approval of two-thirds in value of those funding.
creditors who exercise their voting rights. In India,
IV.23 Priority rules: Similar to the US, Finland
the resolution professional constitutes a committee
and Chile, costs associated with insolvency
of creditors comprising of financial creditors
proceedings have the first claim in case of
(excluding those that would classify as related
liquidation of assets under India’s IBC. In
parties to the corporate debtor) after evaluating
countries such as the UK, Germany, France and
all claims received against the corporate debtor.
Portugal, however, secured creditors have the first
All material decisions taken by the resolution
claim. In India, this is possible only after the costs
professionals such as sale of assets, raising
associated with insolvency proceedings have been
interim funding and creation of security interest
repaid. In Australia, Norway, Greece, Mexico and
have to be approved by the creditors’ committee.
Colombia, employees’ salaries have the first claim
All decisions of the creditors’ committee have to
in the order of priority. In India’s IBC, workmens’
be approved with a majority vote of not less than
compensations appear after costs associated with
75 per cent by value of financial creditors.
insolvency proceedings, pari passu with secured
IV.21 Moratorium: In the US, the bankruptcy creditors in the waterfall of payments in liquidation,
law provides for an automatic moratorium on the followed by unsecured creditors.
enforcement of claims against the company and
The Progress under IBC so far
its property upon filing of a Chapter 11 petition.
IV.24 An analysis of the transactions under the
Similarly, the UK provides for an interim
corporate insolvency resolution process indicates
moratorium during the period between the filing
that the pace of admitted cases to the IBC has
of an application to appoint an administrator and
picked up with time (Table IV.1).
the actual appointment. These moratoriums are
intended to prevent a race by creditors to collect IV.25 Another interesting insight is that
their claims, which may precipitate liquidation of operational creditors have been the most
the company. In India, the IBC provides for an aggressive in the initiation of corporate insolvency
proceedings, though the number of financial
automatic moratorium of 180 days against any
creditors approaching the Board for resolution
debt recovery actions by the creditors, extendable
has also been increasing (Table IV.2).
by 90 days in exceptional cases. In Singapore and
Brazil, the moratorium holds till the entire IV.26 The IBBI notified the IBBI (Voluntary
resolution plan is approved. Liquidation Process) Regulations, 2017 on March
57Report on Trend and Progress of Banking in India 2016-17
Table IV.1: Transactions under Corporate Insolvency Resolution Process
Quarter Number of Corporates Admitted Closure by Number of Corporates
Undergoing Resolution undergoing Resolution
at the beginning of the Appeal/ Approval of Commencement of at the end of the
Quarter Review Resolution Liquidation Quarter
Plan
January-March 2017 0 37 1 - - 36
April-June 2017 36 125 10 - - 151
July-September 2017 151 214 3 2 7 353
Source : Insolvency and Bankruptcy Board of India, Quarterly Newsletter for July-September 2017.
31, 2017 which enable a corporate to liquidate with CICs on the corporate debtor. The amended
itself voluntarily if it has no debt or if it is able to regulations also allow information utilities to
pay its debt in full from the proceeds of the assets access information as specified users.
to be sold under the liquidation. In pursuance of
IV.29 The SEBI amended the SEBI (Substantial
these Regulations, corporates are also tapping this
Acquisition of Shares and Takeovers) Regulations,
route for voluntary liquidation.
2011 on August 14, 2017 to provide exemption
IV.27 The success of the IBC hinges on the from open offer obligations for acquisition,
development of a supportive environment pursuant to resolution plans approved under the
consisting of trained insolvency professionals. The Code. It also amended the SEBI (Issue of Capital
registration of trained insolvency professionals and Disclosure Requirements) Regulations, 2009
has gathered pace in the recent period, with the on the same day to exempt preferential issue of
highest registrations being accounted for by the equity shares made in terms of the resolution plan
northern region (Table IV.3). approved under the Code from norms relating to
preferential issue norms such as pricing and
IV.28 In addition to the progress made under
disclosures.
various parameters, facilitating measures
undertaken by the Reserve Bank and the SEBI are IV.30 Subsequent to the enactment of the IBC,
also expected to provide a boost to the resolution the Banking Regulation Act, 1949 was amended4
process. The Reserve Bank amended the Credit to empower the Reserve Bank to issue directions
Information Companies (CIC) Regulation, 2006 to any banking company or banking companies
on August 11, 2017 to allow resolution to initiate insolvency resolution in respect of a
professionals to get access to credit information default under the provisions of the IBC. It also
Table IV.2: Initiation of Corporate enables the Reserve Bank to issue directions with
Insolvency Transactions respect to stressed assets and specify one or more
authorities or committees with such members as
Quarter Initiated by Total
the Reserve Bank may appoint or approve for
Financial Op- Cor-
Creditor erational porate appointment to advise banking companies on
Creditor Debtor
resolution of stressed assets.
January-March 2017 9 7 21 37
April-June 2017 31 59 35 125
IV.31 Subsequent to promulgation of the
July-September 2017 82 101 31 214
Banking Regulation (Amendment) Act, 2017, the
Source: Insolvency and Bankruptcy Board of India, Quarterly Newsletter
for July-September 2017. Reserve Bank has taken several steps to hasten
4 Vide Banking Regulation (Amendment) Ordinance, 2017 (the Ordinance), subsequently enacted as Banking Regulation (Amendment)
Act, 2017.
58Insolvency and Bankruptcy Code and Bank Recapitalisation
Table IV.3: Progress in Registration of of the JLF without any additional
Insolvency Professionals
conditionality; and
(As on September 30, 2017)
iv. Boards of banks were advised to
City/Region Enrolled with Total
empower their executives to implement
The Indian ICSI Insolvency
JLF decisions without further reference
Institute of Insolvency Professional
Insolvency Professionals Agency of to them, with non-adherence inviting
Professionals Agency Institute
of ICAI of Cost enforcement actions.
Accountants
of India IV.32 An Internal Advisory Committee (IAC)
Delhi 131 103 29 263 constituted by the Reserve Bank decided on an
Rest of the 101 67 16 184
objective, non-discretionary framework for
Northern Region
Mumbai 133 53 16 202 referring some of the large stressed accounts for
Rest of the 81 44 7 132
resolution under the IBC. Based on the IAC’s
Western Region
Chennai 28 27 3 58 recommendations, the Reserve Bank issued
Rest of the 67 57 16 140
directions on June 13, 2017 to certain banks for
Southern Region
Kolkata 72 15 6 93 referring some accounts with fund and non-fund
Rest of the 26 5 4 35 based outstanding amounts greater than `50
Eastern Region
All India 639 371 97 1107 billion – with 60 per cent or more qualifying as
non-performing as on March 31, 2016 – to initiate
ICAI: Institute of Chartered Accountants of India.
ICSI: Institute of Company Secretaries of India. insolvency processes under the IBC, 2016. As
Source : Insolvency and Bankruptcy Board of India, Quarterly Newsletter
for July-September 2017. regards other non-performing accounts which did
not qualify under the above criteria for immediate
the process of resolution of large value stressed
reference under the IBC, banks should finalise a
accounts. The Overseeing Committee (OC) was
resolution plan within six months. In cases where
reconstituted under the aegis of the Reserve Bank
a viable resolution plan is not agreed upon within
with an expanded strength of five members. The
six months, banks should file for insolvency
Framework for Revitalising Distressed Assets in
proceedings under the IBC.
the Economy was strengthened to address some
of the inherent agency and incentive failures:
III. Recapitalisation of Banks
i. Consent required for approval of a
IV.33 Recapitalisation of banks has been a
proposal was changed to 60 per cent
deliberate policy response the world over to repair
by value instead of 75 per cent earlier
banks’ balance sheets and potentially increase
with a view to facilitating decision
their ability to expand their credit, including in
making in the joint lenders’ forum
periods of stress. Equity purchases, subordinated
(JLF);
debt or unrequited injections of cash or bonds
ii. Banks which were in the minority on
(negotiable or non-negotiable) by governments
proposals approved by the JLF are
have been undertaken. If asset values and
required to either exit by complying
corporate earnings are temporarily low but will
with the substitution rules within the
recover as credit growth picks up and the economy
stipulated time or adhere to the
strengthens, then support through (temporary)
decision of the JLF;
government capital injections provides a lifeline
iii. Participating banks have been for potentially viable banks to survive the pangs
mandated to implement the decision of balance sheet distress.
59Report on Trend and Progress of Banking in India 2016-17
A Snapshot of Country Practices maturity of 10 years with market-related fixed
interest rates.
IV.34 Countries have devised various strategies
for dealing with the stock problem related to IV.38 In the aftermath of the global financial
stressed assets and for recapitalising their crisis, several developed countries announced
banking sectors. comprehensive rescue packages involving some
IV.35 In 1995-96, non-tradable bonds with 10- combination of recapitalisation, debt guarantees
year maturity were issued in Mexico by FOBAPROA, and asset purchases. Capital injections in the
(Fondo Bancario de Protección al Ahorro; Netherlands amounted to 5.1 per cent of GDP in
“Banking Fund for the Protection of Savings”), a 2008, in the UK (3.4 per cent), US (2.1 per cent),
bank restructuring agency, to purchase bad assets France (1.4 per cent) and Japan (0.1 per cent).
of banks. Income from NPAs was used to redeem Country practices differed widely in terms of the
FOBAPROA paper. At maturity, banks wrote off features of the recapitalisation plan (Table IV.4).
20-30 per cent of FOBAPROA paper outstanding.
Recapitalisation of Public Sector Banks in
The Government covered the balance. In Korea,
India: Early Phase
the Korean Asset Management Company (KAMCO)
IV.39 During 1993-94, the application of the first
issued tradable bonds in 1998-99 to purchase
banks’ bad assets and equities5. stage of prudential accounting standards and
capital adequacy norms necessitated strengthening
IV.36 During 1998-99, zero coupon bonds with
of capital positions of India’s nationalised banks.
market-based yield were issued by Danaharta, a
The Government of India contributed `57 billion
government owned asset management company
as equity to recapitalise nationalised banks and
(AMC) in Malaysia, to finance the purchase of
issued 10 per cent Government of India
banks’ bad assets. Further, Danamodal, a special
Nationalised Banks’ Recapitalisation Bonds, 2006
purpose vehicle (SPV) of the Bank Negara Malaysia
on January 1, 1994. Recipient banks were
(BNM), was established in 1998 to assess
required to invest the Government’s capital
recapitalisation requirements of banks, undertake
subscription in these bonds.
the recapitalisation exercise, restructure the
affected institutions and monitor performance. IV.40 The important features of the bonds were:
Bank Negara Malaysia provided the initial seed (i) they carried an interest rate of 10 per cent per
capital of RM 1.5 billion. Danamodal injected annum to be paid at half-yearly intervals; (ii) they
capital into banking institutions after the were repayable in six equal annual installments
institutions had sold their NPAs to Danaharta, but on the first day of January from the year
only to viable banking institutions, based on an commencing January 1, 2001 and onwards; (iii)
assessment and diligent review by financial they were transferable; (iv) they were not an
advisers. The capital injection was in the form of approved security for purposes of the statutory
equity or hybrid instruments.
liquidity ratio (SLR); and (v) the bonds were
IV.37 In Thailand, the Government issued considered as eligible securities for purposes of
recapitalisation bonds in 1999-2000 to purchase obtaining a loan from any bank or financial
bank equity. The bonds were tradable. Non- institution. During 2006-07, these bonds were
tradable recapitalisation bonds were also issued converted into tradable SLR-eligible Government
to purchase bank debentures. Both were of of India dated securities.
5 Andrews, Michael (2003), “Issuing Government Bonds to Finance Bank Recapitalisation and Restructuring: Design Factors That
Affect Banks’ Financial Performance”, IMF Policy Discussion Paper, PDP/03/4, International Monetary Fund.
60Insolvency and Bankruptcy Code and Bank Recapitalisation
Table IV.4: Recapitalisation: Experience of Advanced Economies
Country First Announced Maximum Amount Instruments Pricing of Instruments (key elements)
France October 13, 2008 40 billion Preferred shares, subordinated debt, and For subordinated debt: Fixed rate for first
common/ordinary shares for troubled five years, variable rate thereafter
banks
Germany October 13, 2008 80 billion Any means appropriate Market-compatible compensation
Italy October 8, 2008 - Preferred shares -
Italy November 28, 2008 - Undated/perpetual subordinated debt/loan The highest of three options, with fees
increasing over time
Japan December 17, 2008 12 trillion Preferred shares -
Japan March 17, 2009 1 trillion Subordinated debt, undated/perpetual Minimum spreads will be set by central
subordinated debt/loan bank at each auction
Netherlands October 9, 2008 20 billion Any means appropriate 8.5 per cent coupon, subject to conditions
related to dividend payments
Spain October 13, 2008 - Common/ordinary shares, preferred shares -
and/or non-voting shares
United Kingdom October 8, 2008 50 billion Common/ordinary shares, preferred shares For common/ordinary shares: 8.5 per cent
discount to the closing price
United States October 13, 2008 $ 250 billion Preferred shares, warrants Preferred shares: 5 per cent annual
dividend for five years, 9 per cent thereafter
United States February 10, 2009 - Mandatory convertible preferred (MCP) MCP shares: 9 per cent annual dividend,
shares (converts after 7 years), warrants paid quarterly
- : Not available.
Source: Fabio Panetta, Thomas Faeh, Giuseppe Grande, Corrinne Ho, Michael King, Aviram Levy, Federico M Signoretti, Marco Taboga and Andrea
Zaghini (2009). “An Assessment of Financial Sector Rescue Programmes”, BIS Papers No 48, July.
IV.41 The recapitalisation of nationalised banks non-performing assets above `10 million;
was undertaken to ensure that all the banks were formulate liability/investment management and
able to meet the minimum capital to risk-weighted loan policies; and outline capital expenditure and
assets ratio of 4 per cent by the end of March 1993 human resources development policies. The total
and also to maintain their capital unimpaired. To amount of capital injected into the public sector
strike a balance between fiscal adjustment and banks during 1992-93 to 1998-99 amounted to
bank capital strengthening, banks were allowed `204 billion.
to invest in bonds of a finite tenor, so that, in
IV.43 The Indian banking sector escaped largely
addition to receipt of interest income, banks would
unscathed from the turmoil of the global financial
receive a gradual inflow of principal over time.
crisis in view of limited exposures to toxic assets
IV.42 The release of capital by the Government and proactive regulatory measures undertaken in
was subject to the participating public sector response to fast growth in credit during the pre-
banks undertaking certain performance obligations crisis period. However, to ensure that banks
and commitments in respect of parameters such maintain Tier I capital adequacy ratio in excess of
as changes in operational policies and in 8 per cent, the Government started undertaking
organisational structure, and use of upgraded capital infusion programme since 2007-08
technology to ensure an improvement in viability onwards. A cumulative amount of `131 billion was
and profitability. Moreover, banks were required injected in PSBs during 2007-08 to 2009-10.
to chalk out plans to ensure excellence in customer Capital infusion by the government continued in
service and maintenance of a high level of efficiency subsequent years as well, wherein an attempt was
in providing various services; to improve their made to link it with bank performance. A total
position through repayment and additional amount of `666 billion was injected in PSBs
securities and documentation in respect of all during 2010-11 to 2014-15 (Chart IV.1).
61Report on Trend and Progress of Banking in India 2016-17
Out of the `2.11 trillion, `1.35 trillion will be
through recapitalisation bonds and the remaining
`760 billion will be provided through budgetary
support (around `180 billion) and by banks
raising resources from the market (`580 billion).
Recapitalisation will take place over the rest of
2017-18 and 2018-19, but the Government
intends to frontload the programme.
IV.46 The proposed recapitalisation package
combines several desirable features. By deploying
recapitalisation bonds, it will front-load capital
injections while staggering the attendant fiscal
implications over a period of time. As such, the
recapitalisation bonds will be liquidity neutral
for the Government except for the interest
expenses that will contribute to the annual fiscal
deficit. It will involve participation of private
shareholders of PSBs by requiring that parts of
Recapitalisation of Public Sector Banks:
their capital needs be met by market funding.
Recent Initiatives
Furthermore, it will set up a calibrated approach
IV.44 As part of the Indradhanush plan in August whereby banks that have addressed their
2015, the Government estimated PSBs’ capital balance-sheet issues and are in a position to use
requirements at `1.8 trillion during 2015-16 to fresh capital injection for immediate credit
2018-19, out of which `700 billion consisted of creation can be given priority while others shape
budgetary allocations and the remaining `1.1 up to be in a similar position. This is expected
trillion was to be raised by these banks from the to bring market discipline into a public
market and by divesting their non-core assets. So recapitalisation programme6.
far, under the Indradhanush plan, Government
has infused capital of `519 billion in PSBs. The IV. Summing Up
parameters considered for capital infusion in
IV.47 Banks are the key financial intermediaries
banks are capital requirements of respective
in India. Asset stress has hampered credit growth
banks; size of the banks; performance of the
at a time when the financing needs for accelerating
banks with reference to efficiency; growth of credit
the pace of economic activity have emerged as the
and deposits; reduction in the cost of operations;
highest priority. The two-pronged approach in the
and potential for growth. In addition, PSBs have
form of the IBC, 2016 and the recapitalisation of
so far (up to October 24, 2017) been able to raise
banks is expected to aid a fast er clean-up of banks’
`213 billion from the market.
balance sheets. The combination of linking the
IV.45 In October 2017, the Government performance of the banks with the quantum of
announced a large-scale bank recapitalisation funds injected through recapitalisation is expected
plan of `2.11 trillion to reinvigorate PSBs to bring in discipline and disincentivise the
struggling with high levels of stressed advances. recurrence of forbearance and stress.
6 Patel, Urjit R. (2017), “RBI welcomes bank recapitalisation plan”, Governor’s Statement, October 25, 2017, Reserve Bank of India,
Retrieved on November 11, 2017 from https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=42055.
62Chapter V
Operations and Performance of
Commercial Banks
The balance sheets of banks remained beleaguered with persistent deterioration in the asset quality. It
dented banks’ profitability and constrained the financial intermediation. Consequent deleveraging
resulted in historically low credit growth. Portfolio rebalancing towards less stressed sectors was also
observed. Nonetheless, banks were able to strengthen their capital positions. Further progress was
made towards the goal of universal financial inclusion through the ongoing financial inclusion plan
and operationalisation of new differentiated banks. It is expected that through new institutional
mechanisms such as Insolvency and Bankruptcy Code, the resolve on the part of the Government and
the Reserve Bank to collectively address the problem of stressed assets and banks’ own efforts towards
improving efficiency, credit monitoring and risk management, they will be able to overcome the strains
on lending capacity and efficiently perform their role as financial intermediaries.
I. Introduction of stressed assets and reviving credit flow to
productive sectors, received statutory backing
V.1 The Indian financial system remains bank-
from the Government through various institutional
dominated, even as the availability of finance from
reforms. At the same time, efforts were also made
alternative sources has increased in recent years.
to augment the capital base of public sector banks
During 2016-17, bank credit accounted for 35 per
(PSBs) to buffer them against balance sheet stress
cent of the total flow of financial resources to the
so that they can reinvigorate their primary role of
commercial sector. The persistent deterioration
financial intermediation and support inclusive
in the banks’ asset quality has dented the
growth. On their part, banks also mobilised
profitability and constrained the financial
capital and fine-tuned their business strategies to
intermediation. Consequent deleveraging has
remain competitive in the evolving financial
resulted in historically low credit growth, although
landscape.
subdued demand, especially from industry, has
also restrained credit off-take. Demonetisation of V.3 Against this backdrop, this chapter
specified bank notes (SBNs) in November 2016 discusses operations and performance of the
impacted the banking sector’s performance
Indian banking sector during 2016-17, based on
transitorily in the form of a surge of low-cost
the audited balance sheets of banks and off-site
deposits and abundance of liquidity in the system,
supervisory returns submitted to the Reserve
which speeded up transmission of interest rate
Bank. The chapter analyses developments in
reduction and altered banks’ balance sheet
balance sheets, profitability, financial soundness
structures even as they were engaged in managing
and credit deployment using data for 94
the process of currency withdrawal and
scheduled commercial banks (SCBs). The
replacement.
chapter also highlights other key issues engaging
V.2 The Reserve Bank’s ongoing regulatory and the banking system such as financial inclusion,
supervisory initiatives for a time-bound resolution regional penetration, customer services,Report on Trend and Progress of Banking in India 2016-17
indicators of payment system and banks’ V.5 Only private sector banks (PVBs) were able
overseas operations. Developments related to to manage positive credit growth during the year
regional rural banks (RRBs), local area banks (Chart V.2).
(LABs) and the newly created small finance banks
V.6 The flow of resources from non-bank
(SFBs) are analysed separately. The concluding
sources picked up to fill the gap opened by the
section highlights the major issues that emerge
dwindling bank credit. In 2015-16, the banking
from the analysis and offers suggestions on the
system had met more than 50 per cent of the
way forward.
requirements of financing of the commercial
sector; however, its share fell to 34.9 per cent
II. Balance Sheet Operations of
during 2016-17. Within non-banks, private
Scheduled Commercial Banks
placements of corporate bonds and commercial
V.4 In an environment characterised by papers (CPs) constituted about 21 per cent of the
slowing economic activity – mainly located in total funding requirements of non-financial
industry and subdued demand, the growth in companies. CP issuances almost doubled to
consolidated balance sheet of banks moderated `1,002 billion in 2016-17. The increasing recourse
further during 2016-17. Credit growth fell to a to the bond market by large corporates was driven
record low of 2.8 per cent1 pulled down by by the relatively cheaper costs of funds as bond
persistent decline in asset quality which yields fully transmitted the interest rate reduction
necessitated a sharp increase in provisioning of 175 basis points during the accommodative
requirements (Chart V.1). As a consequence, phase of the monetary policy that began in January
banks’ profitability was adversely impacted and 2015. The enhanced flow of household savings
risk aversion set in. into mutual funds, insurance firms and pension
1 Since this is based on audited bank balance sheet data it may differ from the credit growth reported elsewhere based on either
supervisory returns or returns under Section 42 (2) of the Reserve Bank of India Act, 1934.
64Operations and Performance of Commercial Banks
Table V.1: Trends in Flow of Financial Resources to the Commercial Sector
from Banks and Non-banks
(Amount in ` billion)
Source 2013-14 2014-15 2015-16 2016-17
A. Adjusted Non-food Bank Credit 7,627 5,850 7,755 4,952
(54.0) (45.5) (51.3) (34.9)
i) Non-food Credit 7,316 5,464 7,024 3,882
ii) Non-SLR Investments by SCBs 311 386 731 1,070
B. Flow from Non-banks (B1+B2) 6,505 7,005 7,358 9,257
(46.0) (54.5) (48.7) (65.1)
B1. Domestic Sources 4,302 4,740 4,899 6,499
(30.4) (36.9) (32.4) (45.7)
1 Public Issues by Non-financial Entities 199 87 378 155
2 Gross Private Placements by Non-financial Entities 1,314 1,277 1,135 2,004
3 Net Issuance of CPs Subscribed to by Non-banks 138 558 517 1,002
4 Net Credit by Housing Finance Companies 737 954 1,188 1,346
5 Total Accommodation by Four RBI Regulated AIFIs – NABARD, NHB, SIDBI and EXIM Bank 436 417 472 469
6 Systemically Important Non-deposit Taking NBFCs (Net of Bank Credit) 1,124 1,046 840 1,245
7 LIC’s Net Investments in Corporate Debt, Infrastructure and Social Sector 354 401 369 277
B2. Foreign Sources 2,203 2,265 2,459 2,758
(15.6) (17.6) (16.3) (19.4)
1 External Commercial Borrowings / FCCBs 661 14 -388 -509
2 ADR/GDR Issues excluding Banks and Financial Institutions 1 96 - -
3 Short-term Credit from Abroad -327 -4 -96 435
4 Foreign Direct Investments to India 1,868 2,159 2,943 2,833
C. Total Flow of Resources (A+B) 14,132 12,855 15,113 14,209
(100.0) (100.0) (100.0) (100.0)
Notes: 1. -: Nil / negligible.
2. Figures in parentheses are percentages to total.
3. The sum of components may not add up due to rounding-off.
Source: RBI, SEBI, BSE, NSE, Merchant Banks, LIC and NHB.
funds helped stoke domestic institutional V.8 Growth in deposits was largely led by
investors’ demand for bonds. Non-banking current and saving accounts (CASA) deposits,
financial companies (NBFCs) and housing finance while growth in term-deposits was muted.
companies (HFCs) also emerged as alternate
The lacklustre growth in term-deposits is
source of funds in the non-bank segment,
attributed to sluggish credit growth and
accounting for 18 per cent of the total financial
comparatively low returns on these deposits as
flows. Among foreign sources, foreign direct
compared to small savings schemes and other
investments were the pre-dominant source
market-based instruments. PVBs were more
(Table V.1).
successful in raising deposits across all
V.7 Circling back to banks’ consolidated
categories of deposits as compared to PSBs and
balance sheet, investments – the other major
foreign banks (FBs) (Chart V.3). Apart from
component in the asset side – also recorded a
investments and loans and advances, banks
marginal deceleration, though investment in non-
deployed deposits in the form of cash and
SLR securities picked up. Among bank groups,
balances with the Reserve Bank and various
PSBs recorded a faster pace of investments than
money market instruments.
PVBs. On the liabilities side, deposits increased
sharply due to withdrawal of SBNs within a pre- V.9 With the persisting deceleration in credit
announced time period (Table V.2). and the sizeable influx of deposits post-
65Report on Trend and Progress of Banking in India 2016-17
Table V.2: Consolidated Balance Sheet of Scheduled Commercial Banks
(Amount in ` billion)
Item As at end-March
Public Sector Private Sector Foreign All Scheduled
Banks Banks Banks Commercial Banks
2016 2017 2016 2017 2016 2017 2016 2017#
1. Capital 192 243 106 110 585 629 882 993
2. Reserves and Surplus 5,153 5,544 3,185 3,709 792 840 9131 10,105
3. Deposits 74,862 80,793 21,477 25,648 4,588 4,655 100,927 111,139
3.1. Demand Deposits 4,948 5,464 2,932 3,871 1,106 1,223 8,986 10,559
3.2. Savings Bank Deposits 19,513 24,738 5,511 7,173 494 529 25,518 32,451
3.3. Term Deposits 50,400 50,591 13,034 14,605 2,988 2,904 66,422 68,130
4. Borrowings 7,907 7,219 5,338 4,835 1,243 705 14,488 12,807
5. Other Liabilities and Provisions 3,567 3,558 1,362 1,712 937 1,266 5,866 6,541
Total Liabilities/Assets 91,681 97,356 31,467 36,015 8,145 8,095 131,293 141,586
1. Cash and Balances with RBI 4,185 4,842 1,217 1,585 238 374 5,639 6,805
2. Balances with Banks and Money at Call and Short Notice 3,929 5,303 759 1,300 561 759 5,248 7,374
3. Investments 22,481 25,547 7,985 8,551 2,812 2,397 33,278 36,522
3.1 Government Securities (a+b) 18,868 21,183 6,124 6,317 2,461 2,068 27,454 29,593
a) In India 18,605 20,946 6,083 6,271 2,402 2,003 27,089 29,246
b) Outside India 263 237 41 46 60 65 364 347
3.2 Other Approved Securities 3 3 - - - - 3 3
3.3 Non-approved Securities 3,609 4,361 1,861 2,234 351 330 5,822 6,925
4. Loans and Advances 55,936 55,572 19,393 22,196 3,636 3,323 78,965 81,162
4.1 Bills Purchased and Discounted 2,996 2,806 520 804 685 707 4,202 4,317
4.2 Cash Credits, Overdrafts, etc. 23,530 23,516 5,573 6,285 1,562 1,370 30,665 31,180
4.3 Term Loans 29,409 29,251 13,300 15,107 1,388 1,247 44,098 45,665
5. Fixed Assets 841 1,200 227 255 52 48 1,121 1,507
6. Other Assets 4,310 4,892 1,886 2,128 846 1,193 7,042 8,216
Notes: 1. -: Nil / negligible.
2. #: Includes data relating to Capital Small Finance Bank Ltd. and Equitas Small Finance Bank Ltd. which were included in the Second
Schedule to the Reserve Bank of India Act, 1934 with effect from November 8, 2016 and December 23, 2016, respectively.
3. Components may not add up to their respective totals due to rounding off numbers to ` billion.
Source: Annual accounts of respective banks.
demonetisation, the credit-deposit (C-D) ratio of to 73.0 per cent as at end-March 2017 from 78.2
banks, on an outstanding basis, sharply declined per cent in the previous year (Chart V.4). The
66Operations and Performance of Commercial Banks
Table V.3: Public Issues by the Banking Sector Table V.5: International Assets of Banks
in India – By Type of Instruments
(Amount in ` billion)
(Based on LBS Statements)
Year Public Sector Private Sector Total Grand (Amount in ` billion)
Banks Banks Total
Asset Type Amount Percentage
Equity Debt Equity Debt Equity Debt
Outstanding Variation
1 2 3 4 5 6 7 8=(6+7) (as at
end-March) P
2015-16 - - - - - - -
2016-17 11 - 25 - 36 - 36 2016 2017 2015-16 2016-17
Note: -: Nil / negligible. 1. Loans and Deposits 6570 5472 51.9 -16.7
Source: SEBI. (98.5) (98.0)
of which:
a) Loans to Non- 1077 1668 318.0 54.9
decline in credit turned PSBs and FBs’ incremental Residents* (16.2) (29.9)
b) Foreign Currency 1683 1546 -15.7 -8.1
C-D ratios negative.
Loans to Residents** (25.2) (27.7)
c) Outstanding Export 1977 855 123.3 -56.8
Resources Raised by Banks through Public Issues Bills (29.7) (15.3)
and Private Placement d) Foreign Currency 0.4 3.5 -96.1 743.3
in Hand, Travellers (0.0) (0.1)
Cheques, etc.
V.10 Banks raised resources mostly through e) Nostro Balances @ 1832 1399 55.8 -23.6
(27.5) (25.1)
private placements to augment their resources
2. Holdings of Debt 61 66 157.8 8.8
required for provisioning, while public issues were Securities (0.9) (1.2)
negligible. The higher number of private placements 3. Other Assets @@ 37 47 -76.3 29.1
(0.6) (0.9)
during 2016-17 also reflected banks’ capital Total International Assets 6667 5586 48.0 -16.2
(100) (100)
planning efforts to meet the gradual implementation
of Basel III capital requirements and to mitigate Notes: 1. P: Provisional.
2. *: Includes Rupee loans and foreign currency (FC) loans out
any concerns about potential stress on their asset of non-resident deposits.
quality (Table V.3 and V.4). 3. **: Includes loans out of FCNR (B) deposits, pre-shipment
credit in foreign currency (PCFC), FC lending to and FC
deposits with banks in India, etc.
SCBs’ International Liabilities and Assets in
4. @: Includes placements made abroad and balances in term-
2016-17 deposits with non-resident banks.
5. @@: Capital supplied to and receivable profits from foreign
branches/ subsidiaries of Indian banks and other unclassified
V.11 During 2016-17, international liabilities international assets.
and assets of banks located in India underwent 6. Figures in parentheses are percentages to total.
7. Percentage variation could be slightly different as absolute
contraction with the ratio of international claims numbers have been rounded off to ` billion.
to liabilities declining to 48.5 per cent from 54.1 Source: International Banking Statistics, RBI.
per cent a year ago. The decline in banks’
international claims in the form of outstanding
Table V.4: Resources Raised by Banks through
export bills, nostro balances and foreign currency
Private Placements
loans to residents exceeded the fall in banks’
(Amount in ` billion)
international liabilities on account of redemptions
Year 2015-16 2016-17 P
of Foreign Currency Non-resident (Bank) [FCNR
Category No. of Amount No. of Amount
Issues Raised Issues Raised (B)] deposits and decline in foreign currency
1 2 3 4 5 borrowings (Table V.5 and V.6).
Public Sector Banks 22 252 48 466
V.12 Liabilities due to accretions of non-resident
Private Sector Banks 13 165 18 430
Total 35 417 66 896 external (NRE) rupee accounts increased further
due to attractive interest rate differentials vis-a-vis
Note: P: Provisional.
Source: BSE, NSE and Merchant Bankers. source countries (Table V.6).
67Report on Trend and Progress of Banking in India 2016-17
Table V.6: International Liabilities of Banks in Table V.7: Maturity (Residual) and Sectoral
India – By Type of Instruments Classification of Consolidated International
(Based on LBS Statements) Claims of Banks
(Amount in ` billion) (Amount in ` billion)
Liability Type Amount Percentage Residual Maturity / Sector Amount Percentage
Outstanding Variation Outstanding (as at Variation
(as at end-March) P
end-March P
2016 2017 2015-16 2016-17
2016 2017 2015- 2016-17
16 Total Consolidated 5774 7168 42.5 24.2
International Claims (100.0) (100.0)
1. Deposits and Loans 9860 9027 17.1 -8.5 a) Maturity-wise
(80.0) (78.4) 1. Short-term (residual 4425 4529 71.9 2.3
a) Foreign Currency Non- 2674 1343 8.5 -49.8 maturity of less than (76.6) (63.2)
resident (Bank) [FCNR (21.7) (11.7) one year)
(B)] Scheme 2. Long-term (residual 1308 2605 -9.0 99.1
b) Foreign Currency 1610 1229.5 14.0 -23.6 maturity of one year (22.7) (36.3)
Borrowings* (13.1) (10.7) and above)
c) Non-resident External 4045 5100 15.0 26.1 3. Unallocated 40 34 -2.5 -15.1
Rupee (NRE) Accounts (32.8) (44.3) (0.7) (0.5)
d) Non-resident Ordinary 598 674 19.8 12.7 b) Sector-wise
(NRO) Rupee Accounts (4.9) (5.9) 1. Banks 1784 1841 5.6 3.2
(30.9) (25.7)
2. Own Issues of Securities / 73 78 6.1 6.8
Bonds (0.6) (0.7) 2. Official Sector 89 657 198.4 638.8
(1.5) (9.2)
3. Other Liabilities 2392 2410 -1.7 0.8
3. Non-Bank Financial 160 3
(19.4) (20.9)
Institutions (2.8) -
of which:
4. Non-Financial Private 3442 3880 60.0 12.7
a) ADRs / GDRs 349 415 -36.3 18.9 (59.6) (54.1)
(2.8) (3.6) 5. Others 299 787 64.3 163.2
b) Equities of Banks Held 904 974 -33.7 7.8 (5.2) (11.0)
by Non-residents (7.3) (8.5)
c) Capital / Remittable 1140 1021 118.0 -10.4 Notes : 1. P: Provisional.
Profits of Foreign (9.2) (8.9) 2. - : Nil/negligible.
Banks in India and 3. Figures in parentheses are percentages to total.
Other Unclassified 4. The sum of components may not add up due to rounding-off.
International Liabilities 5. Residual Maturity Unallocated comprises maturity
Total International Liabilities 12325 11515 12.8 -6.6 not applicable (for example, for equities) and maturity
(100.0) (100.0) information not available.
6. The official sector includes official monetary authorities,
Notes: 1. P: Provisional. general government and multilateral agencies.
2. *: Inter-bank borrowings in India and from abroad and 7. Non-financial private sector includes non-financial
external commercial borrowings of banks. corporations and households including non-profit
3. Figures in parentheses are percentages to total. institutions serving households (NPISHs).
4. Percentage variation could be slightly different as absolute 8. Others include non-financial public sector undertakings and
numbers have been rounded off to ` billion. the unallocated sector.
Source: International Banking Statistics, RBI. 9. Percentage variation could be slightly different as absolute
numbers have been rounded off to ` billion.
Source : Based on BIS’ consolidated banking statistics (CBS)
statements – immediate country risk basis.
V.13 As regards the maturity pattern of total
consolidated international claims of Indian banks,
UK in the consolidated international claims of
there was a significant increase in claims of longer-
banks on countries other than India (Table V.8).
term maturities. Sectoral shifts towards the
official sector and away from banks and non- Maturity Profile of Assets and Liabilities
financial private sector entities reflected low
V.15 Banks face rollover risks with respect to
absorptive capacity in the corporate sector in the
their short-term liabilities and consequent
face of subdued demand conditions in the
liquidity stress. However, during 2016-17, the
economy (Table V.7).
share of short-term liabilities came down driven
V.14 There was also a shift towards the US from by a sharp decline in short-term borrowings
countries such as Germany, Hong Kong and the attributed to withdrawal of SBNs resulting in
68Operations and Performance of Commercial Banks
Table V.8: Consolidated International Claims
of Banks on Countries other than India
(Amount in ` billion)
Country Amount Percentage
Outstanding P Variation
2016 2017 2015-16 2016-17
1 2 3 4 5
Total Consolidated 5,774 7,168 42.5 24.2
International Claims (100.0) (100.0)
Of which
1. United States of America 959 1,870 5.7 95.0
(16.6) (26.1)
2. United Kingdom 434 427 8.8 -1.8
(7.5) (6.0)
3. Hong Kong 454 397 44.8 -12.5
(7.9) (5.5)
4. Singapore 336 404 -12.2 20.1
(5.8) (5.6)
5. United Arab Emirates 833 889 98.8 6.8
(14.4) (12.4)
6. Germany 220 121 112.0 -44.9
(3.8) (1.7)
Notes : 1. P: Provisional.
2. Figures in parentheses are percentages to total.
3. Percentage variation could be slightly different as absolute
numbers have been rounded off to ` billion. years which pulled up the share of long-term
Source : Based on BIS’ consolidated banking statistics (CBS)
statements – immediate country risk basis. assets and accordingly, the proportion of long-
term assets financed by short-term liabilities
larger cash reserves with banks. There was an increased over the previous year (Chart V.5;
increase in loans and advances of more than five Table V.9).
Table V.9: Bank Group-wise Maturity Profile of Select Liabilities / Assets
(As at end-March)
(Per cent to total under each item)
Liabilities/Assets PSBs PVBs FBs All SCBs
2016 2017 2016 2017 2016 2017 2016 2017#
1 2 3 4 5 6 7 8 9
I. Deposits
a) Up to 1 year 46.5 41.6 42.6 41.5 66.3 63.0 46.5 42.5
b) Over 1 year and up to 3 years 25.6 27.9 25.0 26.0 26.2 28.9 25.5 27.5
c) Over 3 years and up to 5 years 7.7 8.6 10.9 10.5 7.3 8.0 8.3 9.0
d) Over 5 years 20.3 21.9 21.6 21.9 0.1 0.1 19.6 21.0
II. Borrowings
a) Up to 1 year 56.6 49.9 50.4 43.9 89.7 84.7 57.2 49.5
b) Over 1 year and up to 3 years 12.4 12.9 20.1 19.3 7.4 11.8 14.8 15.4
c) Over 3 years and up to 5 years 9.7 10.4 12.3 13.1 1.8 1.2 10.0 10.9
d) Over 5 years 21.3 26.8 17.2 23.7 1.1 2.3 18.0 24.2
III. Loans and Advances
a) Up to 1 year 30.7 28.3 32.8 32.5 67.0 62.5 32.9 30.9
b) Over 1 year and up to 3 years 38.2 34.3 35.3 33.8 18.8 18.4 36.6 33.5
c) Over 3 years and up to 5 years 11.8 10.6 12.0 12.8 4.3 8.0 11.5 11.1
d) Over 5 years 19.3 26.9 19.9 20.8 9.9 11.2 19.0 24.6
IV. Investment
a) Up to 1 year 17.3 19.8 53.3 46.9 83.8 73.9 31.2 29.7
b) Over 1 year and up to 3 years 17.3 14.1 14.5 16.8 8.7 17.4 15.9 15.0
c) Over 3 years and up to 5 years 12.1 11.8 8.3 8.5 1.4 5.7 10.3 10.6
d) Over 5 years 53.3 54.3 23.9 27.8 6.2 3.0 42.5 44.7
Notes: 1. The sum of components may not add upto 100 due to rounding-off.
2. #: Includes data relating to Capital Small Finance Bank Ltd. and Equitas Small Finance Bank Ltd. which were included in the Second
Schedule to the Reserve Bank of India Act, 1934 with effect from November 8, 2016 and December 23, 2016, respectively.
Source: Balance sheets of respective banks.
69Report on Trend and Progress of Banking in India 2016-17
contracts (including interest rate swaps) occupied
more than 85 per cent share in banks’ total off-
balance sheet operations (Chart V.6 & V.7;
Appendix Table V.2).
V.18 FBs recorded the lowest growth, although
they constituted almost half of the total off-balance
sheet operations of banks.
III. Financial Performance of Scheduled
Commercial Banks
V.19 SCBs’ total income increased marginally
in 2016-17 mainly driven by non-interest income.
Interest income growth was restrained by subdued
credit growth and increase in NPAs. On the
expenditure side, the interest expended also
experienced negligible growth due to the surge in
low cost funding from CASA deposits on account
V.16 A similar pattern was observed across
of demonetisation and the slower pace of
bank groups as well.
transmission of policy rate cuts to lending rates
SCBs’ Off-balance Sheet Operations
vis-a-vis deposit rates. The lower increase in net
V.17 Off-balance sheet transactions play a interest income vis-à-vis a year ago resulted in a
significant role in hedging the risks associated marginal decline in banks’ net interest margin
with long-term financial assets on banks’ balance (NIM), although with the introduction of the
sheets and in improving profitability, especially Marginal Cost of Funds based Lending Rate
in the context of tepid credit growth. During (MCLR) since April 2016 banks appear to have
2016-17, off-balance sheet activities expanded tweaked their spreads over the MCLR in order to
across all bank groups. Forward exchange maintain their NIM (Table V.10).
70Operations and Performance of Commercial Banks
Table V.10 : Trends in Income and Table V.11: Return on Assets and Return on
Expenditure of Scheduled Commercial Banks Equity of SCBs – Bank Group-wise
(Amount in ` billion) (Per cent)
Bank group Return on Assets Return on Equity
Item 2015-16 2016-17#
2015-16 2016-17 2015-16 2016-17
Amount Percentage Amount Percentage
Variation Variation
Public Sector Banks -0.07 -0.10 -3.47 -2.05
1. Income 11,350 5.8 12,053 6.2 Private Sector Banks 1.50 1.30 13.81 11.87
a) Interest Income 9,909 5.3 10,120 2.1 Foreign Banks 1.45 1.62 8.0 9.11
b) Other Income 1,441 8.8 1,933 34.1 All SCBs 0.40 0.35 3.58 4.16
2. Expenditure 11,009 11.9 11,614 5.5
Notes: Return on assets = Return on assets for the bank groups are
a) Interest Expended 6,661 4.6 6,692 0.5 obtained as weighted average of return on assets of individual
b) Operating Expenses 2,254 11.2 2,485 10.2 banks in the group, weights being the proportion of total assets
Of which : Wage Bill 1,195 8.3 1,275 6.7 of the bank as percentage to total assets of all banks in the
corresponding bank group.
c) Provisions and
Return on equity = Net profit / Average total equity.
Contingencies 2,094 45.2 2,437 16.4 Source: Annual accounts of banks.
3. Operating Profit 2,436 4.4 2,876 18.1
4. Net Profit 341 -61.7 439 28.6
5. Net Interest Income profits a year ago whereas nationalised banks
(NII) (1a-2a) 3,249 7.0 3,428 5.5
Net Interest Margin (NII 2.6 2.5 reduced their losses year-on-year. PVBs posted
as percentage of average a muted increase in profits, resulting in a
assets)
decline in return on assets (RoA). Concurrently,
Notes: 1. #: Includes data relating to Capital Small Finance Bank Ltd.
and Equitas Small Finance Bank Ltd. which were included in their return on equity (RoE), which reflects a
the Second Schedule to the Reserve Bank of India Act, 1934 bank’s efficiency in churning profits from every
with effect from November 8, 2016 and December 23, 2016,
respectively. unit of equity, also declined. In contrast, FBs
2. Percentage variations could be slightly different as absolute
improved their RoA and RoE over the previous
numbers have been rounded off to ` billion.
Source: Annual accounts of respective banks. year (Table V.11).
V.22 The spread – the difference between
V.20 Operating expenses slowed down on
returns and cost of funds – which is a measure of
account of rationalisation of branches and
banks’ operational efficiency remained around the
manpower which, in turn, resulted in an
same level as the previous year. PVBs posted an
improvement in banks’ operating profits.
improvement in spread as against PSBs and FBs,
Provisions and contingencies eased in relation to which reported lower spreads in relation to the
the high base of the previous year although they previous year (Table V.12).
remained elevated in view of the sustained stress
on the asset quality and the implementation of IV. Soundness Indicators
Asset Quality Review (AQR) by the Reserve Bank,
Capital Adequacy
which resulted in improved recognition of NPAs.
V.23 The progressive implementation of Basel
The sharp increase in banks’ net profits in 2016-
III capital requirements has provided an impetus
17 needs to be viewed in the context of a low base
for the banking system as a whole to scale up
in 2015-16 when the net profits had declined
capital to risk-weighted assets ratio (CRAR).
precipitously owing to sizeable provisioning
Consequently, all categories of banks in India
requirement (Table V.10).
remained well above the requirement of 10.25 per
V.21 Bank group-wise, PSBs continued to cent (including the capital conservation buffer
record net losses during 2016-17 although they (CCB) for March 2017 and 11.5 per cent for end-
moderated in relation to a year ago. The State March 2019 when Basel III will be fully operational
Bank Group incurred losses in contrast to net (Chart V.8).
71Report on Trend and Progress of Banking in India 2016-17
Table V.12: Cost of Funds and Return on Funds – Bank Group-wise
(Per cent)
Bank Group / Year Cost of Cost of Cost of Funds Return on Return on Return on Spread
Deposits Borrowings Advances Investments Funds
1 2 3 4 5 6 7 8 9 = 8-5
PSBs 2015-16 6.19 5.27 6.11 9.02 7.80 8.68 2.57
2016-17 5.70 4.80 5.62 8.44 7.49 8.15 2.53
PVBs 2015-16 6.08 6.27 6.11 10.46 7.49 9.59 3.48
2016-17 5.59 6.56 5.76 9.99 7.49 9.28 3.52
FBs 2015-16 4.46 4.00 4.36 8.95 7.28 8.22 3.86
2016-17 4.24 4.25 4.24 8.77 6.89 7.97 3.73
All SCBs 2015-16 6.09 5.50 6.02 9.35 7.68 8.87 2.85
2016-17 5.61 5.44 5.59 8.86 7.45 8.43 2.84
Notes: 1. Cost of deposits = Interest paid on deposits/Average of current and previous year’s deposits.
2. Cost of borrowings = (Interest expended – Interest on deposits)/Average of current and previous year’s borrowings.
3. Cost of funds = Interest expended /(Average of current and previous year’s deposits plus borrowings)
4. Return on advances = Interest earned on advances /Average of current and previous year’s advances.
5. Return on investments = Interest earned on investments /Average of current and previous year’s investments.
6. Return on funds = (Interest earned on advances + Interest earned on investments) / (Average of current and previous year’s advances plus
investments).
7. Data for 2017 include small finance banks.
Source: Calculated from balance sheets of respective banks.
V.24 Even Tier I ratios were well above the efforts to strengthen their capital positions by
minimum requirement of 7 per cent (Table V.13). raising capital through various instruments from
Among the bank groups, PSBs had the lowest the market, intermittent capital infusion by the
CRAR although improvement is becoming evident Government and modification in treatment of
in recent years. PVBs have consistently maintained certain balance sheet items in order to align with
higher CRAR. Overall, the banks have intensified Basel Committee on Banking Supervision (BCBS)
guidelines. In this direction, Government’s
Indradhanush plan of August 2015 and its
announcement of further recapitalisation of PSBs
in October 2017 is expected to significantly
improve the capital position of PSBs.
V.25 PSBs were allowed to raise capital from
the markets through Follow-on Public Offers
(FPOs) or Qualified Institutional Placement (QIP)
in August 2016 by diluting the Government’s
holding up to 52 per cent in a phased manner
based on capital requirements, stock performance,
liquidity and market conditions. Further, in order
to create strong and competitive banks,
Government has given in-principle approval for
PSBs to amalgamate through an Alternative
Mechanism2. Any such proposal would be solely
based on commercial considerations and will need
to originate from the boards of respective banks.
2 The Cabinet gave in-principle approval for PSBs to amalgamate through an Alternative Mechanism on August 23, 2017. The
proposals received from banks for in-principle approval to formulate schemes of amalgamation will be placed before the Alternative
Mechanism. After in-principle approval, the banks will take steps in accordance with law and the Securities and Exchange Board
of India (SEBI) requirements. The final scheme will be notified by the Government in consultation with the Reserve Bank.
72Operations and Performance of Commercial Banks
Table V.13: Component-wise Capital Adequacy of SCBs
(As at end-March)
(Amount in ` billion)
PSBs PVBs FBs SCBs
2016 2017 2016 2017 2016 2017 2016 2017
1. Capital Funds 6,647 7,047 3,705 4,239 1,296 1,184 11,647 12,470
i) Tier I Capital 5,138 5,480 3,109 3,643 1,208 1,110 9,455 10,233
ii) Tier II Capital 1,509 1,567 596 596 88 74 2,192 2,237
2. Risk Weighted Assets 56,260 58,053 23,622 27,289 7,584 6,328 87,466 91,671
3. CRAR (1 as % of 2) 11.8 12.1 15.7 15.5 17.1 18.7 13.3 13.6
Of which: Tier I 9.1 9.4 13.2 13.3 15.9 17.5 10.8 11.2
Tier II 2.7 2.7 2.5 2.2 1.2 1.2 2.5 2.4
Source: Off-site returns.
Leverage Ratio since it takes into account the liquidity profile of
both assets and liabilities. Furthermore, the LCR
V.26 Leverage ratio is being maintained by
does not impound funds of banks for lending
Indian banks with effect from April 1, 2015 as a
beyond what is necessary to maintain adequate
supplement to risk-based capital ratios to
liquidity on an on-going basis. Moreover, as the
constrain the build-up of leverage and avoid
LCR includes securities apart from G-secs, it is
destabilising deleveraging. Defined as the ratio of
expected to give a fillip to other market segments,
Tier I capital to total exposure (including on-
especially the corporate bond market. Currently,
balance sheet exposures, derivative exposures,
banks have to comply with both SLR and LCR
securities financing transaction exposures and
regulations, but the SLR is being gradually
off-balance sheet items), the leverage ratio showed
brought down to facilitate a smooth transition to
an improvement for the banking system as a whole
LCR reaching 100 per cent by January 1, 2019.
in 2016-17, although PSBs were placed much
At present, a total carve-out from the SLR is 11
below other bank-groups (Chart V.9). In view of
testing of a minimum Tier I leverage ratio of 3 per
cent by the BCBS till 2017, the Reserve Bank has
been monitoring individual banks against an
indicative leverage ratio of 4.5 per cent.
Liquidity Coverage Ratio
V.27 The liquidity coverage ratio (LCR) is
intended to build banks’ short-term resilience to
potential liquidity disruptions. LCR requires the
banks to have adequate high quality liquid assets
(HQLAs) to withstand a 30-day liquidity shock –
net cash outflows in a severe stress scenario.
Implementation of the LCR was phased in by the
Reserve Bank at 60 per cent from January 1, 2015
to reach 100 per cent on January 1, 2019. The
LCR is a more sophisticated tool than the statutory
liquidity ratio (SLR) for liquidity risk management,
73Report on Trend and Progress of Banking in India 2016-17
least 100 per cent on an ongoing basis, which is
planned to be implemented in 2018.
Non-performing Assets
V.29 The asset quality of banks deteriorated
further during the year with the gross non-
performing assets (GNPA) ratio reaching 9.3 per
cent of total advances. PSBs’ GNPA ratio rose to
11.7 per cent by March 2017. Although much
lower for PVBs, their GNPA ratio rose sharply
during the year. FBs showed marginal improvement
in asset quality. The net NPA ratio, which is an
indicator of the quality of the loan book as it is
adjusted for provisions, rose to more than 5 per
cent (Table V.14).
V.30 A deterioration in the asset quality of banks
adversely impacts their lending capacity with
downside risks to overall macroeconomic
per cent of banks’ net demand and time liabilities
conditions (Box V.1).
(NDTL) that is available for consideration for LCR.
During 2016-17, banks significantly improved Table V.14: Trends in Non-performing Assets –
Bank Group-wise
their LCR position and each bank-group was able
(Amount in ` billion)
to maintain LCR above 100 per cent, with the
Item PSBs* PVBs FBs All
PSBs’ LCR being much higher than that of PVBs SCBs#
(Chart V.10). Gross NPAs
Closing Balance for 2015-16 5,400 562 158 6,119
Net Stable Funding Ratio Opening Balance for 2016-17 5,400 562 158 6,120^
Addition during the year 2016-17 3,275 814 66 4,157
V.28 The net stable funding ratio (NSFR) Recovered during the year 2016-17 1,000 237 36 1,274
Written-off during the year 2016-17 827 207 51 1,085
strengthens resilience over a longer-term time
Closing Balance for 2016-17 6,847 932 136 7,918
horizon than the LCR as it requires banks to fund Gross NPAs as per cent of Gross Advances**
their activities with stable sources of funding on 2015-16 9.3 2.8 4.2 7.5
2016-17 11.7 4.1 4.0 9.3
an ongoing basis. The NSFR seeks to discourage
Net NPAs
banks from relying on short-term wholesale Closing Balance for 2015-16 3,204 267 28 3,498
Closing Balance for 2016-17 3,831 478 21 4,331
funding thereby promoting funding stability and
Net NPAs as per cent of Net Advances
encouraging better assessment of funding risk
2015-16 5.7 1.4 0.8 4.4
across all on- and off-balance sheet items. As per 2016-17 6.9 2.2 0.6 5.3
the Basel III requirement, NSFR is the ratio of Notes: 1. * : Includes IDBI Bank Ltd. and Bharatiya Mahila Bank.
2. # : Includes data relating to Capital Small Finance Bank
available stable funding relative to the amount of Ltd. and Equitas Small Finance Bank Ltd., which were
included in the Second Schedule to the Reserve Bank of
required stable funding. Available stable funding
India Act, 1934 with effect from November 8, 2016 and
is defined as the portion of capital and liabilities December 23, 2016, respectively.
3. ^ : Opening balance for 2016-17 is different from closing
expected to be reliable over the time horizon balance for 2015-16 due to inclusion of two small
finance banks in 2016-17.
considered by the NSFR, which extends to one 4. ** : Calculated taking gross NPAs from annual accounts
of respective banks and gross advances from off-site
year. The NSFR has not been phased in so far but
returns.
banks will be required to maintain NSFR of at Source: Annual accounts of banks and off-site returns.
74Operations and Performance of Commercial Banks
Box V.1: NPAs and Credit Cycles in India – Priority versus Non-Priority Sectors
The evolution of NPAs tends to be pro-cyclical albeit with a lag.
When NPA ratios rise above a certain threshold, they have a
negative impact on banks’ willingness to lend indicative of non-
linearities and reverse causality also at work (Tracey, 2011;
Cucinelli, 2015).
It is observed in the Indian banking system that while credit
growth on the aggregate positively affects the NPA ratio in the
Indian economy (Chavan and Gambacorta, 2016), there are
bi-directional effects as well. The NPA ratio has a negative
contemporaneous effect on overall credit growth (RBI, 2017).
These system-level relationships are investigated at a segment-
specific level, that is, across the priority and non-priority
sectors in view of observed differences in the levels of NPAs
and credit growth as well as in access to alternative sources of
finance in the two sectors.
Quarterly data on year-on-year (y-o-y) credit and NPA growth
for both priority and non-priority sectors from March 2002
to June 2017 was filtered to extract deviations from the trend For the non-priority sector, Granger causality at an optimal
in the form of growth cycles. A visual observation of the y-o-y lag length of 6 indicated a bi-directional causality between the
growth in NPAs and credit in the priority sector suggests that credit growth cycle and the NPA growth cycle. Cross-correlation
they generally moved in opposite directions. The only exception coefficients showed that the credit growth cycle and the NPA
being a close co-movement with more than characteristic growth cycle in the non-priority sector were positively and
volatility for an intermediate period between December 2011 significantly correlated with a lag of 16 quarters. The long
and June 2014 (Chart 1A). In the non-priority sector, movement gestation period of infrastructural and core industrial projects
in opposite directions was generally observed (Chart 1B). covered under the non-priority sector could explain the longer
lag in this sector. However, the NPA growth cycle negatively
For the priority sector, Granger causality at a lag length (5) affected the credit growth cycle after about just one quarter.
optimised through the AIC, LR and HQ criteria in a VAR Banks responded to the stress on their balance sheets by
framework indicated bi-directional causality between these curtailing the supply of credit to the sector.
two cycles.3 NPA growth cycles affected credit growth cycles
negatively and significantly with a lag of four quarters while To conclude, the effects of credit growth on NPA growth played
credit growth cycles positively and significantly affected NPA out, as expected, in both priority and non-priority sectors in
growth cycles with a lag of one quarter. Agriculture forms line with the sector-specific characteristics. On the other hand,
a substantial part of priority sector lending. The bulk of growing credit risk in the non-priority sector evoked a more
agricultural credit is primarily disbursed before the four- prompt contraction in credit growth to that sector as compared
quarter long agricultural crop year while repayment of credit to the characteristic lag in the impact of credit risk on bank
is due after the harvest following each cropping season which lending in the priority sector. For some time now, the non-
are of a shorter term by nature. These lags then seem intuitively priority sector has contributed more to the weakening quality
plausible. of assets on the bank balance sheets than the priority sector.
Hence, it is not surprising that a reduction in lending activities
in the non-priority sector followed soon after sharp increases
in the NPA growth cycle in the sector.
References
Chavan, P. and L. Gambacorta (2016), “Bank Lending and Loan
Quality – The Case of India”, BIS Working Paper no. 595.
Cucinelli, D. (2015), “The Impact of Non-performing Loans on
Bank Lending Behaviour: Evidence from the Italian Banking
Sector”, Eurasian Journal of Business and Economics, Vol.
8, pp. 59-71.
RBI (2017), “Monetary Policy Report”, April, Mumbai.
Tracey, M. (2011), “The Impact of Non-performing Loans on
Loan Growth: An Econometric Case Study of Jamaica and
Trinidad and Tobago”, Financial Stability Department, Bank
of Jamaica.
3 AIC – Akaike Information Criterion; LR – Sequential Modified Likelihood Ratio; HQ – Hannan-Quinn Information Criterion.
75Report on Trend and Progress of Banking in India 2016-17
during 2016-17, indicating an increase in the
stickiness of NPAs. In the case of PSBs, the pace
of loans slipping into the sub-standard asset
category declined in the last quarter of the year
(Table V.15).
V.33 Large borrowers who have an exposure
of `50 million or more accounted for about 86.5
per cent of all NPAs, while their share in total
advances was 56 per cent by end-March 2017.
All large borrowal loan accounts with any sign of
stress (including special mention account-0
(SMA-0), SMA-1, SMA-2, NPAs and restructured
loans) accounted for about 32 per cent of the
total funded amount outstanding of PSBs as
against 17.4 per cent in the case of PVBs. This
suggests persisting stress on the asset quality of
the banking system (Chart V.12).
V.31 Following the AQR in July 2015, the asset
quality of banks deteriorated sharply. Accounts V.34 This is corroborated by the high slippage
identified as NPAs in the list of one bank led to ratio – the ratio of fresh NPAs to standard advances
loan facilities extended to the same borrower by at the beginning of the year – of the banking system
other banks being identified as NPAs too. The albeit with some improvement over the previous
withdrawal of regulatory forbearance on year. Among bank groups, the slippage ratio of
restructured advances since April 1, 2015 also PSBs declined while that of PVBs firmed up during
contributed to a steady shift of restructured 2016-17 (Chart V.13).
standard advances into NPAs (Chart V.11).
V.35 Sector-wise, more than three-fourth of the
V.32 The share of doubtful and loss assets in delinquent loans were concentrated in the non-
total loan assets of PSBs and PVBs increased priority sector with industries recording the
Table V.15: Classification of Loan Assets – Bank Group-wise
(As at end-March)
(Amount in ` billion)
Bank Group Year Standard Assets Sub-Standard Assets Doubtful Assets Loss Assets
Amount Per cent* Amount Per cent* Amount Per cent* Amount Per cent*
PSBs# 2016 52,875 90.7 2,005 3.4 3,232 5.5 163 0.3
2017 51,816 88.3 1,731 3.0 4,904 8.4 213 0.4
PVBs 2016 19,184 97.2 186 0.9 311 1.6 62 0.3
2017 21,748 95.9 310 1.4 519 2.3 90 0.4
FBs 2016 3,606 95.8 62 1.6 60 1.6 36 0.9
2017 3,304 96.0 40 1.2 83 2.4 14 0.4
All SCBs 2016 75,666 92.5 2,252 2.8 3,603 4.4 260 0.3
2017 76,868 90.7 2,081 2.5 5,505 6.5 316 0.4
Notes: 1. Constituent items may not add up to the total due to rounding-off.
2. *: As per cent to gross advances.
3. #: Includes IDBI Bank Ltd. and Bharatiya Mahila Bank.
Source: Off-site returns.
76Operations and Performance of Commercial Banks
highest level of NPAs, followed by the infrastructure were vehicle and transport equipment, cement,
sector (Table V.16). construction, textiles and engineering. In general,
PSBs’ exposure to industries in stress was much
V.36 Within industries, basic metals and
higher as compared to that of PVBs (Chart V.14).
products had the highest level of stress (GNPAs
plus restructured standard advances). Other V.37 Micro and small enterprises (MSEs) NPAs
industrial sectors with elevated levels of stress rose to reach 8.4 per cent in March 2017 while
Table V.16: Sector-wise NPAs of Banks
(As at end-March)
(Amount in ` billion)
Bank Priority Sector Of which Non-priority Sector Total NPAs
Group
Agriculture Micro and Small Others
Enterprises
Amt. Per cent# Amt. Per cent# Amt. Per cent# Amt. Per cent# Amt. Per cent# Amt. Per cent#
PSBs*
2016 1,281 25.5 448 8.9 658 13.1 175 3.5 3,740 74.5 5,021 100.0
2017 1,543 24.1 548 8.5 757 11.8 238 3.7 4,868 75.9 6,411 100.0
PVBs
2016 101 21.0 40 8.2 47 9.6 15 3.1 382 79.0 484 100.0
2017 133 18.0 53 7.2 64 8.7 16 2.2 605 82.0 738 100.0
FBs
2016 23 14.3 0.4 0.3 4 2.3 19 11.7 135 85.7 158 100.0
2017 24 17.8 1 0.5 4 3.1 19 14.2 112 82.2 136 100.0
All SCBs
2016 1,405 24.8 488 8.6 708 12.5 208 3.7 4,257 75.2 5,662 100.0
2017 1,700 23.3 602 8.3 825 11.3 273 3.7 5,585 76.7 7,285 100.0
Notes: 1. Amt.: – Amount.
2. #: Share in total NPAs.
3. *: Includes IDBI Bank Ltd and Bhartiya Mahila bank.
4. Constituent items may not add up to the total due to rounding off.
Source: Off-site returns.
77Report on Trend and Progress of Banking in India 2016-17
retail loans and the real estate sectors continued Revised Prompt Corrective Action Framework
to record moderate NPAs (Chart V.15).
V.39 The Reserve Bank introduced the revised
V.38 There was an improvement in the provision prompt corrective action (PCA) framework with
coverage ratio (PCR) for the banking system as a effect from April 1, 2017 based on the financials
whole barring PVBs (Chart V.16). of the banks for the year ended March 31, 2017.
Capital (CRAR/ common equity tier (CET) I ratio),
asset quality (net non-performing assets (NNPA)
ratio), profitability (return on assets) and leverage
(Tier I leverage ratio) are the key areas for
monitoring in the revised framework4. Breach of
any risk threshold will result in invocation of PCA
by the Reserve Bank (Table V.17). So far, seven
PSBs have been put under PCA.
Recovery of NPAs
V.40 Recovery of banks’ NPAs remains poor,
having declined to 20.8 per cent by end-March
2017 from 61.8 per cent in 2009. During 2016-
17, Debt Recovery Tribunals (DRTs) made the
highest amount of recovery, followed by the
Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest
4 In the revised framework, the CET I ratio and the tier I leverage ratio have been added as additional indicators. Various corrective
actions on breach of risk thresholds have also been fine-tuned.
78Operations and Performance of Commercial Banks
Table V.17: Revised PCA Matrix – Indicators and Risk Thresholds
Indicator Risk Threshold 1 Risk Threshold 2 Risk Threshold 3
CRAR + applicable CCB* >=7.75% but <10.25% >=6.25% but <7.75% -
CET I Capital Ratio + applicable CCB* >=5.125% but <6.75% >=3.625% but <5.125% <3.625%
NNPA Ratio >=6.0% but <9.0% >=9.0% but <12.0% >=12.0%
RoA Negative RoA for two consecutive years Negative RoA for three consecutive years Negative RoA for four consecutive years
Tier I Leverage Ratio >=3.5% but <= 4.0% <3.5% -
Note: *: Applicable CCB is 1.25%, 1.875% and 2.5% as on March 31, 2017, March 31, 2018 and March 31, 2019, respectively.
Source: Reserve Bank of India.
(SARFAESI) Act and Lok Adalats. The significant NPAs by SCs / RCs indicates that acquisition cost
improvement in the case of DRTs was due to as a proportion of the book value of assets
opening of new tribunals, strengthening existing increased from 28.7 per cent in March 2014 to
infrastructure and computerised processing of 36 per cent in March 2017, indicating that the
court cases (Table V.18). banks had to incur lower haircuts on account of
sale of NPAs.
V.41 An alternate option for banks for
enforcement of security interest is sale of NPAs to V.42 Recent years have witnessed a sharp pick-
securitisation companies/reconstruction up in the sale of stressed assets to SCs/RCs by
companies (SCs/RCs) registered under the PVBs and FBs, however, sale of NPAs by PSBs
SARFAESI Act, 2002 with banks taking some remains lukewarm (Chart V.17).
haircut on every sale. An analysis of purchase of
Table V.18: NPAs of SCBs Recovered through Various Channels
(Amount in ` billion)
Recovery Channel 2015-16 2016-17
No. of Cases Amount Amount Col. (4) as % No. of Cases Amount Amount Col. (8) as % of
Referred Involved Recovered* of Col. (3) Referred Involved Recovered* Col. (7)
1 2 3 4 5 6 7 8 9
i) Lok Adalats 4,456,634 720 32 4.4 2,152,895 1,058 38 3.6
ii) DRTs 24,537 693 64 9.2 28,902 671 164 24.4
iii) SARFAESI Act 173,582 801 132 16.5 80,076 1,131 78 6.9
Total 4,654,753 2,214 228 10.3 2,261,873 2,860 280 9.8
Notes: 1. *: Refers to amount recovered during the given year, which could be with reference to cases referred during the given year as well as during
the earlier years.
2. DRTs – Debt Recovery Tribunals.
79Report on Trend and Progress of Banking in India 2016-17
Table V.19: Details of Financial Assets Table V.20: Sectoral Deployment of
Securitised by SCs / RCs Gross Bank Credit
(Amount in ` billion)
(Amount in ` billion)
Sr Item Outstanding Percentage
Item Jun-14 Jun-15 Jun-16 Jun-17
No as on Variation
1. Book Value of Assets 1598 1750 2377 2627
Mar-16 Mar-17 2015-16 2016-17
Acquired
2. Security Receipts Issued 520 536 790 940 1 Agriculture & Allied Activities 8,829 9,924 15.3 12.4
by SCs / RCs 2 Industry 27,307 26,800 2.7 -1.9
of which
3. Security Receipts
Subscribed to by 2.1 Infrastructure 9,648 9,064 4.4 -6.1
(a) Banks 429 441 651 777 2.2 Micro and Small Industries 3,715 3,697 -2.3 -0.5
(b) SCs / RCs 74 73 114 142 3 Services 15,411 18,022 9.1 16.9
of which
(c) FIIs 1 1 3 3
3.1 Trade 3,811 4,279 4.2 12.3
(d) Others (Qualified 16 21 22 18
Institutional Buyers) 3.2 Commercial Real Estate 1,776 1,856 6.7 4.5
4. Amount of Security 107 123 149 156 3.3 Tourism, Hotels & 371 375 0.1 1.2
Restaurants
Receipts Completely
Redeemed 3.4 Computer Software 191 179 10.9 -6.3
3.5 Non-banking Financial 3,527 3,910 13.2 10.9
Source: Quarterly statement submitted by SCs / RCs. Companies
4 Personal Loans 13,922 16,200 19.4 16.4
of which
V.43 Seller banks subscribed to more than 80 4.1 Credit Card Outstanding 377 521 23.7 38.4
4.2 Education 682 701 7.7 2.7
per cent of the total security receipts (SRs) issued
4.3 Housing (including 7,468 8,601 18.8 15.2
(Table V.19). Priority Sector Housing)
4.4 Advances against Fixed 667 661 6.7 -0.9
Deposits (including FCNR
V. Sectoral Distribution of Bank Credit (B), NRNR Deposits, etc.)
5 Non Food Credit (1-4) 65,469 70,946 9.1 8.4
Sectoral Deployment 6 Gross Bank Credit 66,500 71,347 9.0 7.3
Note: Percentage variations could be slightly different as absolute
V.44 At the aggregate level, growth in non-food
numbers have been rounded off to ` billion.
Source: Sectoral deployment of bank credit, Reserve Bank of India.
credit decelerated during 2016-17, extending a
slowdown that commenced in 2015. Credit to
regarding the implementation of the Real Estate
industries, which accounted for 38 per cent of
(Regulation and Development) Act. In June 2017,
total non-food credit went into contraction. Within
this category, the decline in credit to infrastructure
was stark. Credit to the services sector, especially
in the trade segment, picked up. With respect to
non-bank financial companies (NBFCs) which
accounted for more than one-fifth of the credit to
the services sector, it remained in double-digits
although some moderation set in during 2016-17
(Table V.20).
V.45 Credit to agriculture and allied activities
and personal loans also experienced deceleration
in growth (Chart V.18).
Retail Loans
V.46 Housing loans, which account for more
than half of the retail loan portfolio of banks,
decelerated sharply, attributable to the transitory
effects of demonetisation and uncertainty
80Operations and Performance of Commercial Banks
risk weights and provisioning on standard assets
on certain categories of individual housing loans
were reduced with a view to providing a boost to
the housing segment. Auto loans, another major
component of retail loans, continued to record
robust growth, albeit with some deceleration in
2016-17. Likewise, credit was robust in respect
of consumer durables and credit card loans while
education loans slowed down and advances
against fixed deposits shrank (Table V.21).
Priority Sector Credit
V.47 Priority sector credit growth slowed
sharply during the year in line with deceleration
in overall credit. However, methodological changes
in the reporting and monitoring of priority sector
regulations by the Reserve Bank accentuated it5
(Chart V.19).
respect of total agriculture, small and marginal
V.48 PVBs exceeded the overall priority sector
farmers, non-corporate individual farmers and
target of 40 per cent of Adjusted Net Bank Credit
weaker sections. PSBs marginally missed the
(ANBC) or credit equivalent amount of off-balance
overall priority sector target, but they could
sheet exposure (OBE), whichever is higher, but
achieve various sub-targets except for micro-
shortfalls were reported in certain sub-targets in
enterprises (Table V.22).
Table V.21 : Retail Loan Portfolio of Banks
Priority Sector Lending Certificates
(Amount in ` billion)
V.49 Introduced in April 2016, priority sector
Sr. Item Amount Percentage
No Outstanding Variation lending certificates (PSLCs) allow the market
2016 2017 2016 2017 mechanism to enable the achievement of priority
1 Housing Loans 7625 8530 18.5 11.9 sector lending targets by leveraging on the
2 Consumer Durables 182 215 -0.3 18.4
comparative strengths of different banks. While
3 Credit Card Receivables 469 649 24.2 38.3
4 Auto Loans 1543 1866 24.0 20.9 PVBs and FBs are typically buyers of PSLCs;
5 Education Loans 681 728 9.5 6.9
PSBs, SFBs and RRBs are sellers. The total trade
6 Advances against Fixed Deposits 723 680 11.4 -6.0
(incl. FCNR (B), etc.) value of PSLCs was `498 billion during 2016-17
7 Advances to Individuals against 52 51 -10.0 -2.8
Shares, Bonds, etc. out of which 48.3 per cent of the trades occurred
8 Other Retail Loans 2689 3355 -4.2 24.8
during Q4:2016-17. Trading tends to be
Total Retail Loans 13965 16074 12.9 15.1
(19.2) (21.2) concentrated in the last month of each quarter
Notes: 1. Figures in parentheses represent percentage share of retail as it makes business sense for buyer banks to
loans in total loans and advances. The amount of total loans
and advances are as provided in the off-site returns of SCBs. part with the premium only at the end of the
2. Percentage variations could be slightly different as absolute
quarter to realise the time value of money to the
numbers have been rounded off to ` billion.
Source: Off-site returns. maximum. The highest weighted average
5 From 2016-17, monitoring of priority sector achievement against the target was shifted from end of the financial year to average
of priority sector target /sub-target achievement as at the end of each quarter.
81Report on Trend and Progress of Banking in India 2016-17
Table V.22: Priority Sector Lending by Banks
(As at March 31, 2017)
(Amount in ` billion)
Item Target / sub- Public Sector Banks Private Sector Banks Foreign Banks
target (per
cent of ANBC/ Amount Per cent of Amount Per cent of Amount Per cent of
OBE) outstanding ANBC/OBE outstanding ANBC/OBE outstanding ANBC/OBE
1 2 3 4 5 6 7 8
Total Priority Sector Advances 40 19,889 39.5 7,110 42.5 1,238 36.9
of which
Total Agriculture 18 9,229 18.3 2,762 16.5 176 -
Small and Marginal Farmers 8 4,375 8.7 920 5.5 - -
Non-corporate Individual Farmers# 11.7 6,273 12.5 1,750 10.5 - -
Micro Enterprises 7.5 3,151 6.3 1,386 8.3 - -
Weaker Sections 10 5,753 11.4 1,507 9.0 53 -
Notes: 1. -: Nil/negligible.
2. Data are provisional.
3. #: Domestic SCBs were directed to ensure that their overall lending to non-corporate farmers does not fall below the system-wide average of
the last three years’ achievement. All efforts should be made to reach the level of 13.5 per cent direct lending to the beneficiaries who earlier
constituted the direct agriculture sector. The applicable system wide average figure for computing achievement under priority sector lending
will be notified every year. For FY 2016-17, the applicable system wide average figure is 11.70 per cent.
4. As on March 31, 2017, the specified priority sector lending targets / sub-targets is applicable for domestic SCBs/foreign banks with 20
branches or more as per cent of ANBC or credit equivalent amount of OBE, whichever is higher as on March 31 of the preceding year. The
target for the total priority sector, total agriculture and weaker sections in case of foreign banks with 20 branches and above is to be achieved
by March 2018. The sub-target for small and marginal farmers and micro-enterprises for foreign banks with 20 branches and above would
be made applicable post-2018 after a review in 2017.
5. For foreign banks having less than 20 branches, the target of 40 per cent of ANBC or credit equivalent amount of OBE, whichever is higher,
as on March 31 of the preceding year is to be achieved in a phased manner by March 2020.
premiums on PSLCs across various categories maintained the tempo of loans to the sector, PVBs
were observed in the first quarter of 2016-17 recorded a decline (Appendix Table V.4).
since the PSLCs purchased during the first
VI. Operations of Scheduled Commercial
quarter can be reckoned for achievement at all
Banks in the Capital Market
the four quarterly reporting dates.
V.52 During 2016-17 and during 2017-18 so
V.50 Highest PSLC premiums were observed
far, the Nifty Bank Index has outperformed Nifty
for the PSLC – small and marginal farmers (SMF)
50 reflecting better performance of bank equities
as it is the only PSLC which can be reckoned for
as compared to other sectors. Movement in the
achievement under all of the following targets, viz.,
Nifty Bank Index was guided by a host of factors
SMF, non-corporate farmers, agriculture, overall
including enactment of the Insolvency and
priority sector and weaker sections. The lowest
Bankruptcy Code (IBC), 2016, easing of the
premiums were observed for PSLC-General,
monetary policy rate, net purchases by domestic
which are counted towards the overall target only.
mutual funds following the liquidity glut due to
demonetisation, net purchases by foreign
Credit to Sensitive Sectors
institutional investors (FIIs) due to a favourable
V.51 Credit to sensitive sectors decelerated
global equity market, revision of the PCA
during 2016-17. The real estate sector, which
framework by the Reserve Bank, promulgation of
accounts for 93 per cent of total loans to sensitive the Banking Regulation (Amendment) Ordinance,
sectors was adversely impacted by demonetisation, 2017 and identification of stressed accounts by
which was also reflected in credit demand. About the Reserve Bank for resolution through the IBC.
20 per cent of total loans and advances of SCBs In Q1:2016-17, the Nifty Private Bank Index
goes to the real estate sector. While PSBs yielded better returns than the Nifty PSU Bank
82Operations and Performance of Commercial Banks
Index. However, later during the year the Nifty PSU V.54 During 2016-17, 13 out of 27 PSBs
Bank Index outperformed the Nifty Private Bank witnessed increased public shareholding due to
Index possibly due to value buying of PSB stocks recapitalisation (Chart V.22).
by investors, proposed restructuring of PSBs,
V.55 At the end of March 2017, the maximum
expectation of early resolution of NPA problem
foreign shareholding in the case of PSBs was only
and deceleration in the growth of fresh NPAs.
up to 12.2 per cent. By contrast, four PVBs had
Following the promulgation of the Banking
Regulation (Amendment) Ordinance, 20176 which
empowers the Reserve Bank to direct banks to
initiate insolvency proceedings in respect of
corporate borrowers in default, under the IBC,
2016 in May 2017 and the identification of certain
accounts by the Reserve Bank, the Nifty PSU Bank
Index corrected. However, following the
announcement by the Government to recapitalise
PSBs on October 24, 2017, Nifty PSU Bank Index
rallied sharply. Although, it marginally corrected,
thereafter (Chart V.20).
VII. Ownership Pattern in Scheduled
Commercial Banks
V.53 While the Indian banking system is
dominated by PSBs, the share of PVBs has been
rising in recent years (Chart V.21).
6 Subsequently, the Banking Regulation (Amendment) Act, 2017 was enacted by the Parliament, which received the assent of the
President on August 25, 2017.
83Report on Trend and Progress of Banking in India 2016-17
foreign shareholding in excess of 50 per cent. abroad as well as overseas presence in the form
(Appendix Table V.5). of 26 subsidiaries, 53 representative offices and
eight joint ventures. The number of branches of
VIII. Foreign Banks’ Operations in India
Indian banks declined during the year reflecting
and Overseas Operations of Indian Banks
efforts towards rationalisation so as to improve
V.56 At end-March 2017, 44 foreign banks were efficiency and minimise costs (Table V.23). Unlike
operating through 295 branches, down from 46 Indian banks operating abroad, no foreign bank
foreign banks with 325 branches in 2016. In operates as a wholly owned subsidiary in India,
addition, there were 39 representative offices of despite near national treatment given to them by
foreign banks. Indian banks had 186 branches the Reserve Bank.
Table V.23: Overseas Operations of Indian Banks
(As at end-March)
Name of the Bank Branch Subsidiary Representative Joint Venture Other Offices* Total
Office Bank
2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017
1 2 3 4 5 6 7 8 9 10 11 12 13
I. Public Sector Banks 168 166 23 23 35 35 7 8 33 36 266 268
1 Allahabad Bank 1 1 0 0 0 0 0 0 0 0 1 1
2 Andhra Bank 0 0 0 0 2 2 0 0 0 0 2 2
3 Bank of Baroda 51 50 9 9 1 1 2 2 10 10 73 72
4 Bank of India 28 29 5 5 5 4 0 0 0 0 38 38
5 Canara Bank 8 8 0 1 1 1 0 0 0 0 9 10
6 Central Bank of India 0 0 0 0 2 2 0 0 0 0 2 2
7 Corporation Bank 0 0 0 0 2 2 0 0 0 0 2 2
8 Dena Bank 0 0 0 0 1 1 0 0 0 0 1 1
9 Indian Bank 4 4 0 0 0 0 0 0 0 0 4 4
10 Indian Overseas Bank 8 8 0 0 3 2 0 0 3 3 14 13
11 IDBI Bank Ltd. 1 1 0 0 0 0 0 0 0 0 1 1
12 Punjab National Bank 3 3 3 2 3 4 1 2 0 0 10 11
13 State Bank of India 55 53 5 5 7 7 4 4 20 23 91 92
14 State Bank of Travancore 0 0 0 0 1 1 0 0 0 0 1 1
15 State Bank of Hyderabad 0 0 0 0 1 1 0 0 0 0 1 1
16 Syndicate Bank 1 1 0 0 0 0 0 0 0 0 1 1
17 UCO Bank 4 4 0 0 0 1 0 0 0 0 4 5
18 Union Bank 4 4 1 1 3 3 0 0 0 0 8 8
19 United Bank of India 0 0 0 0 2 2 0 0 0 0 2 2
20 Oriental Bank of Commerce 0 0 0 0 1 1 0 0 0 0 1 1
II. Private Sector Bank 20 20 3 3 18 18 0 0 0 0 41 41
21 Axis Bank 5 5 1 1 3 3 0 0 0 0 9 9
22 HDFC Bank Ltd. 3 3 0 0 3 3 0 0 0 0 6 6
23 ICICI Bank Ltd. 12 12 2 2 6 5 0 0 0 0 20 19
24 IndusInd Bank Ltd. 0 0 0 0 3 3 0 0 0 0 3 3
25 Federal Bank Ltd. 0 0 0 0 1 2 0 0 0 0 1 2
26 Kotak Mahindra Bank Ltd. 0 0 0 0 1 1 0 0 0 0 1 1
27 Yes Bank 0 0 0 0 1 1 0 0 0 0 1 1
All Banks 188 186 26 26 53 53 7 8 33 36 307 309
Note: *: Other Offices include marketing / sub-office, remittance centres, etc.
Source: Reserve Bank of India.
84Operations and Performance of Commercial Banks
IX. Payment System Indicators of number of cash withdrawals and increasing
Scheduled Commercial Banks use of credit/debit cards for retail payments.
Further, the cost of transactions at ATMs is
V.57 The Reserve Bank took various policy
higher than interchange recovered by the acquirer.
measures to expand and strengthen the payment
Hence, banks are reluctant to set up new ATMs
system infrastructure and to introduce various
(Chart V.24).
innovative products, which are accessible,
convenient, cost-effective and secure as envisaged Off-site ATMs
in the Payment System Vision Document 2016-18.
V.60 The share of off-site ATMs in total ATMs
The withdrawal of high denomination SBNs
for all SCBs remained less than 50 per cent. In
provided a boost to the objective of a ‘less-cash
the case of PSBs, however, which account for 71
society’ as people shifted to card based transactions
per cent of the total ATMs, the share of off-site
and various modes of electronic payments
ATMs was merely 41.7 per cent as against 60.8
(such as NACH, NEFT, UPI, PPI and IMPS). During
per cent and 77.3 per cent in case of PVBs and
2016-17, 88.8 per cent of the non-cash retail
FBs, respectively (Table V.24).
payments in terms of volume and 63.3 per cent
White-label ATMs
of the non-cash retail payments in terms of value
were undertaken through cards and electronic V.61 The number of white label ATMs (WLAs),
modes (Chart V.23). set up, owned and operated by non-bank entities,
Growth in ATMs
Table V.24 : ATMs of Scheduled
V.58 The coverage of ATMs increased as the Commercial Banks
total number of ATMs installed crossed 0.2 million (As at end-March 2017)
as at end March 2017 (Table V.24). Sr. Bank Group On-site Off-site Total Number
No. ATMs ATMs of ATMs
V.59 However, saturation is observed in the 1 2 3 4 5
growth of ATMs in view of steady deceleration I Public Sector Banks 86,545 62,010 148,555
II Private Sector Banks 23,045 35,788 58,833
in the number of ATMs across various bank
III Foreign Banks 219 747 966
groups in recent years, which may be attributable IV All SCBs 109,809 98,545 208,354
to electronic transactions, disincentivising the Note: Data excludes White Label ATMs (WLAs).
85Report on Trend and Progress of Banking in India 2016-17
Table V.25: Credit and Debit Cards Issued by
Scheduled Commercial Banks
(As at end-March 2017)
(in million)
Sr Bank Group Outstanding Number Outstanding Number
No. of Credit Cards of Debit Cards
2016 2017 2016 2017
1 2 3 4 5 6
I Public Sector Banks 5.0 6.1 548.5 639.5
II Private Sector Banks 14.7 18.6 110.3 128.2
III Foreign Banks 4.7 5.1 3.0 4.0
IV All SCBs 24.5 29.8 661.8 771.6
Note: Figures may not add up to the total due to rounding-off.
The volume of PPIs sharply rose to 1,964 million
as at end-March 2017 from 748 million in the
previous year. The value of PPIs also witnessed
significant growth during the year (Chart V.26).
According to the Reserve Bank’s guidelines, the
increased by 8.9 per cent to 14,121 by end-March
maximum value of a pre-paid payment instrument
2017 from previous year. It needs to be noted that
shall not exceed `100,000 at any point of time.
88.7 per cent of the WLAs are operated by only
Unified Payments Interface
two WLA operators. Unlike the ATMs which are
concentrated in urban and metropolitan centres, V.64 The unified payments interface (UPI) was
around 74 per cent of the WLAs were located in introduced in 2016-17 to provide an alternative
rural (42.4 per cent) and semi-urban centres (31.6 and convenient means of electronic payments. In
per cent). this regard, National Payments Corporation of
Debit and Credit Cards
V.62 Both debit and credit cards issued by SCBs
recorded growth of more than 16 per cent during
2016-17 though debit cards witnessed further
deceleration in growth. Rupay cards issued under
the Pradhan Mantri Jan Dhan Yojana (PMJDY)
was a major driver of increase in number of debit
cards. PSBs (82.9 per cent) and PVBs (62.4 per
cent) continued to maintain a strong lead in
debit and credit cards, respectively (Table V.25;
Chart V.25).
Pre-paid Payment Instruments
V.63 The usage of pre-paid payment instruments
(PPIs) for remittances as also for payment towards
goods and services has been on an increase. The
withdrawal of SBNs accelerated the usage of PPIs.
86Operations and Performance of Commercial Banks
Table V.26: Region-wise Complaints Received
at Banking Ombudsman Offices
BO Office Number of Percentage
Complaints Variation
2015-16 2016-17 2016-17
Ahmedabad 5,909 9,552 61.7
Bengaluru 5,119 7,042 37.6
Bhubaneswar 3,050 2,582 -15.3
Bhopal 5,748 5,671 -1.3
Kolkata 4,846 7,834 61.7
Chennai 8,645 9,007 4.2
Chandigarh 4,571 8,189 79.2
Guwahati 1,328 1,569 18.1
Hyderabad 5,910 6,570 11.2
Jaipur 4,664 6,740 44.5
Kanpur 9,621 8,150 -15.3
Patna 5,003 6,225 24.4
Mumbai 12,333 16,299 32.2
New Delhi 22,554 24,837 10.1
Thiruvananthapuram 3,593 3,855 7.3
*New Delhi II 0 4,935 -
*Dehradun 0 948 -
India (NPCI) was accorded approval to introduce
*Ranchi 0 715 -
unstructured supplementary service data (USSD) *Raipur 0 237 -
2.0 mobile banking facility (*99# which can be *Jammu 0 30 -
Total 102,894 130,987 27.3
used on any handset and does not require internet
Notes: 1. -: Nil/negligible.
connection by the customers), which is integrated 2. * Offices opened in 2016-17.
3. Includes SCBs, RRBs and UCBs.
with UPI. The UPI allows money transfers between
Source: Various Regional Offices of Banking Ombudsman.
any two bank accounts by using a smartphone as
in addition to the existing 15 BO offices to ensure
well as feature phone (USSD 2.0). It also allows a
fair treatment of customers. During 2016-17, the
customer to pay directly from a bank account to
different merchants, both online and offline on total number of complaints increased by 27.3 per
the basis of virtual address instead of bank cent, up from 20.9 per cent in the previous year.
account details. During the year, 17.9 million Except for a few BO offices in Tier II cities, most
transactions worth `69.5 billion occurred through of the Tier I7 and Tier II cities recorded a significant
UPI. increase in the number of complaints (Table V.26).
V.66 BO offices in six Tier I cities received 54.7
X. Customer Service
per cent of the total complaints. Population-group
V.65 Consumer protection and awareness has wise, the largest proportion of complaints was
assumed a critical role for the Reserve Bank in received from urban areas followed by
view of the increasing customer base of banks, metropolitan, semi-urban and rural areas. During
predominantly from vulnerable sections of society, 2016-17, the share of complaints from urban and
and the introduction of technology based banking rural bank customers further increased while the
products. In this direction, the Reserve Bank set share of metropolitan and semi-urban customers
up five more Banking Ombudsman (BO) offices ebbed (Chart V.27).
7 Tier I cities are New Delhi, Mumbai, Chennai, Kolkata, Bengaluru and Hyderabad.
87Report on Trend and Progress of Banking in India 2016-17
V.67 In recent years, non-observance of the fair
practices code has been a major complaint against
banks, followed by complaints related to ATM/
credit/debit cards, non-adherence to the code of
the Banking Codes and Standards Board of India
(BCSBI) and pensions (Chart V.28).
V.68 Bank group-wise, PSBs (67.9 per cent)
received the largest number of complaints,
followed by PVBs (29.3 per cent) and FBs (2.7 per
cent), largely reflecting their shares in total loans.
However, if number of complaints is normalised
by the number of branches / number of accounts
(deposit + loans), the highest number of complaints
were against FBs, followed by PVBs and PSBs
(Chart V.29).
88Operations and Performance of Commercial Banks
XI. Financial Inclusion progress made under various financial inclusion
parameters as prescribed by the Reserve Bank.
V.69 Under the advice of the Reserve Bank,
SCBs have been devising three-year financial V.70 During 2016-17, the number of brick and
inclusion plans (FIP) congruent with their mortar branches in rural areas declined marginally.
business strategies and comparative advantages With an increasing number of villages being
as an integral part of their corporate plans. FIP covered through business correspondents (BCs)
include self-set targets to expand their outreach and other modes, the total number of banking
in terms of outlets and customer base as well as outlets in villages showed a marginal uptick
to offer a range of products suited for the (Table V.27).
purpose. They include specific goals for coverage
V.71 The dominance of BCs in banking services
of unbanked villages, opening of accounts and
in rural areas can be gauged from the fact that in
other specific products aimed at financially
March 2017, about 91 per cent of the banking
excluded segments. Two phases of the financial
outlets in villages were BCs as against 50.5 per
inclusion plans, i.e., Phase-I (2010-13) and
cent in March 2010 (Chart V.30). This underscores
Phase-II (2013-16) have already been completed.
the increasing importance of technology in the
Considerable progress was made through these
provision of banking services. Further, given that
financial inclusion plans towards achieving
BCs which provide banking services over a
universal financial inclusion (Table V.27).
minimum of 4 hours per day and for at least 5
Currently, the third phase of FIP (2016-19) is
days a week have been recognised as banking
being implemented under which granular
outlets, their importance is set to increase further.
monitoring is done at the district level to assess
Pradhan Mantri Jan Dhan Yojana
the progress in financial inclusion. FIPs have also
been extended to cover the small finance banks V.72 The period since August 2014 is co-
and they have been advised to report on the terminus with the implementation of the Pradhan
Table V.27: Progress under Financial Inclusion Plans, All SCBs including RRBs
Sr. Particulars Mar-10 Mar-16 Mar-17 Half year Percentage
No. ended change
Sep-17* (Mar-2016 –
Mar-17)
1 Banking Outlets in Villages – Branches 33,378 51,830 50860 49,527 -1.9
2 Banking Outlets in Rural Location – Branchless Mode 34,316 534,477 547,233 511,383 2.4
3 Banking Outlets in Villages – Total 67,694 586,307 598,093 560,910 2.0
4 Urban Locations Covered through BCs 447 102,552 102,865 123,941 0.3
5 BSBDA – Through Branches (No. in million) 60 238 254 245 6.7
6 BSBDA – Through Branches( Amt. in ` billion) 44 474 691 635 45.8
7 BSBDA – Through BCs (No. in million) 13 231 280 278 21.2
8 BSBDA – Through BCs (Amt. in ` billion) 11 164 285 306 73.8
9 BSBDA – Total (No. in million) 73 469 533 522 13.6
10 BSBDA – Total (Amt. in ` billion) 55 638 977 941 53.1
11 OD Facility Availed in BSBDAs (No. in million) 0.2 9 9 6 0.0
12 OD Facility Availed in BSBDAs (Amt. in ` billion) 0.1 29 17 4 -41.4
13 KCCs – Total (No. in million) 24 47 46 46 -2.1
14 KCCs – Total (Amt. in ` billion) 1,240 5,131 5,805 5,896 13.1
15 GCC – Total (No. in million) 1 11 13 12 18.2
16 GCC – Total (Amt. in ` billion) 35 1,493 2,117 1,806 41.8
17 ICT A/Cs-BC – Total Transactions (No. in million) 27 827 1,159 662 40.1
18 ICT A/Cs-BC – Total Transactions (Amt. in ` billion) 7 1,687 2,652 1,831 57.2
Notes: 1. Absolute and percentage variation could be slightly different as numbers have been rounded off to million / billion.
2. *: Data excludes 8 RRBs.
Source: Reserve Bank of India.
89Report on Trend and Progress of Banking in India 2016-17
Mantri Jan Dhan Yojana (PMJDY) of the observed. Following demonetisation, there was a
Government of India, which has given a big push sharp increase in the average balances in these
to financial inclusion from the supply side. During accounts. Although the average balance per
this period of a little more than three years, more account has come down subsequently, they still
than 300 million PMJDY accounts have been remain at a level higher than in the pre-
opened and about 231 million Rupay debit cards demonetisation period (Chart V.32). Given the
have been issued. In this drive, more than 96 per
increased focus on supply side measures so far,
cent of these accounts were opened with PSBs and
there is also a need to focus on enhancing
RRBs (Chart V.31).
capabilities so that the individual is in a position
V.73 A steady increase in the usage of these to avail the offered services and demand preferred
accounts across bank-groups has also been products and services suitable to her need/choice.
90Operations and Performance of Commercial Banks
V.74 The increasing focus on the BC model
has also resulted in a steady decline in new brick
and mortar branches. During 2016-17, newly
opened branches declined by more than 30 per
cent. A disconcerting feature is that 45 per cent
of the new branches were opened in Tier-I
centres. A declining proportion of the branches
were opened in Tier-VI centres (population less
than 5,000) in recent years, which lie in rural
areas (Table V.28).
V.75 Nonetheless, banking penetration has
improved significantly and the gap across various
geographical regions has declined on account of
the efforts made towards expanding access to
the formal financial system. Under-banked
geographical regions such as the north-east as
well as the eastern and central regions recorded
ATMs in metropolitan centres increased, while the
noteworthy improvement in population per
share of ATMs in rural and urban centres
bank branch. In the Southern region, which has
marginally declined. In terms of geographical
the highest banking penetration, population
distribution, 32.1 per cent of the ATMs were
per branch declined to 6,801 in March 2017
concentrated in the southern region. The eastern
(Chart V.33).
and north-eastern region had the least penetration
Distribution of ATMs
of ATMs. This largely mirrors the geographical
V.76 Over the years, the spread of ATMs has distribution of bank branches (Chart V.34).
played an important role in enhancing access to
V.77 ATMs in urban and metropolitan centres
banking services. During 2016-17, the share of
accounted for 56.8 per cent of the total. In contrast
to PSBs whose ATMs were relatively well distributed
Table V.28: Tier-wise Break-up of Newly
across various population centres, ATMs of PVBs
Opened Bank Branches
and FBs were concentrated in urban and
Tier 2013-14 2014-15 2015-16 2016-17
metropolitan centres (Table V.29).
Tier I 3,118 3,094 2,736 2,174
(27.2) (35.4) (39.2) (45.0)
Table V.29: Percentage Share of ATMs of
Tier II 824 606 531 327
(7.2) (6.9) (7.6) (6.8) SCBs at Various Centres
Tier III 1,293 1,045 873 558 (As at end-March 2017)
(11.3) (12.0) (12.5) (11.6)
Tier IV 1,025 745 559 365
Bank group Rural Semi- Urban Metro-
(8.9) (8.5) (8.0) (7.6)
urban politan
Tier V 1,463 835 635 611
(12.7) (9.6) (9.1) (12.7) 1 2 3 4 5
Tier VI 3,757 2,405 1,652 795
(32.7) (27.5) (23.6) (16.5) Public Sector Banks 19.7 28.3 28.9 23.1
Total 11,480 8,730 6,986 4,830 Private Sector Banks 8.4 23.6 26.2 41.8
(100.0) (100.0) (100.0) (100.0) Foreign Banks 1.6 1.8 18.9 77.7
Total 16.4 26.8 28.1 28.7
Note: Figures in parentheses are percentages to total.
Source: Reserve Bank of India. Source: Reserve Bank of India.
91Report on Trend and Progress of Banking in India 2016-17
Microfinance Programme finance institutions (MFIs) financed by banks
increased significantly, the amount of loans
V.78 Steady progress has been made in the
disbursed declined (Table V.30).
delivery of microfinance through self-help groups
(SHGs) and joint liability groups (JLGs). SHG-
Cross-country Experience in Financial Inclusion
bank linkage continued to be the dominant mode
of microfinance with about 1.9 million SHGs V.79 Due to various efforts made by the
credit linked with bank financing of `388 billion Government and the Reserve Bank, the overall
during 2016-17. Although the number of micro score for financial inclusion as brought out by The
Table V.30: Progress of Microfinance Programmes
(As at end-March)
Item Self-Help Groups
Number (in Million) Amount (` billion)
2013-14 2014-15 2015-16 2016-17 2013-14 2014-15 2015-16 2016-17
Loans Disbursed by Banks 1.4 1.6 1.8 1.9 240 276 373 388
(0.2) (0.7) (0.9) (1.0) (35) (114) (194) (200)
Loans Outstanding with Banks 4.2 4.5 4.7 4.8 429 515 572 616
(1.3) (2.2) (2.5) (2.8) (102) (232) (306) (341)
Savings with Banks 7.4 7.7 7.9 8.6 99 111 137 161
(2.3) (3.4) (3.9) (4.3) (25) (55) (73) (87)
Microfinance Institutions
Number Amount (` billion)
Loans Disbursed by Banks 545 597 647 2,314 103 147 208 193
Loans Outstanding with Banks 2,422 4,660 2,020 5,357 165 219 256 292
Joint Liability Groups
Number (in Million) Amount (` billion)
Loans Disbursed by Banks 0.21 0.46 0.57 0.70 22 44 62 95
Notes: 1. Figures in brackets give the details of SHGs covered under the National Rural Livelihoods Mission (NRLM) and the National Urban Livelihoods
Mission (NULM) for 2014-15, 2015-16 and 2016-17, respectively. Earlier year data in brackets cover only NRLM / Swarnajayanti Gram
Swarojgar Yojana (SGSY) groups.
2. Actual number of MFIs availing loans from banks would be less than the number of accounts, as most of MFIs avail loans several times from
the same bank and also from more than one bank.
Source: NABARD.
92Operations and Performance of Commercial Banks
Table V.31: Financial Inclusion in BRICS and Other Emerging Economies, 2016
Overall Government Regulatory and Prudential Regulation and Regulation Grievance Redress and
Score Support for Supervisory Capacity Regulation Supervision of of Electronic Dispute Resolution
Financial Inclusion for Financial Inclusion Credit Portfolios Payments Mechanisms
Colombia 89 100 58 100 100 75 100
India 78 83 58 75 89 100 83
Kenya 61 78 58 88 64 100 25
Mexico 60 78 58 92 50 50 50
Indonesia 55 44 83 46 83 50 83
Brazil 51 78 42 46 19 75 42
South Africa 51 39 42 63 33 50 58
Russia 49 61 58 21 69 50 17
Turkey 46 22 58 67 47 50 33
China 44 44 17 46 50 75 42
Note: Normalised score 0-100 where 100 = best.
Source: Global Microscope 2016 – The Enabling Environment for Financial Inclusion, The Economist Intelligence Unit.
Economist Intelligence Unit’s Global Microscope and consolidation of existing RRBs to improve
improved to 78 out of 100 in 2016 from 61 in their financial performance and soundness. Many
2014. The overall score assesses the regulatory RRBs have been recapitalised by the Government
ecosystem for financial inclusion by evaluating 12 intermittently to meet the minimum 9 per cent
indicators across a range of emerging and CRAR in a sustainable manner and also to enable
developing economies covering 55 countries. India them to extend more credit to the productive
occupied the third position in terms of overall sectors. Given their mandate to focus on rural
ranking, much ahead of its BRICS peers and other areas, about 90 per cent of their loan portfolios
emerging economies. India had an impeccable consisted of priority sector lending, with agriculture
constituting 74.6 per cent of their total priority
score in terms of regulation of electronic payments
sector loans in March 2017 (Table V.32).
(Table V.31). This underscores the widespread
positive action taken to create a regulatory
Table V.32: Purpose-wise Outstanding
environment which is conducive to digital Advances by RRBs
economic activity. A pan-India survey conducted (As at end-March)
by the Reserve Bank showed that the average score (Amount in ` billion)
in various financial literacy indicators was below Sr. No. Purpose 2016 2017 P
the minimum required threshold suggested by the 1 2 3 4
I Priority (i to v) 1779 1934
OECD/INFE (International Network on Financial
Per cent of Total Loans Outstanding 86.1 89.2
Education) Toolkit. This suggests the need to i Agriculture 1317 1444
ii Micro, Small and Medium Enterprises 252 282
integrate financial literacy in the agenda of
iii Education 26 27
financial inclusion for promoting inclusive growth. iv Housing 132 132
v Others 52 49
II Non-priority (i to vi) 286 232
XII. Regional Rural Banks
Per cent of Total Loans Outstanding 13.9 10.7
i Agriculture 1 -
V.80 Regional Rural Banks (RRBs) were ii Micro, Small and Medium Enterprises 12 8
established to bring together the positive features iii Education - -
iv Housing 11 15
of credit co-operatives and commercial banks and v Personal Loans 74 60
to address the credit needs of backward sections vi Others 189 149
Total (I+II) 2065 2166
in rural areas. The number of RRBs operating in
Notes: 1. -: Nil / negligible.
the country has come down to 56 as at end-March
2. P: Provisional.
2017 from 196 in 2005 through amalgamation Source: NABARD.
93Report on Trend and Progress of Banking in India 2016-17
V.81 The consolidated balance sheet of RRBs Table V.34: Financial Performance of
recorded a significant expansion during the year. Regional Rural Banks
(Amount in ` billion)
Current and saving deposits increased by 20 per
cent or more, partly reflecting the impact of Sr. Item Amount Percentage
No. variation
demonetisation. Borrowings also increased,
largely from sponsor banks and others sources. 2015- 2016- 2015- 2016-
16 17 P 16 17 P
On the assets side, RRBs maintained a healthy
1 2 3 4 5 6
credit growth, while investments made a
A Income (i + ii) 354 388 10.9 9.6
turnaround (Table V.33). i Interest Income 333 352 10.5 5.7
ii Other Income 21 36 18.2 71.4
V.82 Despite a sharp increase in provisioning
B Expenditure (i+ii+iii) 334 365 14.5 9.3
due to higher NPAs, the net profits of RRBs
i Interest Expended 217 228 14.7 5.1
increased in 2016-17 largely attributed to ii Operating Expenses 97 95 7.1 -2.1
increase in both interest and other income of which, Wage Bill 69 67 23.2 -2.9
iii Provisions and Contingencies 21 42 66.2 100.0
coupled with decline in operating expenses, in
C Profit
contrast to the decline in profits during the
i Operating Profit 22 60 -24.7 172.0
previous year. RoA remained stable, nonetheless
ii Net Profit 20 23 -27.1 15.0
NIM declined (Table V.34). D Total Average Assets 3808 4288 8.4 12.6
E Financial ratios #
Table V.33: Consolidated Balance Sheet of
i Operating Profit 0.6 1.3 - -
Regional Rural Banks
ii Net Profit 0.5 0.5 - -
(Amount in ` billion)
iii Income (a + b) 9.3 9.0 - -
(a) Interest Income 8.7 8.2 - -
Sr. Item At end-March Percentage Variation
No. (b) Other Income 0.6 0.8 - -
2016 2017 P 2015-16 2016-17 P iv Expenditure (a+b+c) 8.8 8.5 - -
(a) Interest Expended 5.7 5.3 - -
1 Share Capital 64 64 3142.1^ 0.1
(b) Operating Expenses 2.5 2.2 - -
2 Reserves 207 231 10.4 11.7
of which, Wage Bill 1.8 1.6 - -
3 Share Capital 1 - -98.4 -
Deposits / Tier II Bonds (c) Provisions and 0.5 1.0 - -
Contingencies
4 Deposits 3135 3719 14.8 18.6
4.1 Current 89 107 -21.9 19.9 F Analytical Ratios (%) - -
4.2 Savings 1480 1881 12.9 27.1 Gross NPA Ratio 6.8 8.1 - -
4.3 Term 1566 1731 20.0 10.6 CRAR 12.8 9.7 - -
5 Borrowings 479 560 -19.4 16.9
Notes: 1: P: Provisional.
5.1 NABARD 399 402 -13.9 0.7
2: #: Financial ratios are percentages with respect to average
5.2 Sponsor Bank 57 96 -48.6 66.7 total assets.
5.3 Others 22 62 17.4 179.0 3. Percentage variations could be slightly different as absolute
6 Other Liabilities 123 197 1.1 59.2 numbers have been rounded off to ` billion.
Source: NABARD.
Total Liabilities / Assets 4009 4771 8.4 19.0
7 Cash in Hand 27 28 10.1 2.2
8 Balances with RBI 124 150 13.8 20.6 XIII. Local Area Banks
9 Other Bank Balances 46 65 -43.6 39.2
10 Investments 1696 2098 4.2 23.7 V.83 Since April 2016, one local area bank
11 Loans and Advances (net) 1952 2239 14.7 14.3
(LAB) which accounted for about three-fourth of
12 Fixed Assets 11 11 13.3 5.9
13 Other Assets # 152 180 7.9 18.4 the assets of all LABs, has converted into a small
finance bank (SFB). This has led to significant
Notes: 1. -: Nil / negligible.
2. P: Provisional. erosion in the significance of LABs as a bank-
3. #: Includes accumulated losses.
4. Percentage variations could be slightly different as absolute group. At end-March 2017, the total assets of LABs
numbers have been rounded off to ` billion.
were `7.9 billion, accounting for mere 0.01 per
5. ^: Share capital deposits merged with share capital.
Source: NABARD. cent of the total assets of all SCBs (Table V.35).
94Operations and Performance of Commercial Banks
Table V.35 : Profile of Local Area Banks Table V.36: Financial Performance of
(As at end-March) Local Area Banks
(Amount in ` billion) (Amount in ` billion)
2013-14 2014-15 2015-16 2016-17 Amount Percentage
Variation
Assets 18.8 23.1 27.6 7.9
Deposits 16.2 20.1 23.9 6.4 2015- 2016- 2015- 2016-
16 17# 16 17*
Gross Advances 10.7 13.2 15.8 4.7
1. Income (i+ii) 3.0 1.1 18.3 10.7
Note: For 2016-17, data pertain to three LABs. For earlier years, it per-
tains to four LABs. i) Interest Income 2.7 0.9 17.9 6.7
Source: Off-site returns (domestic). ii) Other Income 0.3 0.2 22.7 33.9
2. Expenditure(i+ii+iii) 2.7 0.9 20.9 12.0
i) Interest Expended 1.7 0.5 20.7 12.3
V.84 During 2016-17, LABs (adjusted for one
ii) Provisions and Contingencies 0.2 0.1 22.1 -3.1
LAB converting into SFB) witnessed deceleration iii) Operating Expenses 0.9 0.4 21.2 15.3
of which, Wage Bill 0.5 0.2 20.5 7.4
in asset growth as compared to the previous year.
3. Profit
At the same time, the growth in net interest income
i) Operating Profit / Loss 0.4 0.2 4.5 5.0
was subdued. Nonetheless, LABs managed to ii) Net Profit / Loss 0.3 0.1 -4.0 1.2
4. Net interest income 1.0 0.4 13.3 1.7
report positive net profits due to lower growth in
5. Total assets 27.6 7.9 19.6 11.6
operating expenses and decline in provisions and
6. Financial Ratios @
contingencies (Table V.36). i) Operating Profit 1.6 2.7 - -
ii) Net Profit 1.0 1.5 - -
V.85 LABs were established as local banks in iii) Income 11.9 13.5 - -
iv) Interest Income 10.7 11.1 - -
the private sector. They were expected to bridge
v) Other Income 1.1 2.4 - -
the gaps in credit availability and enhance and vi) Expenditure 10.9 12.0 - -
vii) Interest Expended 6.6 5.9 - -
strengthen the institutional credit framework in
viii) Operating Expenses 3.6 5.1 - -
rural and semi-urban areas. They were also ix) Wage Bill 1.8 2.3 - -
x) Provisions and Contingencies 0.6 1.0 - -
expected to provide efficient and competitive
xi) Net Interest Income 4.1 5.2 - -
financial intermediation services in their areas of
Notes: 1. #: Data pertains to three LABs. For the previous year, it
operation comprising three contiguous districts. pertains to four LABs.
2. *: For 2015-16, data of three LABs were used to calculate the
However, the LABs have inherent weaknesses
percentage change.
owing to their small size, concentration risks, 3. @: Ratios to average total assets.
4. Financial ratios for 2016-17 are calculated based on the
constraints in terms of uncompetitive cost assets of the current year only.
structures and their inability to attract and retain 5. ‘Wage bill’ is taken as payments to and provisions for
employees.
professional staff due to locational disadvantages. Source: Off-site returns.
Small finance banks were introduced as an
alternative banking model to overcome some of
unorganised sector entities, through high
these shortcomings and to further expand the
technology-low cost operations. In this context,
access to institutional credit.
SFBs are required to: (i) have 25 per cent of their
branches in unbanked rural centres within one
XIV. Small Finance Banks
year from the date of commencement of operations,
V.86 Small finance banks (SFBs) were given (ii) have at least 50 per cent of their loan portfolios
licenses in 2016 with the objective of furthering of up to `2.5 million, (iii) not undertake any para-
financial inclusion by primarily undertaking the banking activity, except that is allowed as per the
basic banking activities of acceptance of deposits licensing guidelines, and (iv) extend 75 per cent
and lending to unserved and underserved sections of their ANBC to the sectors eligible for classification
such as small business units; small and marginal as priority sector lending by the Reserve Bank.
farmers; micro and small industries; and other
95Report on Trend and Progress of Banking in India 2016-17
V.87 Moreover, SFBs need to comply with Table V.37: Consolidated Balance Sheet of
prudential norms and regulations of the Reserve Small Finance Banks
(Amount in ` billion)
Bank as applicable to existing commercial banks,
Sr. Item End-March
including the requirements of maintenance of cash No. 2017
reserve ratio (CRR) and the SLR. No forbearance 1 Share Capital 33
has, however, been provided for complying with 2 Reserves 16
3 Tier II Bonds 7
the statutory provisions. The minimum capital
4 Deposits 50
requirement for SFBs has been set as 15 per cent
4.1 Current 1
of the risk weighted assets as against 10.25 per 4.2 Savings 12
cent in case of SCBs as at end-March 2017, 4.3 Term 36
5 Borrowings (Including Tier II Bonds) 165
although CCB is not applicable to SFBs. In total,
5.1 Bank 69
10 SFBs have been given licenses and six SFBs
5.2 Others 97
have started operations by end-March 2017. It is 6 Other Liabilities 12
interesting to note that eight out of the 10 licensed Total Liabilities / Assets 276
7 Cash in Hand 2
SFBs were operating as NBFCs in the microfinance
8 Balances with RBI 7
sector.
9 Balances with Banks and Other Financial Institutions 24
V.88 As at end-March 2017, there were 397 10 Investments 60
11 Loans and Advances (net) 168
functioning offices of SFBs. To promote financial
12 Fixed Assets 5
inclusion, SFBs have been allowed three years
13 Other Assets 10
from the date of their commencement to align their
Note: Based on balance sheets of six SFBs which had commenced their
banking networks with the new branch operations before March 31, 2017.
Source: Off-site returns.
authorisation policy of the Reserve Bank. During
this time, their existing structure as MFIs/NBFCs
V.91 As regards financial performance, the
may continue and existing branches will be treated
SFBs’ return on assets was similar to RRBs, while
as banking outlets subject to the condition that at
their asset quality was better than other bank
least 25 per cent of them are converted from
groups (Table V.39).
existing MFIs must be opened in unbanked rural
centres during a financial year.
Table V.38: Purpose-wise Outstanding Advances
V.89 As regards their funding profile, borrowings by Small Finance Banks
(Share in percentage)
constituted about 60 per cent of their liabilities,
while the share of deposits was only 18 per cent. Sr. No. Purpose End-March
2017
This may be because all the six SFBs were earlier
Per cent to Gross Loans Outstanding
operating as NBFCs, which have high reliance on
I Priority 93.4
borrowings from banks and other financial i Agriculture 25.7
institutions for their operations. On the assets ii Micro, Small and Medium Enterprises 34.2
iii Education 0.8
side, loans and advances constituted about 61 per
iv Housing 2.6
cent of total assets (Table V.37).
v Others 30.2
II Non-priority 6.6
V.90 Of the total loans, 93.4 per cent went to
Total (I+II) 100.0
the priority sector with a focus on agriculture and
Note: Based on balance sheets of six SFBs which had commenced
micro, small and medium enterprises (Table V.38).
their operations before March 31, 2017.
Source: Off-site returns.
96Operations and Performance of Commercial Banks
Table V.39: Financial Performance of with the gradual implementation of Basel III
Small Finance Banks capital requirements and remained much above
(Amount in ` billion)
the regulatory minimum. In terms of the leverage
Sr. Item 2016-17 ratio, banks were in a comfortable position.
No.
A Income (i + ii) 20.8 V.93 Banks’ balance sheets were impacted by
i Interest Income 17.9 demonetisation, which led to a significant increase
ii Other Income 2.9
in low cost deposits and a concomitant increase
B Expenditure (i+ii+iii) 19.4
i Interest Expended 8.8 in liquidity, which reduced their borrowing
ii Operating Expenses 8.9
requirements. In the face of low credit off-take,
of which, Wage Bill 4.9
banks deployed resources in money market
iii Provisions and Contingencies 1.7
C Profit instruments and non-SLR investments. Off-
i Operating Profit (EBPT) 3.1
balance sheet exposures of banks recovered
ii Net Profit (PAT) 1.4
D Total assets 276.3 from negative growth in the previous year.
E Financial ratios# Notwithstanding positive tail winds in the form of
i Operating Profit 1.1
low cost funds made available post-demonetisation,
ii Net Profit 0.5
iii Income (a + b) 7.5 the financial performance of banks, especially
(a) Interest Income 6.5 PSBs, was weighed down by high provisioning on
(b) Other Income 1.0
account of NPAs. As a result, PSBs reported net
iv Expenditure (a+b+c) 6.7
(a) Interest Expended 3.2 losses for the second year in a row.
(b) Operating Expenses 3.2
of which, Staff Expenses 1.8 V.94 With the ongoing third phase of the
(c) Provisions and Contingencies 0.3 financial inclusion plan and the fillip provided by
F Analytical Ratios (%)
the PMJDY, further progress was made towards
Gross NPA Ratio 1.8
CRAR 26.3 the goal of universal financial inclusion. With the
Notes: 1. #: As per cent to total assets. latest branch authorisation policy that recognises
2. Percentage variations could be slightly different as absolute
BCs, which provide banking services for a
numbers have been rounded off to ` billion.
3. Based on balance sheets of six SFBs which had commenced minimum of 4 hours per day and for at least 5
their operations before March 31, 2017.
Source: Off-site returns. days a week, as a banking outlet, the importance
of technology in banking services is going to
XV. Overall Assessment increase further. Operationalisation of SFBs and
payments banks is expected to further expand the
V.92 During 2016-17, the banking sector
geographical penetration of banking services at
remained beleaguered with worsening asset
low cost in an affordable manner, providing
quality with implications in the form of declining
further impetus to the financial inclusion agenda.
profitability and lacklustre credit growth. The
Further, the introduction of innovative products
contribution of the banking sector to the total
flow of financial resources to the commercial for digital payments and their facilitation through
sector declined. Portfolio rebalancing was also various incentives by the Government is also
observed in banks’ loan books, with a shift expected to provide a boost to the objective of a
towards agriculture in the priority sector and ‘less-cash’ society. At the same time, to ensure that
services and personal loans in the non-priority bank customers are treated fairly, the Reserve
sectors. Despite these impediments, banks were Bank further strengthened the Banking
able to strengthen their capital positions in sync Ombudsman Scheme.
97Report on Trend and Progress of Banking in India 2016-17
V.95 Looking ahead, it is expected that through perform their role as financial intermediaries. In
new institutional mechanisms such as the IBC, this direction, the Government’s initiative in the
the Government and the Reserve Bank’s resolve form of an ‘Alternativ e Mechanism’ for consolidation
to collectively address the problem of stressed of PSBs will help create strong and efficient banks.
assets and banks’ own efforts toward improving Nonetheless, banks will have to adapt and adjust
efficiency, credit monitoring, risk management to the rapidly evolving financial environment
and internal accruals, they will be able to overcome brought about by the entry of niche players and
the strains on lending capacity and efficiently emerging financial technologies.
98Chapter VI
Developments in Co-operative Banking
Co-operatives, which have often been plagued by fragile financial health, on the whole, portrayed a
sanguine picture in the financial results of the latest year. Following on-going consolidation efforts,
urban co-operative banks exhibited expansion in balance sheet size and recorded improved profitability.
Developments in the rural co-operative sector ensured a turnaround in the performance of the apex-
level long-term rural credit co-operatives while the short-term rural credit co-operatives continued
to exhibit improved performance.
I. Introduction share is relatively small in the bank-dominated
Indian financial system. At the end of March 2016,
VI.1 Credit co-operatives, comprising of urban
the assets of rural and urban co-operatives taken
co-operative banks (UCBs) and rural co-operative
together were 10.6 per cent of the total assets held
credit institutions, were formed as exclusive
by SCBs.1 There were 1,562 UCBs and 94,384
institutions to meet specific developmental
rural co-operatives, including short-term and
objectives embodied in the extension of formal
financial services to villages and small towns in long-term co-operatives, at end-March 2017
India. Their geographic and demographic outreach (Chart VI.1). Rural co-operatives accounted for a
plays a pivotal role in credit delivery and predominant share in the assets of the co-
inclusiveness in the financial system. Yet their operative sector (Chart VI.2).
1 Data on rural co-operatives are available with a lag of one year, the latest being for end-March 2016.Report on Trend and Progress of Banking in India 2016-17
Chart VI.2: The Structure of Co-operatives by Asset Size
Scheduled UCBs
Total Urban Co-operatives
47.1
34.3 100 Non-Scheduled UCBs
52.9
100
DCCBs
StCBs PACS
Total Rural Co-operatives
22.5 49.9 22
AllCo-operatives
65.7
100
3.0 2.6
SCARDBs PCARDBs
Notes: 1. Figures in Per cent.
2. Bubble Size is scaled to Asset Size.
VI.2 Co-operatives have been hamstrung by II. Urban Co-operative Banks
fragile financial health stemming from operational
VI.4 In pursuance of the recommendations of
and governance-related issues2. Remedial
the Marathe Committee (1992), the Reserve Bank
measures have been implemented from time to
followed an active licensing policy for UCBs to
time, shaping the emergence of a consolidated and
allow them to tap area-specific deposit mobilisation
resilient urban co-operative banking sector.
and credit absorption potential. As a result, the
However, in the case of rural co-operatives and
period 1993-2004 witnessed a proliferation in the
particularly long-term institutions, financial
number of UCBs. Their poor financial health
debilities persist.
prompted the Reserve Bank to conceive a Vision
VI.3 Against this backdrop, this chapter Document in 2005, which envisaged a multi-
analyses the performance of co-operatives in layered regulatory and supervisory strategy aimed
2016-17. The rest of the chapter is organised into
at shoring up their viability. The ensuing mergers/
four sections. Section II reviews the performance
amalgamations/exits led to a reduction in the
of UCBs, based on financial and soundness
number of UCBs (Chart VI.3). Beginning with
indicators. Section III assesses the short-term
2004-05, the UCB sector has undergone 128
and long-term rural co-operative credit structure.
mergers till March 2017 with Maharashtra
Section IV provides a comparative assessment of
accounting for the maximum number of them,
short-term and long-term rural co-operative
followed by Gujarat and Andhra Pradesh
credit institutions. Section V gives an overall
(Chart VI.4).
assessment.
2 These issues have been examined by the Reserve Bank in 2005 in its draft Vision Document for UCBs and by the Working Group
to Examine Issues Relating to Augmenting Capital of UCBs, 2006 (Chairman: Shri N. S. Vishwanathan).
100Developments in Co-operative Banking
VI.5 Notwithstanding the sharp fall in the in their balance sheets underscoring the
number of UCBs, there was a massive expansion effectiveness of the consolidation drive. In
recent years though, UCBs’ growth in assets
has decelerated to close to its long run average
(Chart VI.5).
VI.6 The success of the consolidation drive of
the UCBs is visible in other parameters as
well. The share of Tier II UCBs3 – both in number
and assets – has increased rapidly over time
(Chart VI.6 and Table VI.1).
VI.7 Along with consolidation, a significant
development has been the movement in the mode
of distribution of total deposits of the UCBs to
larger size buckets. This is indicative of the
expansion and diversification of their customer
base (Table VI.2 and Chart VI.7).
3 Tier-I UCBs were defined by:
Deposit base below `1 billion operating in a single district.
Deposit base below `1 billion operating in more than one district, provided that the branches are in contiguous districts, and
deposits and advances of branches in one district separately constitute at least 95 per cent of the total deposits and advances,
respectively, of the bank.
Deposit base below `1 billion, with branches originally in a single district, which subsequently became multi-district due to a
re-organisation of the district.
All other UCBs are defined as Tier-II UCBs.
101Report on Trend and Progress of Banking in India 2016-17
VI.8 In 2016-17, the shift in the distribution of discernible than the shift in the distribution of
advances towards larger buckets was less deposits (Chart VI.8).
Table VI.1: Tier-wise Distribution of Urban Co-operative Banks
(End-March 2017)
(Amount in ` billion)
Tier Type Number of Banks Deposits Advances Assets
Number % to Total Amount % to Total Amount % to Total Amount % to Total
1 2 3 4 5 6 7 8 9
Tier I UCBs 1,083 69.3 603.3 13.6 317.8 12.2 745.0 13.8
Tier II UCBs 479 30.7 3,831.4 86.4 2,294.4 87.8 4,654.1 86.2
All UCBs 1,562 100.0 4,434.7 100.0 2,612.2 100.0 5,399.1 100.0
Note: Data are provisional.
Table VI.2: Distribution of UCBs by Deposits and Advances
(End-March 2017)
Deposits Number of UCBs Amount of Deposits Advances Number of UCBs Amount of Advances
(` billion) (` billion)
Number % Share Amount % Share Number % Share Amount % Share
1 2 3 4 5 6 7 8 9 10
0.0 - 0.10 124 7.9 7.5 0.2 0.00 - 0.10 287 18.4 16.1 0.6
0.10 - 0.25 232 14.9 41.7 0.9 0.10 - 0.25 361 23.1 62.0 2.4
0.25 - 0.50 308 19.7 118.4 2.7 0.25 - 0.50 290 18.6 105.3 4.0
0.50 - 1.00 285 18.2 210.2 4.7 0.50 - 1.00 245 15.7 181.3 6.9
1.00 - 2.50 324 20.7 537.7 12.1 1.00 - 2.50 197 12.6 315.4 12.1
2.50 - 5.00 133 8.5 506.8 11.4 2.50 - 5.00 92 5.9 331.0 12.7
5.00 - 10.00 85 5.4 627.5 14.1 5.00 - 10.00 52 3.3 363.4 13.9
10.00 and above 71 4.5 2,385.0 53.8 10.00 and above 38 2.4 1,237.8 47.4
Total 1,562 100.0 4,434.7 100.0 Total 1,562 100.0 2,612.3 100.0
Notes: 1. Data are provisional.
2. Components may not add up to the total due to rounding off.
102Developments in Co-operative Banking
VI.9 The UCB sector has also witnessed a high the economy, which manifested into, among other
degree of asset concentration. The bi-modality of things, a slowdown in the growth of the small-
the asset-class distribution in 2014-15 has ticket retail loans and the housing loans segments,
transformed into a unimodal pattern in a higher which the urban-focused UCBs mainly cater to
size asset class. The share of UCBs with an asset (Table VI.3).
size of more than `10 billion increased from 4.6
per cent in 2014-15 to 6.2 per cent in 2016-17
(Chart VI.9). The number of scheduled UCBs
increased from 50 in 2014-15 to 54 in 2016-17,
although the increase in the asset share of
scheduled UCBs (SUCBs) moderated in 2016-17
(Chart VI.10).4
Balance Sheet
VI.10 Balance sheet of UCBs expanded in 2016-
17 on account of an increased growth in net worth
(capital plus reserves) and deposits on the liability
side. An increase in investments and other assets
also contributed to balance sheet expansion.
Loans and advances of UCBs witnessed muted
growth reflecting subdued demand conditions in
4 Scheduled UCBs are urban credit co-operatives included in the Second Schedule of the RBI Act, 1934 and include UCBs that have
paid-up capital and reserves of not less than `0.5 million and demand and time liabilities of not less than `7.5 billion and which
carry out their businesses as per the norms prescribed by the Reserve Bank.
103Report on Trend and Progress of Banking in India 2016-17
Table VI.3: Liabilities and Assets of Urban Co-operative Banks
(End-March)
(Amount in ` billion)
Assets/Liabilities Scheduled Non-Scheduled All Rate of Growth (%)
UCBs UCBs UCBs (All UCBs)
2016 2017 2016 2017 2016 2017 2015-16 2016-17
1 2 3 4 5 6 7 8 9
Liabilities
1. Capital 36 40 74 82 110 122 10.6 10.5
(1.6) (1.6) (3.0) (2.9) (2.3) (2.3)
2. Reserves 142 158 154 177 296 335 8.1 13.3
(6.3) (6.2) (6.1) (6.2) (6.2) (6.2)
3. Deposits 1,844 2,073 2,078 2,362 3,922 4,435 10.4 13.1
(81.1) (81.5) (82.6) (82.7) (81.9) (82.1)
4. Borrowings 24 31 2 3 26 34 16.5 29.8
(1.1) (1.2) (0.1) (0.1) (0.5) (0.6)
5. Other Liabilities 228 242 209 232 437 474 7.8 8.5
(10.0) (9.5) (8.3) (8.1) (9.1) (8.8)
Assets
1. Cash in Hand 12 15 30 30 42 45 12.1 6.0
(0.5) (0.6) (1.2) (1.0) (0.9) (0.8)
2. Balances with RBI 87 99 15 15 102 115 4.5 12.8
(3.8) (3.9) (0.6) (0.5) (2.1) (2.1)
3. Money at Call and Short Notice 18 39 14 12 33 51 56.0 55.1
(0.8) (1.5) (0.6) (0.4) (0.7) (0.9)
4. Investments 585 662 624 759 1,209 1,420 63.9 17.5
(25.7) (26.0) (24.8) (26.6) (25.3) (26.3)
5. Loans and Advances 1,187 1,292 1,262 1,320 2,449 2,612 9.2 6.7
(52.2) (50.8) (50.2) (46.2) (51.2) (48.4)
6. Other Assets 235 259 159 290 394 549 8.0 39.5
(10.3) (10.2) (6.3) (10.1) (8.2) (10.2)
Total Liabilities/Assets 2,274 2,543 2,514 2,856 4,788 5,399 10.0 12.8
(100) (100) (100) (100) (100) (100)
Notes: 1. Data for 2017 are provisional.
2. Figures in parentheses are percentages to total liabilities / assets.
3. Components may not add up to the total due to rounding off.
4. Y-o-y variations could be slightly different because absolute numbers have been rounded off to `1 billion in the table.
VI.11 Historically, investments have been the
preferred use of funds among UCBs resulting in
low credit-to-deposit ratios. During 2016-17,
however, incremental credit-to-deposit ratio of
UCBs was higher than that of SCBs (Chart VI.11).
The investment-to-deposit ratio of UCBs had
dipped below that of the SCBs for the first time in
2015-16 as balances with central/state co-operative
banks ceased to be reckoned as SLR investments
from April 1, 2015. The wedge between the
investment-to-deposit ratio of SCBs and UCBs
narrowed down in 2016-17 (Chart VI.12).
VI.12 There was a turnaround in the growth of
UCBs’ SLR investments, which had declined a
year ago and also there was an accelerated pace
of growth in non-SLR investments in 2016-17
(Chart VI.13 and Table VI.4).
104Developments in Co-operative Banking
VI.13 The increase in SLR investments, despite hike in investment in Central and State Government
easing regulatory requirements, reflected a sharp securities.5
Table VI.4: Investments by Urban Co-operative Banks
(Amount in ` billion)
Item End-March Variation (%)
2015 2016 2017 2015-16 2016-17
1 2 3 4 5 6
Total Investments (A + B) 1,231 1,209 1,420 -1.8 17.5
(100.0) (100.0) (100.0)
A. SLR Investments (i to iv) 1,152 1,096 1,253 -4.8 14.3
(93.6) (90.7) (88.2)
(i) Central Government Securities 792 878 954 11.0 8.7
(68.7) (80.1) (76.2)
(ii) State Government Securities 175 215 293 22.9 36.7
(15.2) (19.6) (23.4)
(iii) Other Approved Securities 4 3 5 -20.4 61.5
(0.4) (0.3) (0.4)
(iv) Balances with Central / State Co-operative Banks 181
(15.7)
B. Non-SLR Investments 79 113 167 43.0 48.2
(6.4) (9.3) (11.8)
Notes: 1. Data for 2017 are provisional.
2. Figures in parentheses are share in respective type of investments.
3. Components may not add up to the total due to rounding off.
4. The reckoning of the balances with Central / State Co-operative Banks has been discontinued for SLR since April 1, 2015.
5. Y-o-y variations could be slightly different because absolute numbers have been rounded off to `1 billion in the table.
5 The SLR for UCBs was brought down from 21.5 per cent of their net demand and time liabilities (NDTL) to 21.25 per cent in April
2016 and further to 21 per cent in July 2016. UCBs were required to maintain SLR of 20.75 per cent effective from October 1,
2016 and 20.50 per cent effective from January 7, 2017.
105Report on Trend and Progress of Banking in India 2016-17
Capital Adequacy
VI.15 Capital is a critical criterion for determining
the business model of the UCBs given their
permissible activities. It is also an important
parameter in the CAMELS rating. Against the
statutory minimum requirement of CRAR for
UCBs at 9 per cent, 82 per cent of the non-
scheduled UCBs maintained CRAR above 12 per
cent in 2016-17 (Table VI.6).
VI.16 Non-scheduled UCBs (NSUCBs) that are
characterised by a smaller business size, have had
stronger capital positions than scheduled UCBs
(SUCBs). In 2016-17, SUCBs’ capital position
exhibited remarkable improvement as reflected
in the increase in the share of SUCBs with CRAR
Soundness above 9 per cent (Chart VI.15). While 90 per cent
of the SUCBs met the minimum CRAR stipulation,
VI.14 The financial strength of an UCB is
four registered negative capital adequacy ratios in
adjudged by the CAMELS rating assigned to it.6
2016-17. The growth in net worth (capital plus
The share of UCBs in the lowest CAMELS rating
reserves) of non-scheduled UCBs led to higher
category ‘D’ has consistently come down since
growth in assets in 2016-17 (Chart VI.16).
2013-14. The distribution of UCBs in rating
categories other than ‘D’ did not show any
Asset Quality
perceptible change between March 2016 and
March 2017 (Chart VI.14 and Table VI.5). VI.17 Since 2015-16, the NPA ratio of the UCBs
has fallen below that of SCBs (Chart VI.17). The
Table VI.5: Rating-wise Distribution of UCBs
(End-March 2017)
Table VI.6: CRAR-wise Distribution of UCBs
(Amount in ` billion)
(End-March 2017)
Ratings Number Deposits Advances
Banks % Share Amount % Share Amount % Share CRAR Scheduled Non-scheduled All UCBs
in Total in Total in Total (in Per cent) UCBs UCBs
1 2 3 4 5 6 7 1 2 3 4
A 397 25.4 1,443 32.5 824 31.6 CRAR < 3 4 110 114
B 828 53.0 2,356 53.1 1,411 54.0 3 <= CRAR < 6 0 9 9
C 274 17.6 528 12.0 319 12.1
D 63 4.0 108 2.4 59 2.3 6 <= CRAR < 9 1 8 9
Total 1,562 100.0 4,435 100.0 2,613 100.0 9 <= CRAR < 12 4 150 154
12 <= CRAR 45 1,231 1,276
Notes: 1. Data are provisional.
2. Components may not add up to the total due to rounding off. Total 54 1,508 1,562
3. Ratings are based on the inspections conducted during the
financial years 2015-16 and 2016-17. Note: Data are provisional.
6 The CAMELS (capital adequacy, asset quality, management, earnings, liquidity, and systems and control) rating model in its
present form became applicable to UCBs from April 2008. The model gives a composite rating of A/B/C/D (in decreasing order of
performance) to a bank, based on the weighted average rating of the individual components of CAMELS.
106Developments in Co-operative Banking
reason for this divergence could be that large in recent years reflects a lagged response by
infrastructure and industrial projects that have the UCBs in building up buffers against the
traditionally been catered to by SCBs were afflicted increase in non-performing assets (Chart VI.18).
by impairments unlike the retail and small
VI.19 This suggests that the increase in the GNPA
business segment which the UCBs cater to.
ratio in 2016-17 may require higher provisioning
in the future (Table VI.7).
VI.18 The provision coverage ratio (PCR) for
UCBs declined during the year. The movement VI.20 Higher provisioning is also expected in view
of gross non-performing assets (GNPAs) and PCR of the worsening of the solvency position of UCBs
107Report on Trend and Progress of Banking in India 2016-17
Table VI.7: Non-Performing Assets of UCBs
(End-March)
(Amount in ` billion)
Item 2016 2017
1 2 3
1. Gross NPAs 150 186
2. Net NPAs 51 68
3. Gross NPA Ratio (%) 6.1 7.1
4. Net NPA Ratio (%) 2.2 2.7
5. Provisioning (1-2) 99 118
6. Provisioning Coverage Ratio (Per cent) (5/1) 65.9 63.5
Note: Data for 2017 are provisional.
– measured in terms of the proportion of
non-performing assets covered by total capital
plus reserves on the banks’ balance sheets
(Chart VI.19).
Financial Performance and Profitability
VI.21 UCBs recorded accelerated growth in net
profits in 2016-17, reflecting growth in both income increased sharply due to the diversification
interest and non-interest incomes. While the by UCBs into a host of fee-earning activities to
slowdown in loans and advances led to some compensate for the slack in lending activity
deceleration in interest income, non-interest (Table VI.8).
Table VI.8: Financial Performance of Scheduled and Non-scheduled Urban Co-operative Banks
(Amount in ` billion)
Item Scheduled UCBs Non-scheduled UCBs All UCBs Variation (%)
2015-16 2016-17 2015-16 2016-17 2015-16 2016-17 2015-16 2016-17
1 2 3 4 5 7 8 9 10
A. Total Income [i+ii] 212 231 266 294 478 525 8.7 9.8
(100.0) (100.0) (100.0) (100.0) (100.0) (100.0)
i. Interest Income 192 202 253 273 445 475 9.4 6.9
(90.7) (87.6) (94.8) (92.8) (93.0) (90.5)
ii. Non-interest Income 20 29 14 21 34 50 -0.2 48.6
(9.3) (12.4) (5.2) (7.2) (7.0) (9.5)
B. Total Expenditure [i+ii] 182 194 229 253 412 447 9.8 8.6
(100.0) (100.0) (100.0) (100.0) (100.0) (100.0)
i. Interest Expenditure 137 143 172 190 309 333 9.4 7.8
(75.0) (73.8) (75.2) (75.0) (75.1) (74.5)
ii. Non-interest Expenditure 46 51 57 63 103 114 11.0 9.9
(25.0) (26.2) (24.8) (25.0) (24.9) (25.5)
of which: Staff Expenses 22 24 31 34 53 58 8.0 9.9
C. Profits
i. Amount of Operating Profits 29 37 37 42 67 78 2.3 17.0
ii. Provision, Contingencies 9 14 8 11 17 25 1.2 49.5
iii. Provision for Taxes 6 6 7 7 13 14 -2.4 3.7
iv. Amount of Net Profit before Taxes 20 22 30 31 50 53 2.7 6.0
v. Amount of Net Profit after Taxes 14 16 23 24 37 39 4.6 6.8
Notes: 1. Figures in parentheses are share in total income/expenditure.
2. Y-o-y variations could be slightly different because absolute numbers have been rounded off to `1 billion in the table.
3. Components may not add up to the total due to rounding off.
4. Data for 2016-17 are provisional.
108Developments in Co-operative Banking
VI.22 During 2016-17, the share of non-interest VI.25 Scheduled UCBs not only registered
income in total income showed a pronounced marginally higher profitability in 2016-17 but also
increase for UCBs, signifying a shift from showed an improvement in efficiency as their net
traditional intermediation and a diversification of interest margins (NIMs) decreased, indicating a
their income structure to offset declining interest decline in the cost of financial intermediation.
margins (Chart VI.20). A shift towards activities
generating non-interest income entails higher
capital buffers due to higher volatility of non-
interest income.
VI.23 An analysis of SUCBs shows that the
diversification of UCBs, as reflected in a higher
share of non-interest income in total income was
not complemented by the maintenance of higher
capital buffers (Chart VI.21).7
VI.24 Both return on assets (RoA) and return
on equity (RoE) of UCBs moderated in 2016-17
(Chart VI.22). But within the UCBs, the
profitability indicators of the scheduled UCBs
improved vis-à-vis that of the non-scheduled
UCBs (Chart VI.23).
7 Four scheduled UCBs with negative capital adequacy ratios have been excluded from this analysis.
109Report on Trend and Progress of Banking in India 2016-17
Table VI.9: Select Indicators of
Profitability of UCBs
(per cent)
Indicators Scheduled Non-scheduled All
UCBs UCBs UCBs
2015-16 2016-17 2015-16 2016-17 2015-16 2016-17
1 2 3 4 5 6 7
Return on Assets 0.64 0.65 0.95 0.88 0.80 0.77
Return on Equity 8.13 8.29 10.43 9.70 9.42 9.09
Net Interest Margin 2.57 2.43 3.33 3.11 2.97 2.79
Note: Data for 2016-17 are provisional.
VI.26 At a disaggregated level, profitability
indicators for the scheduled and non-scheduled
UCBs have showed different movements. A Du
Pont analysis of the drivers of profitability of these
two UCB groups during different phases of
Profitability indicators of non-scheduled UCBs consolidation and reforms points to differences
remained higher but more variable than those of in efficient utilisation of assets and prudent cost
scheduled UCBs (Table VI.9). management (Box VI.1).
Box VI.1: What Drives the Profitability of Scheduled and Non-scheduled UCBs?: A Du Pont Analysis
A multi-layered strategy outlined in the Vision Document consolidation, 2006-09 – (the early phase) and 2012-17
of 2005 for the revival of UCBs has been pursued actively. – (the late phase), can thus be identified. The profitability
This has borne results in the form of the emergence of a indicators during these two phases reflect improvement
strong and viable urban co-operative banking sector with in the financial performance of the UCB sector over time
improved financials. An analysis of this phase of revival of (Charts 1.A and 1.B).
UCBs divulges several interesting features. Consolidation
in the sector through mergers and amalgamations and exit A Du Pont analysis decomposes the drivers of profitability
of unviable entities formed the fulcrum of this strategy till between efficiency and increased leverage. The profitability
2009-10. Since 2012-13, the focus has shifted to making metric of return on equity (RoE) is a composite of the return
the UCBs operationally more efficient. Two phases of on assets (RoA) (also a qualifier of financial performance)
(Contd...)
110Developments in Co-operative Banking
and an indicator of the debt-equity composition in the borrowings has doubled (refer to Table VI.3). Despite
banks’ funding structure – leverage ratio or the equity the facilities given for raising capital from the market,
multiplier. RoA, in turn, is the sum total of the quality of the SUCBs seem to have substituted costlier equity with
asset utilisation and cost management by the banks. These cheaper debt.8 Leverage for NSUCBs too increased in 2016-
17 though by a much lower rate, but the high growth in
two form the basis of the Du Pont identity.
assets could not yield high returns (Chart 1.D).
Du Pont identity:
Decomposition 1:
Decomposition 2:
The first and the second terms in decomposition 2 stand for
effective asset utilisation and cost management, respectively.
To understand the individual contribution of each of the
components of RoE, the product form in decomposition 1
is log transformed into a sum of its components and the
growth rates of the components are compared with the
growth rate of the whole to complete the analysis. A similar
In 2016-17, the increased return on assets of the SUCBs
analysis is carried out for the second decomposition but
came about because of better cost management due to
without the log transformation.
increased emphasis on adopting technologies like the core
If higher RoE is driven by substitution of equity capital with banking solution (CBS) instead of better asset utilisation.
lower cost long-term debt, then it is an indication of a build- In 2016-17, NSUCBs suffered from poor asset utilisation
up of stress in the future. For instance, between 2013 and (Chart 1.E).
2015, NSUCBs experienced growth in their profitability
where an increase in RoE was driven by a build-up in
the leverage even though RoA fell (Chart 1.C). During this
phase, there was an excessive proliferation of assets driven
by borrowed rather than internal funds.
In 2016-17, leverage played a much larger role than RoA
in improving the RoE of the SUCBs. While asset growth
of SUCBs has remained at the average level, growth in
To sum up, the increase in profitability of SUCBs during
the early phase of consolidation was due to higher income
from their assets alone while during the latter phase,
their increase in profitability stemmed from better cost
management as the expansion in assets from a higher
leverage could not yield enough returns. The profitability of
NSUCBs, on the other hand, has been beleaguered by poor
asset utilisation irrespective of the phase of consolidation.
8 In July 2008, UCBs were allowed to raise capital through Perpetual Non-Cumulative Preference Shares (PNCPS) and long-term
(sub-ordinated) deposits (LTD). In July 2016, financially sound UCBs were exempted from seeking the Reserve Bank’s approval for
raising a certain amount of capital through LTDs. Therefore, for the UCBs to be able to successfully raise capital, the profitability
metric that matters the most is the Return on Equity (RoE).
111Report on Trend and Progress of Banking in India 2016-17
Priority Sector Advances VI.28 Historically, lending to the priority sector
by UCBs has been higher than by PSBs, but in
VI.27 Priority sector lending must constitute at
2016-17, UCBs recorded a dip in the share of
least 40 per cent of the adjusted net bank credit
priority sector advances in total advances. Within
(ANBC) of UCBs.9 Given their urban focus, unlike
the priority sectors, credit to micro and small
SCBs, UCBs do not have a mandate for agricultural
enterprises, micro-credit and agriculture increased
lending. Credit to micro and small enterprises,
while lending to other sectors dropped sharply
housing, micro-credit and the ‘others’ components
(Chart VI.24).
form a major part of their priority sector advances
(Table VI.10). 10,11 VI.29 Given the mandate for UCBs to advance a
part of their priority sector corpus towards the
Table VI.10: Composition of Credit to
weaker sections such that it forms at least 10 per
Priority Sectors by UCBs
(End-March 2017) cent of their ANBC12, on an average, 26 per cent
(Amount in ` billion)
Item Priority Sector Advances
Amount Share in Total
Advances (%)
1 2 3
1. Agriculture Credit 76 3.0
1.1 Direct Agricultural Credit 32 1.2
1.2 Indirect Agricultural Credit 44 1.7
2. Micro and Small Enterprises 732 28.0
2.1 Direct Credit to Small and Micro 576 22.1
Enterprises
2.2 Indirect Credit to Small and Micro 156 6.0
Enterprises
3. Micro Credit 108 4.1
4. State-Sponsored Organisations for 2 0.1
SCs / STs
5. Education Loans 22 0.8
6. Housing Loans 253 9.7
7. Total (1 to 6) 1192 45.6
of which, Advances to Weaker Sections 271 10.4
Notes: 1. Data for 2017 are provisional.
2. Percentages are with respect to total credit of UCBs.
3. Components may not add up to total due to rounding off.
9 Adjusted net bank credit (ANBC) (total loans and advances minus bills rediscounted with the Reserve Bank and other approved
financial institutions plus investments made after August 30, 2007 in non-SLR bonds under the held-to-maturity (HTM) category).
10 Provision of credit and other financial services and products of amounts not exceeding `50,000 per borrower or the maximum
permissible limit on unsecured advances, whichever is lower.
11 “Others” component comprises of – loans, not exceeding `50,000 per borrower provided directly by banks to individuals; loans
to distressed persons [other than farmers-already included under the “Agriculture” category] not exceeding ` 50,000 per borrower
to prepay their debt to non-institutional lenders. Loans to self-help groups (SHGs) / joint liability groups (JLGs) for agricultural
and allied activities would be considered as priority sector advances. Further, other loans to SHGs / JLGs up to `50,000 would
be considered as micro-credit and hence would be treated as priority sector advances. Loans sanctioned to state sponsored
organisations for scheduled castes / scheduled tribes for the specific purpose of purchase and supply of inputs to and / or the
marketing of the outputs of the beneficiaries of these organisations.
12 Priority sector loans to the following borrowers will be considered under ‘weaker sections’: small and marginal farmers; artisans,
village and cottage industries where individual credit limits do not exceed `50,000; women; scheduled castes and scheduled
tribes; persons with disabilities; education loans to persons having monthly income not exceeding `5000; loans to SHGs; loans to
distressed farmers indebted to non-institutional lenders; loans to distressed persons other than farmers not exceeding `50,000
per borrower to prepay their debt to non-institutional lenders; and persons from minority communities as may be notified by the
Government of India from time to time.
112Developments in Co-operative Banking
of their priority sector lending has been typically indicators of UCBs during the year. Growing
allocated to the weaker sections. This share deposits and higher investments led to a robust
declined in 2016-17 (Chart VI.25). increase in the balance sheet size of UCBs. In
tandem, UCBs exhibited better performance in
VI.30 Since April 2016, “financially sound”
terms of profitability, partly due to the
UCBs13 with priority sector loan portfolio not less
diversification strategies facilitated by improving
than 90 per cent of their gross loans have been
capital positions. But their asset quality witnessed
allowed to grant unsecured advances to the extent
some deterioration partly due to temporary
of 35 per cent of their total assets (beyond the
problems in repayments faced by small
extant ceiling of 10 per cent of total assets as per
borrowers following the immediate impact of
audited balance sheets as on March 31 of the
demonetisation.
previous financial year) to provide further impetus
to financial inclusion. The condition is that the
III. Rural Co-operatives14
entire unsecured loan portfolio in excess of the
normally permitted 10 per cent comprises of VI.32 Rural co-operative credit institutions in
priority sector loans and the exposure to any India consist of two distinct sets – short-term and
individual borrower does not exceed `40,000. long-term institutions – each with specific
objectives. Short-term co-operatives primarily
VI.31 To sum up, the ongoing consolidation
provide short-term15 crop loans and working
efforts were reflected in various performance
capital loans to farmers and rural artisans, while
long-term co-operatives typically provide medium
to long-term loans for making investments in
agriculture, including land development, farm
mechanisation and minor irrigations; rural
industries; and lately, housing. A profile of rural
co-operatives is presented in Table VI.11.
VI.33 The share of rural co-operatives in total
institutional credit to agriculture fell from 64 per
cent in 1992-93 to 17 per cent in 2015-16. In
consonance, the share of credit from long-term
rural credit co-operatives in agricultural gross
capital formation, also declined (Table VI.12).
VI.34 To improve the functioning and performance
of short-term rural co-operative structure, the
Reserve Bank and the NABARD have taken several
13 ‘Financially sound’ refers to UCBs meeting the following criteria as per the latest inspection report and audited financial statements:
(a) CRAR of not less than 9 per cent; and (b) gross NPAs of not more than 7 per cent.
14 The section is based on data for the year 2015-16 given lagged availability of data for rural co-operatives.
15 Over time, they have also diversified to provide medium-term loans for investments in agriculture and for the rural sector in
general, often with refinance support from the NABARD.
113Report on Trend and Progress of Banking in India 2016-17
Table VI.11: A Profile of Rural Co-operatives
(As at end-March 2016)
(Amount in ` billion)
Item Short-term Long-term
StCBs DCCBs PACS SCARDBs PCARDBs
1 2 3 4 5 6
A. Number of Co-operatives 33# 370 93367 13 601
B. Balance Sheet Indicators
i Owned Funds (Capital + Reserves) 151 340 244 50 36
ii. Deposits 1,093 2,982 1,011 24 14
iii. Borrowings 688 836 1,127 146 143
iv. Loans and Advances 1,229 2,427 1,808 204 127
v. Total Liabilities/Assets 2,067 4,582 2,013* 275 241
C. Financial Performance
i. Institutions in Profit
a. Number 28 319 45,241 9 306
b. Amount of Profit 7 17 41 0.98 0.18
ii. Institutions in Loss
a. Number 5 51 36,695 4 295
b. Amount of Loss 1 6 65 0.95 3.63
iii. Overall Profits (+)/ Loss (-) 6 11 -24 0.03 -3.45
D. Non-performing Assets
i. Amount 56 227 299** 34 47
ii. Share in Loans Outstanding (Per cent) 4.5 9.3 18.9 16.6 37.0
E. Recovery of Loans to Demand Ratio*** (Per cent) 91.7 79.6 82.4 63.6 51.5
Notes: StCBs: State Co-operative Banks; DCCBs: District Central Co-operative Banks; PACS: Primary Agriculture Credit Societies; SCARDBs: State
Co-operative Agriculture and Rural Development Banks; PCARDBs: Primary Co-operative Agriculture and Rural Development Banks.
#: Consequent to the bifurcation of the state of Andhra Pradesh under the Andhra Pradesh Reorganisation Act, 2014, the Andhra Pradesh State
Co-operative Bank was bifurcated into the Andhra Pradesh State Co-operative Bank and the Telangana State Co-operative Apex Bank.
*: Working Capital; **: Total Overdues; ***: This ratio captures the share of outstanding non-performing loan amounts that have been recovered.
Source: NABARD and NAFSCOB.16
measures based on the recommendations of These measures largely addressed the deficiencies
various expert committees over the last decade17. in the short-term credit structure.
Table VI.12: Share in Credit Flow – Rural Co-operatives
(Figures in Per cent)
Share in Credit Flow to Agriculture Share of Credit from Long-Term
Rural Credit Co-operatives in
Co-operative Banks Regional Agricultural Gross Capital
Rural Banks Formation
2012-13 18.0 11.0 12.5
2013-14 17.0 12.0 12.0
2014-15 17.0 12.0 13.0
2015-16 17.0 13.0 12.6
Source: NABARD.
16 NABARD: National Bank for Agriculture and Rural Development; NAFSCOB: National Federation of State Co-operative Banks Ltd.
17 Task Force on Revival of Co-operative Credit Structure, 2004 (Chairman : Shri A. Vaidyanathan); Task Force on Revival of Rural
Co-operative Credit Institutions (Long Term), 2006 (Chairman : Shri A. Vaidyanathan); Committee on Financial Sector Assessment
2009 (Chairman : Dr. Rakesh Mohan); Expert Committee to Examine Three-Tier Short-Term Co-operative Credit Structure (ST
CCS), 2013 (Chairman : Shri Prakash Bakshi).
114Developments in Co-operative Banking
VI.35 Short-term co-operative credit institutions
continue to occupy a significant position in
institutional credit flows to agriculture and remain
a potent instrument for furthering the financial
inclusion agenda, even after the advent and spread
of commercial and regional rural banks.18 As of
March 2016, short-term co-operatives had
between themselves a branch network of 108,776
branches as against 110,361 branches of PSBs,
local area banks (LABs) and regional rural banks
(RRBs) taken together.19
VI.36 A number of measures aimed at the revival
of these short-term credit institutions has resulted
in an improvement in their financial health over
time. At the end of March 2016, short-term credit
co-operatives comprising StCBs, DCCBs and
PACS, accounted for 94.4 per cent of the total
mandatory licensing, prescription of minimum
assets of the rural co-operative credit structure,
capital requirements in a phased manner,
up from 92.8 per cent at end-March 2015.20 At
consolidation, increasing adoption of technology
the same time, their numbers also increased with
and efforts to improve governance. 21
the increase in the number of PACS across regions.
VI.38 Recommendations for reforming the long-
VI.37 These short-term credit co-operatives need
term co-operative credit structure remain to be
to play a much larger role in fulfilling the
implemented and its share in total assets of all
requirements of agricultural credit. Nonetheless,
rural co-operatives has been dwindling steadily
their overall profitability turned negative in 2015-
(Chart VI.26).
16, driven down by increased loss incurred by
PACS. However, over time, the performance of VI.39 The number of long-term institutions –
short-term co-operatives has improved, on the SCARDBs and PCARDBs – continued to decline
whole, which could be attributed, inter alia, to as well (Chart VI.27). Low outreach, limited range
18 Short-term rural credit co-operatives comprise of state co-operative banks (StCBs) at the state level, district central co-operative
banks (DCCBs) at the district level and primary agricultural credit societies (PACS) at the village level. By March 2017, a 3-tier
short-term co-operative credit structure, comprising StCBs, DCCBs and PACS existed in 20 states, while in 16 states, including
the north-eastern states, 2-tier short-term co-operative credit structure was in operation.
19 StCBs – 1,168; DCCBs – 14,241; PACS – 93,367.
20 StCBs/DCCBs are registered under the provisions of the State Co-operative Societies Act of the state concerned and are regulated
by the Reserve Bank. Powers have been delegated to the NABARD under Sec 35A of the Banking Regulation Act (as applicable to
co-operative societies) to conduct inspection of state and central co-operative banks. PACS and long-term credit co-operatives are
outside the purview of the Banking Regulation Act, 1949 and are hence not regulated by the Reserve Bank. The NABARD conducts
voluntary inspection of SCARDBs, apex-level co-operative societies and federations.
21 As per the NABARD’s Annual Report 2016-17, CBS has been implemented in three banks in Maharashtra and one in West Bengal
during 2015-16; remaining 16 DCCBs in Uttar Pradesh are in the process of adopting CBS. 16 DCCBs in Uttar Pradesh and three
DCCBs in Maharashtra have put in place corporate governance framework.
115Report on Trend and Progress of Banking in India 2016-17
mobilise deposits from the public and support the
credit needs of PACS and their members.
State Co-operative Banks
VI.41 StCBs, the apex institutions in the short-
term rural co-operative structure, mobilise
deposits and thus provide the required liquidity
and technical assistance/ guidance to both DCCBs
and PACS to help them fulfill their obligations
towards their farmer members. StCBs are also
expected to mobilise liquidity and refinance
support from higher refinancing institutions like
the NABARD for supporting the crop loan needs
of affiliated DCCBs and PACS. With refinance
support from NABARD, over time, StCBs have
diversified their operations towards providing
medium-term loans for investments in agriculture
of credit products and resource constraints had and for the rural sector, in general.
adverse implications on the performance of these
Balance Sheet Operations
institutions. Moreover, the inherent deficiencies
associated with their design – non-resource based VI.42 The balance sheet of the StCBs, the apex
specialised term-lending institutions – severely institutions in the short-term co-operative credit
restrict their ability to fulfil their role adequately. structure, expanded moderately in 2015-16. On
the liabilities side, deposits turned around from
Short-term Rural Credit Co-operatives
a contraction in 2014-1522 and on the assets side,
VI.40 Short-term rural credit co-operatives
loans and advances grew at a lower rate due to
operate in most of the states in a three-tier
two consecutive years of poor agricultural growth.
structure with StCBs at the apex level and DCCBs
Agricultural loans account for more than 60 per
as its principal members, DCCBs as the
cent of their loan portfolios (Table VI.13).
intermediate structure with PACS as principal
affiliated members, and PACS at the base (village) VI.43 Information on scheduled StCBs (17 out
level with farmers as their members. In principle, of the 33 total StCBs) available from Section
PACS are expected to mobilise deposits from 42(2) returns for 2016-17 suggests that their
farmer members and use them for providing crop deposit growth could be even higher.
loans to members. When deposits are not enough Notwithstanding the liberalisation of norms for
to meet the loan requirements of borrowing co-operative banks which allow them access to
members, PACS draw support from higher tier non-SLR instruments, StCBs’ SLR investments
institutions, DCCBs/StCBs. DCCBs were increased faster in 2016-17 than in the preceding
constituted as small banks in small towns to year (Table VI.14).
22 The contraction in 2014-15 was on account of implementation of the guidelines issued in July 2014 whereby DCCBs were required
to park five per cent of their deposits in Government securities by March 31, 2015.
116Developments in Co-operative Banking
Table VI.13: Liabilities and Assets of Table VI.15: Financial Performance of
State Co-operative Banks State Co-operative Banks
(Amount in ` billion) (Amount in ` billion)
Item As at end-March Variation (%) Item As during Variation (%)
2015 2016 2014-15 2015-16 2014-15 2015-16 2014-15 2015-16
1 2 3 4 5 1 2 3 4 5
Liabilities A. Income ( i+ii) 149 153 5.6 2.6
1. Capital 54 56 45.1 5.0 (100.0) (100.0)
(2.7) (2.73) i. Interest Income 143 145 6.3 1.6
2. Reserves 88 94 -5.2 7.1 (95.9) (95)
(4.4) (4.6) ii. Other Income 6 8 -6.9 27
3. Deposits 1,028 1,093 -1.5 6.3 (4.1) (5.0)
(51.7) (52.9) B. Expenditure (i+ii+iii) 139 147 4.1 6.3
4. Borrowings 687 688 12.7 0.1 (100.0) (100.0)
(34.6) (33.3)
i. Interest Expended 116 119 5.4 3
5. Other Liabilities 131 136 9.1 3.5 (83.4) (80.8)
(6.6) (6.58) ii. Provisions and 7 12 -19.9 61.8
Assets Contingencies (5.2) (8.0)
1. Cash and Bank Balances 66 64 -50.6 -3.8 iii. Operating Expenses 16 16 9.3 4.8
(3.3) (3.1) (11.3) (11.2)
2. Investments 699 690 5.1 -1.2 of which : Wage Bill 10 11 1.5 11.6
(35.2) (33.4) (6.9) (7.3)
3. Loans and Advances 1,145 1,229 11.1 7.3 C. Profits
(57.6) (59.4)
i. Operating Profits 18 18 4 -1.8
4. Other Assets 78 85 5.0 8.5
ii. Net Profits 11 6 29.9 -44.5
(3.9) (4.1)
Total Liabilities/Assets 1,989 2,067 4.4 4.0 Notes: 1. Figures in parentheses are proportion to total income/
(100) (100) expenditure in per cent.
2. Y-o-y variations could be slightly different because absolute
Notes: 1. Figures in parentheses are percentages to total liabilities/ numbers have been rounded off to `1 billion in the table.
assets. 3. Components may not add up to the total due to rounding off.
2. Y-o-y variations could be slightly different because absolute Source: NABARD.
numbers have been rounded off to `1 billion in the table.
3. Components may not add up to the total due to rounding off.
Source: NABARD.
interest component of expenditure moderated
Profitability with a reduction in interest rate on refinance from
7.85 per cent to 6.20 per cent following two
VI.44 StCBs’ net profits declined by 44.5 per
successive rounds of revision, a sharp increase
cent in 2015-16 on account of higher growth in
in provisions and contingencies pushed up non-
expenditure relative to income. Although the
interest expenditure sharply. Slower growth in
credit, coupled with a decline in investments,
Table VI.14: Select Banking Indicators of
Scheduled State Co-operative Banks resulted in muted growth in interest income that
(Amount in ` billion. Growth Rates in Per cent)
forms almost 95 per cent of the total income of
Item 2013-14 2014-15 2015-16 2016-17 StCBs (Table VI.15).
1 2 3 4 5
Asset Quality
Deposits 777 772 796 903
(8.7) (-0.6) (3.0) (13.5)
VI.45 During 2015-16, the NABARD’s increased
Credit 939 1038 1074 1109
(10.0) (10.6) (3.4) (3.3) focus on monitoring of accumulated losses and
SLR Investments 240 233 242 262
(7.0) (-3.1) (4.0) (8.3) NPA management of the StCBs led to a reduction
Credit plus SLR Investments 1179 1271 1316 1371
in NPAs of StCBs both in absolute terms and as
(9.4) (7.8) (3.5) (4.2)
a proportion of loans and advances (Table VI.16
Note: Figures in brackets are growth rates in per cent over previous year.
Source: Form B under Section 42 of RBI Act.
and Chart VI.28).
117Report on Trend and Progress of Banking in India 2016-17
Table VI.16: Soundness Indicators of VI.47 The improvement in the NPA ratio has been
State Co-operative Banks
steadily occurring over the recent years with the
(Amount in ` billion)
central region being the only aberration. In the
Item As at end-March Variation (%) northern, central, western and southern regions,
2015 2016 2014-15 2015-16 the recovery ratio has remained more or less
1 2 3 4 5 stable at a higher level. On the other hand, in the
A. Total NPAs (i+ii+iii) 57 56 0.4 -2.8
eastern region, it has remained volatile ranging
i. Sub-standard 21 19 0.5 -9.1
(36.3) (33.9) between 90 and 55 per cent in the last four years
ii. Doubtful 25 25 -5.4 0.9 despite an improvement in the asset quality.
(43.2) (44.9)
Recoveries have increased in the north-eastern
iii. Loss 12 12 15.0 0.6
(20.5) (21.2) region. (Chart VI.29).
B. NPAs to Total Loans Ratio (%) 5.0 4.5 - -
C. Recovery to Demand Ratio (%) 94.9 91.7 - - VI.48 There has always been a disparity in the
Notes: 1. Figures in parentheses are shares in total NPAs (%). financial health of the StCBs across different
2. Y-o-y variations could be slightly different because absolute
regions. Over time, however, the difference
numbers have been rounded off to `1 billion in the table.
3. Components may not add up to the total due to rounding off. between the highest and the lowest NPA ratios
Source: NABARD.
across regions has decreased (Chart VI.30).
VI.46 The eligibility of the StCBs for drawing VI.49 At end-March 2016, NPAs still ranged
refinance from the NABARD and for deciding on between 13.1 per cent in the north-eastern region
the quantum of refinance, has for some time now, to 1.7 per cent in the northern region (Table VI.17).
been linked to various financial parameters. Net
District Central Co-operative Banks
NPAs is one of them. This has perhaps nudged
VI.50 The DCCBs form the second tier of the
these institutions to make improvements in their
three-tiered short-term rural co-operative
asset quality.
118Developments in Co-operative Banking
structure. The resource base of DCCBs comprised matched by an increase in investments and
of deposits (65.1 per cent) and borrowings (18.2 accelerated increase in growth of loans and
per cent) as at end-March 2016. Out of total advances on the asset side (Table VI.18). DCCBs
borrowings, 98 per cent were in the form of loans typically hold a high share of their medium-term
from StCBs and the NABARD. Consequently, the loan portfolio in the form of non-agricultural
growth in loans and advances of the DCCBs move loans. Consequently, their credit expansion was
closely with that of the StCBs (Chart VI.31). Even not impacted by the slowdown in the agricultural
with higher credit disbursal than StCBs in sector during 2014-15 and 2015-16 as much as
absolute terms, DCCBs typically had a lower
credit-to-deposit ratio than StCBs due to a
broadening of their deposit base. (Chart VI.32).
Balance Sheet Operations
VI.51 During 2015-16, the balance sheet of the
DCCBs expanded at a higher rate than in the
preceding year. Accelerated growth in deposits,
capital and reserves on the liability side was
Table VI.17: Regional Disparity in
Financial Health of StCBs
Highest Lowest NPA Range
NPA Ratio Ratio
2012-13 23.2 2.1 21.1
2013-14 17.1 1.9 15.2
2014-15 14.5 1.8 12.7
2015-16 13.1 1.7 11.4
Source: NABARD.
119Report on Trend and Progress of Banking in India 2016-17
Table VI.18: Liabilities and Assets of Table VI.19: Financial Performance of District
District Central Co-operative Banks Central Co-operative Banks
(Amount in ` billion) (Amount in ` billion)
Item As at end-March Variation (%) Item As during Variation (%)
2015 2016 2014-15 2015-16 2014-15 2015-16 2014-15 2015-16
1 2 3 4 5 1 2 3 4 5
Liabilities A. Income ( i+ii) 338 367 9.3 8.4
1. Capital 131 165 14.2 25.6 (100.0) (100.0)
(3.2) (3.6) i. Interest Income 323 347 9.5 7.7
2. Reserves 163 175 2.3 7.9 (95.4) (94.8)
(4.0) (3.8) ii. Other Income 16 19 4.0 23.2
3. Deposits 2,588 2,982 9.3 15.2 (4.6) (5.2)
(63.5) (65.1)
B. Expenditure (i+ii+iii) 331 355 12.2 7.3
4. Borrowings 800 836 10.1 4.5 (100.0) (100.0)
(19.6) (18.2)
i. Interest Expended 230 250 11.8 8.8
5. Other Liabilities 395 424 8.2 7.3 (69.4) (70.4)
(9.7) (9.3)
ii. Provisions and 30 29 26.8 -4.0
Assets Contingencies (9.1) (8.1)
1. Cash and Bank Balances 220 233 9.5 5.7
iii. Operating Expenses 71 76 7.4 6.9
(5.4) (5.1)
(21.5) (21.5)
2. Investments 1,385 1,615 -33.3 16.7
of which : Wage Bill 43 48 4.6 10.7
(34.0) (35.3)
(13.1) (13.5)
3. Loans and Advances 2,194 2,427 8.1 10.6
C. Profits
(53.8) (53.0)
i. Operating Profits 37 40 -1.4 8.4
4. Other Assets 278 307 9.3 10.5
(6.8) (6.7) ii. Net Profits 7 11 -49.9 62.5
Total Liabilities/Assets 4,077 4,582 9.2 12.4
(100.0) (100.0) Notes: 1. Figures in parentheses are percentages to total income/
expenditure.
Notes: 1. Figures in parentheses are percentages to total liabilities/ 2. Y-o-y variations could be slightly different because absolute
assets. numbers have been rounded off to `1 billion in the table.
2. Y-o-y variations could be slightly different because absolute 3. Components may not add up to the total due to rounding off.
numbers have been rounded off to `1 billion in the table. Source: NABARD.
3. Components may not add up to the total due to rounding off.
Source: NABARD.
Asset Quality
it was in the case of StCBs. Stable fixed deposits
VI.53 The asset quality of DCCBs improved
form a large proportion of the sources of funds of
marginally during 2015-16 as reflected in the
DCCBs, reflecting efforts aimed at mobilising
decline in their NPA ratios, despite an accumulation
resources through deposits to meet higher credit
of assets in the sub-standard and doubtful
demand.
categories (Table VI.20).
Profitability
VI.54 Post a dip in 2014-15, the recovery-to-
VI.52 The net profits of DCCBs increased sharply demand ratio improved during 2015-16, although
in 2015-16 as against a decline during 2014-15. it remained significantly lower than that of StCBs
(Chart VI.33).
This improvement could be attributed to a lower
growth in expenditure on account of an absolute VI.55 Weak performance of a lower tier
fall in the level of provisions and contingencies as institution can eventually pose risks to the apex
well as to a lower growth in interest and operating institutions. Reforms in the rural co-operative
expenses, despite higher wage bill. On the income sector have focused on all tiers of the co-
side, as with the StCBs, other income recorded operative structure. In short-term credit
higher growth, while interest income decelerated institutions, the focus has been on improving the
(Table VI.19). asset quality of both the StCBs and DCCBs.
120Developments in Co-operative Banking
Table VI.20: Soundness Indicators of District
Central Co-operative Banks
(Amount in ` billion)
Item As at end-March Variation (%)
2015 2016 2014-15 2015-16
1 2 3 4 5
A. Total NPAs (i+ii+iii) 208 227 -0.5 9.0
i. Sub-standard 93 95 -7.0 1.6
(44.8) (41.7)
ii. Doubtful 91 109 4.8 19.6
(43.8) (48.1)
iii. Loss 24 23 8.3 -2.2
(11.4) (10.2)
B. NPAs to Loans Ratio (%) 9.5 9.3 - -
C. Recovery to Demand Ratio (%) 77.3 79.6 - -
Notes: 1. Figures in parentheses are percentages to total NPAs.
2. Y-o-y variations could be slightly different because absolute
numbers have been rounded off to `1 billion in the table.
3. Components may not add up to the total due to rounding off.
Source: NABARD.
However, since the DCCBs are directly affected Operating expenses on staff and other heads also
by geographical and seasonal risks associated elevated the share of operating expenses in the
with agricultural yields, they have persistently total expenditure of DCCBs as compared to the
shown higher NPAs and lower recovery to StCBs due to their large district-level set-up and
demand ratios than StCBs (Chart VI.34). lagged adoption of technology (Chart VI.35).23
23 With a view to bringing down costs for ultimate borrowers, seven DCCBs in Jharkhand have been amalgamated with Jharkhand
State Co-operative Bank (JStCB) from April 1, 2017 thus creating a 2-tier rural co-operative credit structure in the state instead
of the existing 3-tier structure of rural co-operative banks. This brings the number of DCCBs down to 364 as on date.
121Report on Trend and Progress of Banking in India 2016-17
Moreover, StCBs have more assured sources of Primary Agricultural Credit Societies (PACS)
liquidity than DCCBs.24
VI.58 PACS form the grass-root level tier of the
VI.56 The overall recovery-to-demand ratio at an short-term co-operative credit structure that
all-India level improved for DCCBs during 2015- directly interfaces with individual borrowers to
16, mainly due to a turnaround in recovery in the provide them short and medium-term credit.
southern region coupled with a steady increase in Reflecting co-operative culture, PACS advances
the western region. District-level performance of loans only to their members.25 Borrowings from
the co-operatives in both northern and western higher tier co-operative credit institutions
regions deteriorated and their NPA ratios constitute the majority of funds for the PACS,
increased in 2015-16 (Chart VI.36). which cater to a variety of other associated
VI.57 Nonetheless, regional disparity has activities. They arrange for the supply of agricultural
diminished over the period (Chart VI.37 and inputs, distribution of consumer articles and
Table VI.21). marketing of produce for their members through
co-operative marketing societies.
Table VI.21: Regional Disparity in Financial
Health of DCCBs
Balance Sheet Operations
(Per cent)
VI.59 PACS witnessed a slowdown in credit
Highest NPA Lowest NPA Range
Ratio Ratio growth in 2015-16 in relation to the preceding
2013 17.8 5.7 12.1 year (Table VI.22 and Chart VI.38). PACS largely
2014 12.7 5.3 7.4
cater to agricultural borrowers. Subdued demand
2015 14.3 5.2 9.1
2016 12.9 5.6 7.3 conditions due to muted growth in the agricultural
Source: NABARD. sector resulted in their low credit growth.
24 Apart from the NABARD, StCBs can borrow from SCBs and the Reserve Bank.
25 In co-operatives, members are the shareholders.
122Developments in Co-operative Banking
Table VI.22: Primary Agricultural Credit
Societies – Select Balance Sheet Indicators
(Amount in ` billion)
Item As at Variation
end-March (%)
2015 2016 2014-15 2015-16
1 2 3 4 5
A. Liabilities
1. Total Resources (2+3+4) 2,063 2,382 4.9 15.5
2. Owned Funds (a+b) 217 244 14.7 12.8
a. Paid-up Capital 111 123 12.9 11.0
Of which,
Government Contribution 8 8 19.1 -4.3
b. Total Reserves 106 122 16.5 14.7
3. Deposits 846 1,011 3.3 19.4
4. Borrowings 1,000 1,127 4.4 12.7
5. Working Capital 2,237 2,013 5.3 -10.0
B. Assets
1. Total Loans Outstanding (a+b) 1,472 1,585 13.2 7.7
a) Short-Term 1,036 1,171 7.3 13.0
b) Medium-Term 437 414 30.0 -5.1
Note: Y-o-y variations could be slightly different because absolute
deposits as their chief funding source (Chart
numbers have been rounded off to `1 billion in the table.
Source: NAFSCOB. VI.39). This, in turn, reflects on their performance.
Credit Deployment
VI.60 Among the three short-term rural credit
VI.61 PACS extend credit only to their members.
institutions, PACS are the most dependent on
Therefore, a useful indicator for both access to
borrowed resources and own funds (capital and
and demand for credit from PACS is the borrower-
reserves) while DCCBs rely primarily on stable
to-member ratio. This ratio has generally
remained below 50 per cent, suggesting that less
than half the members of PACS access credit from
the institutions themselves. Marginal farmers,
followed by small farmers, form the majority of
PACS’ members and their shares in membership
increased during 2015-16, while that of the
scheduled castes / scheduled tribes and the rural
artisans group declined (Chart VI.40). The
borrower to member ratio fell across all categories,
resulting in an overall decline in the borrower-
member ratio (Chart VI.41).
VI.62 An analysis of the extent of shortfall of the
access to credit from an aspired level of 50 per
cent reveals that the shortfall in credit off-take
during 2015-16 was the highest for rural artisans
and small and marginal farmers (Chart VI.42).
123Report on Trend and Progress of Banking in India 2016-17
Hence, despite the increase in the membership has, however, stabilised in the recent period and
share of the major groups, overall credit growth disbursal of short-term loans, that form a core
slowed down for PACS in 2015-16. function of PACS, has picked up (Chart VI.43).
VI.63 Notwithstanding the fact that the main VI.64 A distinct pattern is observed in the
objective of PACS is the delivery of agricultural financial performance of PACS. In contrast with a
credit, their share of non-agricultural loans has steady increase in the share of profit-making
increased consistently at the cost of agricultural PACS, the decline in share of loss-making PACS
loans since 2010. The share of agricultural loans has been sticky in recent years. At end-March
124Developments in Co-operative Banking
2016, the proportion of loss-making PACS stood to topographical constraints and inadequate
at 39.7 per cent (marginally down from 40.6 per infrastructure resulting in volatile agricultural
cent in 2012-13), while those in profit accounted productivity. In addition, the co-operative
for 48.1 per cent of the total number of PACS, up structure not being a development indigenous to
from 45.6 per cent in 2012-13 (Chart VI.44).26 these regions, lack of awareness among the people
As compared with higher tier short-term credit
institutions, the profitability of the PACS
has, however, worsened in the last three years
(Chart VI.45).
VI.65 From a regional perspective also, the
proportion of profit-making PACS has been higher
than that of loss-making ones in most of the
regions, but net profits in absolute term have been
negative across the board barring the western
region (Chart VI.46). This suggests that it is mostly
the larger sized credit societies in these regions
that are performing poorly. On the other hand, the
share of loss-making PACS exceeded that of the
profit-making ones in the eastern and north-
eastern regions (Chart VI.47). The rural economy
in both the regions has been lagging behind due
26 As regards the remaining PACS, either they broke even, reporting neither profit nor loss, or there was no information available on
their financial health.
125Report on Trend and Progress of Banking in India 2016-17
operative bank if it has banking as one of its main
activities. It is required to apply to the Reserve
Bank within three months of attaining capital plus
reserves of `1 lakh for a license under Section 22
of the Banking Regulation Act (AACS), 1949 but
it can carry on with the banking business unless
the license application is refused. At one time,
this led to the presence of a large number of
unlicensed banks. The continued existence of
such unlicensed co-operative institutions poses
a risk to depositors’ interests and moreover, these
institutions could resort to activities that are not
very clearly defined. It was hence recommended
that a roadmap be drawn up whereby banks,
which failed to obtain a license by March 2012
would not be allowed to operate. This was to
expedite the process of consolidation and the
in these regions about the advantages of the weeding out of non-viable entities from the co-
co-operative credit system and lack of technical operative space. As of April 16, 2016, all StCBs
know-how and training among the co-operative had been issued licenses. In comparison, the
personnel, over the years have led to organisationally licensing of DCCBs, has been a slower process.
and financially weak base level institutions in
Of the 371 DCCBs, 221 were licensed as of March
these regions.
2011. To protect the interests of the depositors,
Status of Licensing of Short-term Rural the Reserve Bank prohibited the DCCBs that
Co-operatives remained unlicensed beyond March 2012 from
accepting fresh deposits. As of date, three DCCBs
VI.66 Two issues pertaining to the co-operative
remain unlicensed (Chart VI.48).27
banking sector that the Committee on Financial
Sector Assessment, 2009 (Chairman: Rakesh VI.67 Keeping in view the need to improve the
Mohan) had identified were capital adequacy and banks’ preparedness for facing risks in an
licensing of co-operative institutions. The increasingly competitive business environment,
Committee noted that even though Section 7 of the Reserve Bank stipulated that the banks
the Banking Regulation Act, 1949 (AACS) maintain a minimum CRAR of 4 per cent for being
prohibits the use of the words ‘bank’, ‘banker’ or eligible for a license. Further, in January 2014,
‘banking’ by any co-operative society other than StCBs and DCCBs were advised to achieve and
a co-operative bank as part of its name, this maintain on an ongoing basis a CRAR of 7 per
provision does not apply to a PACS or a primary cent from March 31, 2015 and 9 per cent from
credit society (PCS). As per the Act, a primary March 31, 2017 as part of the harmonisation of
credit society can automatically convert to a co- capital regulations across all co-operative banks.
27 The number of DCCBs here stands at 371 as it also includes the Tamil Nadu Industrial Co-operative Bank Ltd. (TAICO Bank).
126Developments in Co-operative Banking
The leverage (capital to assets) ratio for the DCCBs operating at the district/block level. Notwithstanding
improved after capital infusions from state the deterioration in their financial health over
governments in 2012-13.28 The capital-to-assets time, Agricultural and Rural Development Banks
ratios of both the StCBs and DCCBs were given (ARDBs) have historically played a very important
an impetus in January 2014, when the Reserve role in improving the productivity of land through
Bank allowed them to issue Long-Term
(Subordinated) Deposits (LTD) and Innovative
Perpetual Debt Instruments (IPDI) to facilitate
raising of capital funds (Tier I and Tier II) for the
purpose of compliance with the prescribed CRAR
norms (Chart VI.49). Consequently, the share of
StCBs with CRAR above 9 per cent increased
sharply in 2015-16. DCCBs exhibited similar but
more subdued movements across the CRAR
buckets (Chart VI.50).
Long-term Rural Co-operatives
VI.68 Long-term rural co-operatives include
State Co-operative Agriculture and Rural
Development Banks (SCARDBs) operating at the
state-level and Primary Co-operative Agriculture
and Rural Development Banks (PCARDBs)
28 To enable StCBs/ DCCBs to achieve the mandated CRAR, several state governments continue to provide funds to banks as per their
requirements.
127Report on Trend and Progress of Banking in India 2016-17
development of minor irrigation and facilitating Table VI.23: Liabilities and Assets of
State Co-operative Agriculture and Rural
farm mechanisation, promoting capital formation
Development Banks
in agriculture and financing rural non-farm sector
(Amount in ` billion)
projects.
Item As at end-March Variation (%)
State Co-operative Agriculture and Rural
2015 2016 2014-15 2015-16
Development Banks
1 2 3 4 5
VI.69 In most north-eastern states, except Assam Liabilities
1. Capital 10 9 4.8 -6.8
and Tripura, there is no separate structure of (2.9) (3.3)
long-term rural co-operatives. In Assam and 2. Reserves 65 41 6.3 -37
(19.5) (14.9)
Tripura, as also in Bihar, Uttar Pradesh, Jammu 3. Deposits 18 24 18.4 29.8
(5.5) (8.7)
and Kashmir and Gujarat, there is a unitary
4. Borrowings 161 146 5.3 -9.5
structure, with SCARDBs operating through their (48.4) (53)
5. Other Liabilities 79 55 11.6 -29.5
branches at the district-level, there being no (23.6) (20.2)
separate entity of PCARDBs. By contrast, in other Assets
1. Cash and Bank Balances 4.3 4.4 43.4 4
states except Himachal Pradesh and West Bengal, (1.3) (1.6)
there is a federal structure, with SCARDBs 2. Investments 30 29.6 9.9 -1.3
(9.0) (10.8)
operating through PCARDBs. In Himachal Pradesh 3. Loans and Advances 212 204 5.2 -3.7
(63.7) (74.2)
and West Bengal, there is a mixed structure, with
4. Other Assets 87 37 11.5 -57.3
SCARDBs operating through PCARDBs as well as (26.0) (13.4)
Total Liabilities/Assets 333 275 7.6 -17.3
through their branches. (100) (100)
Balance Sheet Operations Notes: 1. Figures in parentheses are percentages to total liabilities/
assets.
2. Y-o-y variations could be slightly different because absolute
VI.70 The consolidated balance sheet of
numbers have been rounded off to `1 billion in the table.
SCARDBs contracted in 2015-16 as almost all 3. Components may not add up to the total due to rounding off.
Source: NABARD.
components except deposits on the liability side
and cash and bank balances on the asset side fell.
Profitability
(Table VI.23).29
VI.72 The financial performance of SCARDBs
VI.71 On the asset side, credit disbursement
remained weak, reflecting a sharp fall in income
contracted in 2015-16 constrained by the
from other sources coupled with a decline in
shrinking of internal resources, i.e., capital and
interest income by 11.4 per cent. However, a
reserves (broadly defined as net worth here)
reduction in expenditure, due to a decline in
(Chart VI.51). Contraction in all major components
provisions and contingencies and interest
of balance-sheet of SCARDBs during the year was
expenses resulted in a turnaround in profits of
mainly on account of liquidation of loss-making
these institutions (Table VI.24).
SCARDBs.
29 The long-term credit co-operatives are primarily designed as non-resource based specialised term-lending agencies. These
institutions are not given licenses to function as banks coming under the purview of Banking Regulations Act. Hence, they are not
allowed to take deposits from the public. As a result, they are dependent heavily on borrowed funds for advancing loans. They can,
however, mobilise deposits from their members as per deposit schemes approved by the boards of management of the respective
banks. SCARDBs are also allowed to mobilise deposits from the public who are not members of the bank as per the guidelines
issued by NABARD in 1997 subject to certain conditions.
128Developments in Co-operative Banking
Table VI.24: Financial Performance of
State Co-operative Agriculture and Rural
Development Banks
(Amount in ` billion)
Item As during Variation (%)
2015 2016 2014-15 2015-16
1 2 3 4 5
A. Income ( i+ii) 25 22 -0.2 -12.1
(100.0) (100.0)
i. Interest Income 24 22 -1.2 -11.4
(96.4) (97.2)
ii. Other Income 0.9 0.6 42.2 -30.8
(3.6) (2.8)
B. Expenditure (i+ii+iii) 29 22 -0.9 -23.9
(100.0) (100.0)
i. Interest Expended 18 14 5.3 -21.6
(62.0) (63.9)
ii. Provisions and 6 4 -28.9 -37.7
Contingencies (21.1) (17.3)
iii. Operating Expenses 5 4 36.7 -15.5
(16.9) (18.8)
C. Profits
i. Operating Profits 2 4 -50.2 71.1
ii. Net Profits -3.88 0.03 -5.4 100.8
Notes: 1. Figures in parentheses are percentages to total income/
Asset Quality expenditure.
2. Y-o-y variations could be slightly different because absolute
numbers have been rounded off to `1 billion in the table.
VI.73 The asset quality of SCARDBs has
3. Components may not add up to the total due to rounding off.
witnessed noteworthy improvement since 2012-13 Source: NABARD.
as reflected in the consistent decline in their NPAs
VI.75 Moreover, in November 2014, a new fund,
and an increase in the recovery-to-demand ratio
the “Long Term Rural Credit Fund (LTRCF)”, was
since 2013-14 (Chart VI.52 and Table VI.25).
set up in the NABARD for providing refinance
VI.74 Concerted policy efforts are responsible
support to co-operative banks and RRBs for their
for this decline. In 2015, the Board of Management
agricultural term-loan operations.30 The refinance
of the National Co-operative Agriculture and
facility is provided with a repayment period of
Rural Development Banks Federation Limited five years at a concessional rate such that the
launched an accelerated recovery and NPA banks pass on this benefit to the borrowing
management drive to revamp the existing farmers (The NABARD revises this from time to
repayment and recovery systems and improve time).31 In 2015-16, the number of fully functional
the financial health of the SCARDBs. The drive SCARDBs came down to 13 from 18 in the
aimed at reducing gross NPAs below the 10 per previous year.32 SCARDBs that contributed the
cent level in two years. most to the accumulated losses are under
30 The Fund had an initial corpus of `5,000 crore during 2014-15, contributed out of shortfalls in achievement of priority sector
lending (PSL) targets by SCBs. Allocations to this fund were increased by `15,000 crore each in 2015-16 and 2016-17.
31 The interest rate on refinance was fixed at 7.85 per cent for 2014-15. The interest rate on refinance was revised downwards to
5.15 per cent per annum w.e.f. December 23, 2016. The banks are supposed to pass on this benefit to borrowing farmers.
32 The 18 SCARDBs were situated in the states of Haryana, Himachal Pradesh, Jammu & Kashmir, Punjab, Rajasthan, Assam,
Tripura, Bihar, Odisha, West Bengal, Madhya Pradesh, Uttar Pradesh, Gujarat, Maharashtra, Karnataka, Kerala, Tamil Nadu and
Puducherry. Out of these 18, SCARDBs in Assam, Bihar, Odisha, Madhya Pradesh and Maharashtra are no longer functional.
129Report on Trend and Progress of Banking in India 2016-17
and UCBs puts into perspective how much of an
impact these developments have had in uplifting
the quality of assets of SCARDBs. The decline in
NPAs of StCBs that operate under almost
identical economic circumstances seems barely
perceptible in comparison to that of the SCARDBs
(Chart VI.53).
Asset Quality of SCARDBs: A Regional
Perspective
VI.76 From a regional perspective, the financial
health of SCARDBs became more skewed during
2015-16. At end-March 2015, the northern and
southern regions had high recovery to demand
ratios and low (relative to the all-India average)
NPA ratios, thus figuring in the quadrangle of the
strongest financial health. Only two regions –
central and western – figured in the quadrangle
liquidation and hence are no longer functioning
of the weakest financial health with high
(NABARD Annual Report, 2016-17). These
NPA ratios and low recovery to demand ratios
developments fructified in the form of a decline
(relative to the all-India average) (Chart VI.54 (a)).
in the NPA ratio from 35.6 per cent in 2013-14
At end-March 2016, however, only the southern
to 16.6 per cent in 2015-16, while the recovery-
region remained in the sound performing (relative
to-demand ratio witnessed steady improvements
to all-India average) quadrangle while four
from 33.3 per cent to 63.6 per cent over the same
regions (north; north-east; central; and western)
period. A comparison of SCARDBs with StCBs
feature in the quadrangle of weakest financial
Table VI.25: Asset Quality of State
Co-operative Agriculture and
Rural Development Banks
(Amount in ` billion)
Item As at end-March Variation (%)
2015 2016 2014-15 2015-16
1 2 3 4 5
A. Total NPAs (i+ii+iii) 64 34 -11.3 -47.3
i. Sub-standard 25 19 -20.9 -22.2
(38.1) (56.4)
ii. Doubtful 39 15 -5.2 -62.5
(60.9) (43.4)
iii. Loss 0.6 0.1 445.5 -86.7
(0.93) (0.24)
B. NPAs to Loans Ratio (%) 30.3 16.6 - -
C. Recovery to Demand Ratio (%) 46.7 63.6 - -
Notes: 1. Figures in parentheses are percentages to total NPAs.
2. Y-o-y variations could be slightly different because absolute
numbers have been rounded off to `1 billion in the table.
3. Components may not add up to the total due to rounding off.
Source: NABARD.
130Developments in Co-operative Banking
health. Within the weakest quadrangle, the Table VI.26: Liabilities and Assets of
financial health of the western region has Primary Co-operative Agriculture and Rural
Development Banks
improved while the financial health of SCARDBs
(Amount in ` billion)
in the central region deteriorated further,
Item As at end-March Variation (%)
paralleling the poor performance of StCBs in the
2015 2016 2014-15 2015-16
region (Chart VI.54 (b)).
1 2 3 4 5
Primary Co-operative Agriculture and Rural Liabilities
1. Capital 13 11 3.7 -17.8
Development Banks
(4.3) (4.5)
2. Reserves 40 25 -0.5 -38.4
VI.77 PCARDBs are the lowest layer of long-term
(13.1) (10.3)
credit co-operatives. PCARDBs operate in close 3. Deposits 10 14 15.9 33.2
(3.3) (5.6)
contact with their borrowers – farmers, artisans,
4. Borrowings 164 143 5.6 -12.8
craftsmen and other qualified persons – to (53.3) (59.3)
5. Other Liabilities 79 49 4.4 -38.7
sustainably develop their economic conditions. As
(25.9) (20.2)
in the case of SCARDBs, PCARDBs primarily draw Assets
on borrowings for lending purposes. 1. Cash and Bank Balances 3.9 3.6 10.4 -9.4
(1.3) (1.5)
Balance Sheet Operations 2. Investments 20 15 -1.3 -25.9
(6.6) (6.2)
3. Loans and Advances 148 127 7.2 -14.4
VI.78 The consolidated balance sheet of PCARDBs
(48.3) (52.7)
also witnessed substantial contraction in 2015-16. 4. Other Assets 135 95 2.8 -29.2
(43.9) (39.6)
All components of uses of funds, including the
Total Liabilities/Assets 307 241 4.7 -21.6
major components of loans and advances and (100.0) (100.0)
other assets, declined from their levels in 2014-15. Notes: 1. Figures in parentheses are percentages to total liabilities/
assets.
Sources of funds also recorded a decline from
2. Y-o-y variations could be slightly different because absolute
their levels in 2014-15, with deposits being the numbers have been rounded off to `1 billion in the table.
3. Components may not add up to the total due to rounding off.
only exception (Table VI.26). Source: NABARD.
131Report on Trend and Progress of Banking in India 2016-17
Profitability
VI.79 PCARDBs reported net losses in 2015-16
but of a lower order than in 2014-15, reflecting
an increase in the proportion of profit-making
PCARDBs (Table VI.27 and Chart VI.55).
Financial Health of PCARDBs versus Financial
Health of SCARDBs
VI.80 The apex-level long-term co-operative
structure showed some sign of revival during
2015-16. The financial health of PCARDBs
deteriorated slightly during 2015-16, although the
absolute level of NPAs of PCARDBs fell as the
institutions contributing the most to their losses
were liquidated (Table VI.28).
Table VI.27: Financial Performance of
Primary Co-operative Agriculture and Rural
Development Banks VI.81 The NPA ratio of the PCARDBs continued
(Amount in ` billion) to remain much higher than that of the SCARDBs,
Item As during Variation (%) while their recovery ratio remained below that of
the SCARDBs in 2015-16 (Chart VI.56).
2015 2016 2014-15 2015-16
1 2 3 4 5
Table VI.28: Asset Quality of Primary
A. Income ( i+ii) 24 21 3.8 -13.4
(100.0) (100.0) Co-operative Agriculture and Rural
i. Interest Income 20 18 2.4 -9.3 Development Banks
(79.9) (83.7)
(Amount in ` billion)
ii. Other Income 5 3 9.8 -29.9
(20.1) (16.3)
Item As at end-March Variation (%)
B. Expenditure (i+ii+iii) 28 25 7.8 -12.4
(100.0) (100.0) 2015 2016 2014-15 2015-16
i. Interest Expended 17 15 8.3 -11.4
1 2 3 4 5
(60.2) (60.9)
ii. Provisions and 6 5 9.9 -23.9 A. Total NPAs (i+ii+iii) 54 47 11.5 -12.4
Contingencies (21.3) (18.5) i. Sub-standard 27 25 23.6 -9.3
iii. Operating Expenses 5.2 5.1 4.0 -2.5 (50.9) (52.8)
(18.5) (20.6) ii. Doubtful 26 22 1.4 -15.7
C. Profits (48.5) (46.6)
i. Operating Profits 2 1 -20.5 -52.4 iii. Loss 0.32 0.29 -13.5 -9.4
ii. Net Profits -3.66 -3.45 -45.2 -5.7 (0.60) (0.62)
B. NPAs to Loans Ratio (%) 36.2 37.0 - -
Notes: 1. Figures in parentheses are percentages to total income/
C. Recovery to Demand Ratio (%) 44.6 43.6 - -
expenditure.
2. Y-o-y variations could be slightly different because absolute Notes: 1. Figures in parentheses are percentages to total NPAs.
numbers have been rounded off to `1 billion in the table. 2. Y-o-y variations could be slightly different because absolute
3. Components may not add up to the total due to rounding off. numbers have been rounded off to `1 billion in the table.
Source: NABARD. 3. Components may not add up to the total due to rounding off.
Source: NABARD.
132Developments in Co-operative Banking
Table VI.29: Comparison of Assets, Credit and
Capital Size of SCARDBs and StCBs
Year Amount of Assets Amount of Credit Amount of
of SCARDBs per of SCARDBs per Capital of
`100 of Assets `100 of Credit SCARDBs per
of StCBs of StCBs `100 of Capital
of StCBs
2012-13 18.3 20.1 29.0
2013-14 16.3 19.5 25.1
2014-15 16.7 18.5 18.2
2015-16 13.3 16.6 16.1
Source: NABARD.
LTDs and IPDIs to facilitate raising of capital funds
(Tier I and Tier II) for the purpose of compliance
with the prescribed CRAR. Consequently, the
capital base of the StCBs expanded by a larger
extent than that of SCARDBs since 2014-15. In
July 2016, urban and short-term rural co-
operative banks were given more freedom for
IV. A Comparative Assessment of
raising capital. Co-operative banks fulfilling
Short-term and Long-term Rural
certain financial soundness criteria were permitted
Credit Co-operatives to raise LTDs without prior approval of the
Reserve Bank, subject to the condition that the
VI.82 The turnaround in the financial
outstanding amount of LTDs, which is eligible to
performance of the long-term rural co-operative
be reckoned as Tier II capital, is limited to 50 per
credit institutions in 2015-16 augurs well as these
cent of Tier I capital.
institutions cater to the long-term financial needs
of the rural economy. A comparison of the apex- VI.84 There exists a wide gap between StCBs and
level institutions of short-term and long-term co- SCARDBs in terms of various other performance
operatives, StCBs and SCARDBs, brings out the indicators. The former remained profitable (albeit
dwindling asset and credit sizes and weakening with some moderation in profits in 2015-16)
capital positions of long-term vis-à-vis short-term coupled with the lowest NPA ratios and the highest
recovery ratios among the co-operatives, in
credit institutions. A consistent fall in the relative
contrast to SCARDBs, which had for long incurred
asset size/credit/capital of SCARDBs for every
losses and had impaired asset quality. SCARDBs’
`100 of total assets/credit/capital of StCBs over
RoA, however, turned around in 2015-16 as
the past few years reflects the extent of the
against negative returns recorded in the previous
problems faced by these long-term credit
four years, while StCBs continued to record
institutions (Table VI.29).
positive RoAs (Chart VI.57). The relatively better
VI.83 With the ongoing liquidation of unviable performance of StCBs reflects the concerted
institutions, the number of long-term credit efforts made by the Central and State Governments
institutions has been on a decline for some time along with the Reserve Bank and the NABARD in
now. In addition, as mentioned before, in January implementing various reforms aimed at
2014, StCBs/DCCBs were also permitted to issue strengthening the short-term credit institutions.
133Report on Trend and Progress of Banking in India 2016-17
credit co-operatives, the general improvement in
the NPA ratio and recovery performance of the
short-term co-operatives could also be attributed
to thorough monitoring by the NABARD. In
addition, an incentive of additional rebate of 3 per
cent given to farmers for prompt repayment of
crop loans as part of the on-going interest
subvention scheme for short-term crop loans
could have played a role as well.33
VI.87 The capital position of both the StCBs and
DCCBs have improved in 2015-16. The Reserve
Bank will pursue the process of recapitalisation
and licensing of the remaining three DCCBs in
Jammu and Kashmir under the rehabilitation
scheme approved by the government to create an
environment where only licensed rural co-
operative banks operate in the banking space.
VI.85 From a business perspective, while the
Keeping in view the need to improve the
StCBs exhibited slower growth in credit in
preparedness of the banks for facing risks in an
2015-16, credit growth for DCCBs picked up in
increasingly competitive business environment,
2015-16. The NABARD had introduced a norm of
the NABARD has issued a guidance note on
linking the refinance eligibility of the StCBs with
strengthening capital funds and improving CRAR
their CRAR for better accountability in 2012-13.
of co-operative banks in 2015-16 and has
Consequently, StCBs improved their capital
conducted a workshop to facilitate the process.
positions considerably in 2014-15 and the
During the past few years, initiatives to train co-
refinance disbursed to them by the NABARD
operative banks personnel have gained ground. It
increased by 12.15 per cent. This may have
is hoped that with more streamlined training,
provided a boost to growth in loans and advances
there will be more efficient delivery of banking and
of StCBs in 2014-15 which, in turn, led to a higher financial services by the co-operatives which will,
growth in DCCBs’ loans and advances in 2015-16. in turn, improve their operating efficiency across
Credit off-take of PACS also grew at a slower pace, the tiers.
despite an increase in their numbers.
V. Overall Assessment
VI.86 While refinancing through the Long Term
Rural Credit Fund and active liquidation of VI.88 The balance sheet of UCBs expanded in
unviable institutions may have played a role in 2016-17, driven by demonetisation-induced
improving the financial health of the long-term growth in deposits, which got channelled into
33 A study of StCBs and DCCBs in two states – Uttar Pradesh and Haryana – reported by Bankers’ Institute of Rural Development
(BIRD) in May 2015 reveals that the credit flow increased significantly in these two states post the introduction of the scheme and
in particular the introduction of the additional incentive for prompt repayment.
134Developments in Co-operative Banking
higher investments rather than credit. Reflecting diversification of businesses by UCBs into non-
continuing efforts at the consolidation of UCBs, traditional areas. Even as the phase of consolidation
their performance lifted in terms of their continues, efforts are being made to improve their
incremental credit-to-deposit ratio and profitability operational efficiency. Proactive steps by the
though their asset quality was affected by subdued Reserve Bank in the form of providing financial
economic conditions. assistance to UCBs for implementation of core
banking solutions (CBS) and permitting them to
VI.89 The Government and the Reserve Bank are
offer all their products and services through ATM
undertaking several initiatives to further improve
channels combined with allowing all co-operatives
the financial health of the UCBs. The proposals
in May 2017 to deploy point of sale (POS)
of the Union Budget 2017-18 to shift from an
terminals and issue prepaid instruments will
accrual basis to an actual receipt basis for taxation
promote digitisation.
of interest income on UCBs’ non-performing
assets, as is the case for SCBs, and increasing the VI.91 The short-term credit structure of rural
limit for tax deduction with respect to provisions co-operatives continued to show consistent
on bad debt for all banks to 8.5 per cent from the improvements due to various regulatory reforms
earlier 7.5 per cent are important. The High- undertaken in recent years. On the contrary, the
Powered Committee on Urban Co-operative Banks lowest tier, PACS, continued to be afflicted by
has suggested a way forward for UCBs by structural deficiencies resulting in their weak
considering their conversion into SCBs and other performance. In this regard, while some of the
differentiated banking institutions with the aim of recommendations of the Vaidyanathan Committee
subjecting them to harmonised regulations. At the (2004) have been implemented, the
same time, the Reserve Bank has relaxed the recommendations that address governance
exposure limits on unsecured advances, subject
issues and insuring deposits of PACS to protect
to higher lending to the priority sectors, to
the interests of member depositors will be
incentivise UCBs to compete successfully with
beneficial in the long-term. NABARD in 2016-17
small finance banks that operate with similar loan
opened new lines of credit, viz. Additional Short
portfolios but under more stringent regulatory
Term (Seasonal Agricultural Operations) [ST-
norms. In 2016-17, the Reserve Bank also
SAO] to help the rural co-operatives tide over
permitted all salary earners’ banks to grant
their liquidity problems. The ST-SAO, for
advances against term deposits of non-members.
instance, is provided to SCBs for financing the
Alongside, the Reserve Bank also plans to review
PACS in such areas where the DCCBs are
the supervisory action framework for UCBs
financially weak or are unable to finance PACS
framed in 2014, such that the banks concerned
adequately so as to ensure credit flow to farmers.
can be engaged at an early stage for corrective
On the asset side as well, the NABARD has
action. Moving ahead, increased competition from
extended financial support to StCBs/DCCBs/
other segments may necessitate efforts on the part
PACS to develop PACS as multi service centres
of UCBs to adjust to the dynamic competitive
(MSCs) so that they can increase their business
environment on the one hand and continuing of
portfolios and avenues of earning revenue and
regulatory reforms, on the other.
become self-sustainable entities. Union Budget
VI.90 The expansion in size and improved capital 2017-18 has made an allocation of `1,900 crore
position due to consolidation has facilitated the over three years for bringing digital banking to
135Report on Trend and Progress of Banking in India 2016-17
PACS. This will link 63,000 societies with CBS Force on the Revival of Rural Co-operative Credit
of DCCBs allowing new generation banking Institutions (Long Term), 2006 (Chairman: Shri
services to be made available to the small and A. Vaidyanathan) regarding expanding the deposit,
marginalised farmers who are members of these capital and product bases of these institutions
co-operative societies for the first time. All these merits consideration. A build-up of internal
measures are expected to improve the performance resources can help the long-term credit co-
of the PACS going forward. operatives to improve their credit disbursements,
going forward. Given their significance in meeting
VI.92 Despite the recent turnaround, the long- the investment needs of the agricultural sector, it
term rural co-operative credit structure continues is critical that the long-term rural co-operative
to under-perform due to its inherent weaknesses. credit institutions be revived through concerted
In this regard, the recommendations of the Task policy efforts.
136Chapter VII
Non-Banking Financial Institutions
Non-banking financial institutions (NBFIs) are an important alternative channel of finance for
the commercial sector in India’s bank dominated financial sector. Their role in promoting financial
inclusion and catering to the needs of small businesses and specialised segments is an additional
dimension of their relevance in the Indian context. Regulations relating to governing non-banking
financial companies (NBFCs) are being increasingly harmonised with those of banks to forge the
right balance for financial stability while encouraging them to focus on specialised areas.
I. Introduction on the other hand, are mostly private sector
institutions that specialise in meeting the credit
VII.1 Non-banking financial institutions (NBFIs)
needs and a variety of financial services of niche
have been intermediating a growing share of the areas which, inter alia, include financing of
resource flows to the commercial sector. NBFIs physical assets, commercial vehicles and
regulated by the Reserve Bank are all-India infrastructure loans. PDs, which came into
financial institutions (AIFIs), non-banking existence in 1995, play an important role in both
financial companies (NBFCs) and primary dealers the primary and secondary markets for government
(PDs) (Chart VII.1). AIFIs, largely an outcome of securities. In terms of balance sheet size, AIFIs
development planning in India, were created as constitute 23 per cent of NBFIs’ total assets, while
apex public entities for providing long-term NBFCs represent 76 per cent and standalone PDs
financing / refinancing to specific sectors. NBFCs, constitute 1 per cent.
Chart VII.1: Non-Banking Financial Institutions Regulated by the Reserve Bank of India
Non-Banking Financial Institutions
Non-Banking All India Financial
Primary Dealers
Financial Companies Institutions
(21)
(11,522) (4)
NBFCs-D NBFCs-ND Bank PDs Standalone PDs
(178) (11,344) (14) (7)
Systemically Important Other NBFCs-ND
NBFCs –ND (NBFCs-ND)
(NBFCs-ND-SI) (220) (11,124)
Note: Figures in parentheses are the number of institutions.
Source: RBI.Report on Trend and Progress of Banking in India 2016-17
VII.2 Against this background, this chapter or more are classified as non-deposit taking
presents an analysis of the financial performance systemically important NBFCs (NBFCs-ND-SI).
of each of these NBFIs in 2016-17. The chapter is For the purpose of issuing certificates of registration
organised into seven sections. Section 2 provides (CoRs), NBFCs were categorised as Type I and
an aggregated view of the NBFC sector – both Type II companies in June 2016. The applications
deposit-taking NBFCs (NBFCs-D) and non-deposit for Type I NBFCs, which do not have / intend to
taking systemically important NBFCs (NBFCs-ND- accept public funds and do not have / intend to
SI). Section 3 discusses the financial performance
have customer interface, are considered on a fast-
of payments banks – a newly created form of
track basis. NBFCs are also categorised on the
differentiated banks. The finances of AIFIs are
basis of the activities undertaken by them with a
analysed in Section 4, followed by an evaluation
view to meeting sector-specific requirements,
of the role of primary dealers in Section 5. Section
entailing appropriate modulation of the regulatory
6 sets out the latest developments and Section 7
regime. With addition of new categories over time,
concludes with an overall assessment.
there were 12 types of NBFCs as of date under
this categorisation (Table VII.1).
II. Non-Banking Financial Companies
VII.4 At end-March 2017, there were 11,522
VII.3 NBFCs are classified on the basis of their
NBFCs registered with the Reserve Bank, of which
liability structures, the type of activities they
178 were NBFCs-D and 220 were NBFCs-ND-SI.
undertake and their systemic importance. In
terms of liability structure, NBFCs are classified The number of NBFCs has been declining over
into two categories – deposit-taking NBFCs or time with cancellations of registrations exceeding
NBFCs-D, which accept and hold public deposits new registrations on account of voluntary
and non-deposit taking NBFCs or NBFCs-ND, surrender or cancellation of CoR due to non-
which do not accept public deposits. Among compliance of revised criteria of net owned fund
NBFCs-ND, those with an asset size of `5 billion (NOF) (Chart VII.2).
Table VII.1: Classification of NBFCs Based on Activity
Type of NBFC Activity
1. Asset Finance Company (AFC) Financing of physical assets supporting productive / economic activities,
including automobiles, tractors and generators.
2. Loan Company Providing of finance whether by making loans or advances or otherwise for
any activity other than its own but does not include an asset finance company.
3. Investment Company Acquiring securities for purpose of selling.
4. NBFC- Infrastructure Finance Company (NBFC-IFC) Providing infrastructure loans.
5. NBFC-Systemically Important Core Investment Company (CIC-ND-SI) Acquiring shares and securities for investment mainly in equity market.
6. Infrastructure Debt Fund-NBFC (IDF-NBFC) For facilitating flow of long-term debt into infrastructure projects.
7. NBFC-Micro Finance Institution (NBFC-MFI) Extending credit to economically disadvantaged groups.
8. NBFC-Factor Undertaking the business of acquiring receivables of an assignor or extending
loans against the security interest of the receivables at a discount.
9. NBFC- Non-Operative Financial Holding Company (NOFHC) For permitting promoters / promoter groups to set up a new bank.
10. Mortgage Guarantee Company (MGC) Undertaking mortgage guarantee business.
11. NBFC-Account Aggregator (NBFC-AA) Collecting and providing information about a customer’s financial assets in
a consolidated, organised and retrievable manner to the customer or others
as specified by the customer.
12. NBFC-Peer to Peer Lending Platform (NBFC-P2P) Providing an online platform to bring lenders and borrowers together to help
mobilise funds.
Source: RBI.
138Non-Banking Financial Institutions
marginal decline in the previous year. Borrowings
by NBFCs from various sources, which accounted
for 70 per cent of their total liabilities, increased
by 12.1 per cent in 2016-17 mainly through
market-based instruments such as commercial
paper (CPs) and debentures even as borrowings
from banks contracted. Growth in public deposits
decelerated which is, however, attributable to the
revised regulatory guidelines issued in November
2014 mandating that only rated NBFCs-D can
accept and maintain public deposits. Unrated
companies were required to get rated by March
31, 2016 to be able to renew existing deposits /
accept fresh deposits or else return deposits to
the public. Further, the limit on acceptance of
deposits for rated asset finance companies (AFCs)
was reduced from 4 times to 1.5 times of their
NOF as part of harmonisation across the sector.
Balance Sheet
Loans and advances, constituting three-fourth of
VII.5 Double-digit growth in credit extended by total assets, picked up sharply as space opened
NBFCs has improved resilience and stability of up with the reduced pace of bank credit growth.
the economy by filling up the financing gap opened Investments too reversed from contraction in the
up by the muted bank credit growth from 2014- previous year and rose strongly during 2016-17
15. NBFCs’ consolidated balance sheet1 turned reflecting higher investments in equity shares in
around and expanded during 2016-17 from a the wake of ebullient market (Table VII.2).
Table VII.2: Consolidated Balance Sheet of NBFCs
(End-March)
(Amount in ` billion)
Items 2014 2015 2016 2017 Percentage variation
2015-16 2016-17
1 2 3 4 5 6 7
1. Share capital 737 851 761 921 -10.6 21.0
2. Reserves and surplus 2,723 3,117 3,033 3,538 -2.7 16.7
3. Public deposits 131 205 271 306 32.2 12.9
4. Bank borrowings 2,910 3,106 3,376 3,141 8.7 -7.0
5. Debentures 4,596 5,740 5,394 6,462 -6.0 19.8
6. Commercial paper 462 630 852 1,267 35.2 48.7
7. Other borrowings 2,175 2,761 2,639 2,878 -4.4 9.1
8. Other liabilities 766 875 904 1,158 3.3 28.1
Total liabilities/assets 14,499 17,284 17,231 19,671 -0.3 14.2
1. Loans and advances 10,782 11,864 13,169 14,846 11.0 12.7
2. Investments 2,159 2,603 2,253 2,673 -13.4 18.6
3. Other assets 1,558 2,817 1,810 2,152 -35.7 18.9
Source: RBI Supervisory Returns.
1 Analysis is based on the consolidated balance sheet of NBFCs-D and NBFCs-ND-SI.
139Report on Trend and Progress of Banking in India 2016-17
Sectoral Credit of NBFCs
VII.6 NBFCs specialise in catering to sector-
specific financial needs covering retail; consumer
and vehicle loans; micro, small and medium
enterprises (MSMEs); large industry /
infrastructure; and micro finance among others.
A significant growth in credit to retail and services
segments also underlines their increasing role in
financial inclusion. Industry receives about 60 per
cent of total credit by NBFCs, followed by retail,
services and agriculture.
VII.7 Within the sectoral deployment, retail
credit increased at the highest pace on account of
consumer durables and credit card receivables;
this was followed by services and industry. On the
other hand, credit to agriculture and allied
activities contracted perhaps on account of
to the micro and small segments in both industry
transitory disruptions in cash-intensive value
and services sectors displayed robust growth while
chains due to demonetisation (Table VII.3). Credit
vehicle loans declined during 2016-17 reflecting
Table VII.3: Credit to Select Sectors by NBFCs the transient impact of demonetisation (Appendix
(End-March)
Table VII.1).
(Amount in ` billion)
Exposure to Sensitive Sectors
Items 2016 2017 Share in Percentage
gross variation
advances VII.8 The Reserve Bank defines the capital
in 2017
(Per cent) market, real estate and commodities as sensitive
1 2 3 4 5 sectors in view of the risks associated with
I. Gross advances 13,169 14,846 - 12.7 fluctuations in prices of such assets. NBFCs’
II. Non-food credit (1 to 5) 13,167 14,846 100.0 12.8
exposure to real estate increased during 2016-17
1. Agriculture and allied 392 346 2.3 -11.7
activities reflecting search for higher yields (Chart VII.3).
2. Industry (2.1 to 2.4) 8,063 8,940 60.2 10.9
Financial Performance of NBFCs
2.1 Micro and small 326 508 3.4 55.8
2.2 Medium 154 172 1.2 11.7
VII.9 NBFCs’ profitability declined during
2.3 Large 3,726 4,375 29.5 17.4
2016-17 due to increased provisioning
2.4 Others 3,857 3,885 26.2 0.7
requirements (Table VII.4). Their cost to income
3. Services 1,865 2,224 15.0 19.2
4. Retail loans 2,047 2,490 16.8 21.6 ratio increased reflecting deterioration in
4.1 Vehicle/auto loans 1,150 1,035 7.0 -10.0 operational efficiency.
5. Other non-food credit 801 847 5.7 5.7
VII.10 Reflecting the slowdown in net profits,
Note: Food credit was approximately `1 billion in 2015-16 and nil in
2016-17. NBFCs’ return on equity (RoE) and return on
Source: RBI Supervisory Returns.
assets (RoA) – the two major profitability
140Non-Banking Financial Institutions
Table VII.4: Financial Parameters
of the NBFC Sector
(End-March)
(Amount in ` billion)
Items 2014 2015 2016 2017
1 2 3 4 5
A. Income 1,713 2,009 2,142 2,310
B. Expenditure 1,279 1,495 1,628 1,822
C. Net profit 313 365 367 314
D. Total assets 14,499 17,284 17,231 19,671
E. Financial ratios (as per cent of
total assets)
(i) Income 11.8 11.6 12.4 11.7
(ii) Expenditure 8.8 8.6 9.4 9.3
(iii) Net profit 2.2 2.1 2.1 1.6
F. Cost to income ratio 74.6 74.4 76.0 78.9
Source: RBI Supervisory Returns.
indicators – were lower during 2016-17 than a
year ago (Chart VII.4).
Both their gross non-performing assets (GNPAs)
Asset Quality
ratio and net non-performing assets (NNPAs) ratio
VII.11 During the year, NBFCs faced some increased during 2016-17. The recent spike in
deterioration in their asset quality mainly on these ratios also reflects the revision in the
account of the sluggishness in industrial activity. recognition norms of NPAs being implemented
in a phased manner beginning 2015-162
(Chart VII.5).
VII.12 Deterioration of asset quality was
also evident in the increased share of doubtful
assets denoting the aging of NPAs in the sector
(Table VII.5).
Table VII.5: Classification of NBFCs’ Assets
(Per cent)
Items 2013-14 2014-15 2015-16 2016-17
1 2 3 4 5
Standard assets 95.7 95.8 95.5 95.0
Sub-standard assets 2.6 2.8 2.6 2.6
Doubtful assets 1.2 1.1 1.6 2.1
Loss assets 0.5 0.3 0.3 0.3
Total 100.0 100.0 100.0 100.0
Source: RBI Supervisory Returns.
2 Time period for classification as NPAs for assets other than hire purchase was progressively reduced to 5 months for the year
ending March 2016, 4 months for the year ending March 2017 and 3 months for the year ending March 2018.
141Report on Trend and Progress of Banking in India 2016-17
2015-16 in view of the revised regulatory
framework for NBFCs, which raised threshold
asset size for NBFCs-ND-SI to `5 billion or more
from `1 billion. Accordingly, many of the NBFCs-
ND-SI were reclassified as NBFC-ND in view of
the changed definition. In terms of ownership,
non-government NBFCs-ND-SI held 62.9 per cent
of the total assets of NBFCs-ND-SI (Table VII.6).
Balance Sheet
VII.15 The consolidated balance sheet of NBFCs-
ND-SI expanded strongly in 2016-17 due to growth
in credit, which has improved the resilience and
stability of the economy by filling up the financing
gap opened up by the muted bank credit growth
(Box VII.1).
VII.16 The accretion to liabilities was mainly on
account of share capital, debentures and CPs; on
Capital Adequacy
the other hand, borrowings from both banks
VII.13 With a moderate deterioration in asset
and the government declined during the year.
quality and expansion in the credit portfolio,
Although loans and advances of NBFCs-ND-SI
NBFC sector’s capital to risk-weighted assets ratio
increased during the year, investments grew at a
(CRAR) declined in 2016-17 (Chart VII.6).
faster pace reflecting a preference to park funds
Nevertheless, it remained well above the stipulated
in high yield instruments such as debentures,
norm of 15 per cent.
corporate bonds, equity shares and mutual fund
Non-Deposit taking Systemically Important units (Table VII.7).
NBFCs
VII.17 Category-wise, loan companies (LCs)
VII.14 NBFCs-ND-SI constitute 86 per cent of the contributed the most to the increase in the
total assets of the NBFC sector. The number of consolidated balance sheet of NBFCs-ND-SI
these companies declined by more than half in during 2016-17, supported by a healthy growth
Table VII.6: Ownership Pattern of NBFCs-ND-SI
(End-March)
(Amount in ` billion)
Ownership 2014 2015 2016 2017
Number Asset size Number Asset size Number Asset size Number Asset size
1 2 3 4 5 6 7 8 9
A. Government companies 15 4,181 15 5,337 15 5,765 15 6,280
B. Non-government companies (1+2) 478 8,561 456 9,895 205 9,068 205 10,637
1. Public ltd. companies 252 1,705 243 2,120 105 2,026 105 8,268
2. Private ltd. companies 226 6,856 213 7,775 100 7,041 100 2,369
Total (A+B) 493 12,742 471 15,232 220 14,832 220 16,917
Source: RBI Supervisory Returns.
142Non-Banking Financial Institutions
Box VII.1: Factors Influencing NBFCs’ Credit Growth
Credit is considered as a vital ingredient in economic
growth process. Levine, et al. (1998) found a strong
positive link between financial development and economic
growth. Empirical analysis also shows that a combination
of stronger economic growth, loose monetary conditions
and sound health of banking sector leads to higher credit
growth while high inflation is detrimental to it (Guo and
Stepanyan, 2011). In India, bank credit has decelerated
sharply in recent years, while NBFCs’ credit continued
in productive sectors such as infrastructure, retail loans
and services sector. The share of NBFCs in total credit
extended by banks and NBFCs together increased from 9.5
per cent in March 2008 to 15.5 per cent in March 2017.
NBFCs credit intensity, i.e., credit as per cent of GDP, has
also increased at a steady pace, reaching 8 per cent at end-
March 2017. Against this backdrop, this box attempts an difference stationary, while CU was found to be stationary on
empirical examination of the factors influencing credit of the level. A dummy for financial crisis of 2008 was included
NBFCs using descriptive anaysis and vector autoregression. as an exogenous variable. Lag of four quarters was found
appropriate as per AIC lag length criterion. The impulse
Along with decline in bank credit growth in recent years due
to asset quality concerns, the asset quality of NBFCs has also
deteriorated mainly due to the changed asset classification
norms (Chart 1). NBFCs’ credit to infrastructure sector,
however, has shown a robust growth, especially credit by
NBFCs-infrastructure finance companies (NBFCs-IFC).
NBFCs-IFC have to deploy at least 75 per cent of their total
assets in infrastructure loans and they constitute nearly
two-fifth of credit extended by NBFCs-ND-SI. Similarly,
NBFCs’ lending to retail and services segments have also
increased significantly as reflected by the share of loan
companies (LCs) and asset finance companies (AFCs), the
main categories which lend to these sectors (Chart 2).
In order to further examine the factors influencing the
NBFCs’ credit, a vector autoregression (VAR) approach
was adopted using quarterly data from June 2007 to June
2017 on GDP (non-agricultural, at factor cost), banks’
restructured assets, 91-days treasury bills rates and
capacity utilisation (CU) of industrial sector. The GDP and
credit series were deseasonalised and found to be first
(Contd...)
143Report on Trend and Progress of Banking in India 2016-17
response mostly showed the expected direction of change concerns perhaps start affecting the overall economic
in NBFCs’ credit in response to all the variables included environment, which leads to a decline in NBFCs’ credit.
in VAR. A one standard error increase in treasury bills
References:
rate initially leads to an increase in NBFCs’ credit, which
declines subsequently. An increase in GDP and capacity Guo K. and V. Stepanyan (2011), ‘Determinants of Bank
utilisation generate positive shocks to NBFCs’ credit, which Credit in Emerging Market Economies’, IMF Working Paper
persist for seven quarters. A deterioration in asset quality
WP/11/51.
of banks (increase in restructured assets) initially leads to
an increase in NBFCs’ credit reflecting substitution impact Levine R. and S. Zervos (1998), ‘Stock Markets, Banks, and
whereby banks’ aversion to lend creates avenue for lending Economic Growth’, The American Economic Review, 88
by NBFCs. Gradually, however, the banks’ asset quality (3): 537-558.
in the retail segment, especially in consumer subdued growth of the NBFCs-micro finance
durables. The balance sheet of infrastructure institution (NBFCs-MFI) balance sheet was
finance companies (NBFCs-IFC), the other major partially due to the conversion of a few large
category of NBFCs-ND-SI, was subdued by risk NBFCs-MFI into small finance banks (Table VII.8).
aversion due to asset quality concerns in the Balance sheet of investment companies expanded
sector. The balance sheet of AFCs was almost moderately; while loans and advances increased,
unchanged, reflecting postponement of decisions their investments declined.
to purchase assets after demonetisation. The
Resource Mobilisation
Table VII.7: Consolidated Balance Sheet
VII.18 NBFCs-ND-SI increased resources raised
of NBFCs-ND-SI
(End-March) through debentures and CPs while their borrowings
(Amount in ` billion)
from banks and government declined during the
Items 2014 2015 2016 2017 Percentage year (Table VII.9).
variation
Financial Performance
2015- 2016-
16 17
VII.19 The net profits of NBFCs-ND-SI declined
1 2 3 4 5 6 7
in 2016-17 due to increased expenditure and tax
1. Share capital 699 812 726 922 -10.6 27.0
2. Reserves and 2,469 2,818 2,699 3,124 -4.2 15.7 provisions (Table VII.10). Their cost-to-income
surplus
ratio increased during the year.
3. Borrowings 8,916 10,853 10,661 11,917 -1.8 11.8
4. Current 286 294 291 339 -1.0 16.5 Soundness Indicators
liabilities
5. Provisions 371 455 455 615 0.0 35.2 VII.20 Gross NPAs of NBFCs-ND-SI increased
Total liabilities/ 12,742 15,232 14,832 16,917 -2.6 14.1 further during 2016-17, partly reflecting the
assets
progressive harmonisation of the NPA norms vis-
1. Loans and 9,367 10,145 11,039 12,396 8.8 12.3
advances à-vis banks. All categories of NBFCs-ND-SI, except
2. Investments 2,081 2,503 2,172 2,555 -13.2 17.6 AFCs, reported deterioration in asset quality with
3. Cash and 382 535 485 698 -9.3 43.9 it being more pronounced in the case of NBFCs-
bank balances
MFI reflecting transient disruption in cash flows
4. Other current 730 1,850 952 1,020 -48.5 7.1
assets due to demonetisation (Chart VII.7A). Net NPAs
5. Other assets 183 199 223 264 12.1 18.4
broadly followed the pattern of gross NPAs
Source: RBI Supervisory Returns. (Chart VII.7B).
144Non-Banking Financial Institutions
Table VII.8: Major Components of Liabilities and Assets of NBFCs-ND-SI by Classification of NBFCs
(End-March)
(Amount in ` billion)
Category / Liability 2016 2017 Percentage
variation of
Borrowings Other Total Borrowings Other Total total
liabilities liabilities liabilities liabilities liabilities
1 2 3 4 5 6 7 8
Asset finance company 1,189 380 1,569 1,167 410 1,576 0.4
IDF-NBFC 49 17 67 98 22 120 79.1
NBFC-IFC 4,593 973 5,566 4,668 1,157 5,825 4.7
Investment company 1,025 1,029 2,054 1,039 1,154 2,193 6.8
NBFC-MFI 413 156 569 400 204 604 6.2
Loan company 3,402 1,605 5,007 4,545 2,053 6,598 31.8
Total 10,671 4,160 14,832 11,917 5,000 16,917 14.1
Category / Asset Loans & Investments Total Loans & Investments Total Percentage
advances assets advances assets variation of
total assets
Asset finance company 1,390 44 1,569 1,325 104 1,576 0.4
IDF-NBFC 36 28 67 81 33 120 79.1
NBFC-IFC 5,167 114 5,566 5,287 132 5,825 4.7
Investment company 365 1,302 2,054 532 1,262 2,193 6.8
NBFC-MFI 422 27 569 400 61 604 6.2
Loan company 3,660 657 5,007 4,771 963 6,599 31.8
Total 11,039 2,172 14,832 12,396 2,555 16,917 14.1
Source: RBI Supervisory Returns.
VII.21 The CRAR of NBFCs-ND-SI was well all categories as of March 2017. The overall
above the stipulated norm for the sector across CRAR, however, showed a marginal decline from
Table VII.9: Sources of Borrowings Table VII.10: Financial Performance of
of NBFCs-ND-SI NBFCs-ND-SI
(End-March) (Amount in ` billion)
(Amount in ` billion)
Items 2013-14 2014-15 2015-16 2016-17
Items 2014 2015 2016 2017 Percentage 1 2 3 4 5
variation
A. Income (i+ii) 1,443 1,702 1,785 1,909
2015- 2016- (i) Fund-based 1,409 1,662 1,736 1,847
16 17 (ii) Fee-based 34 40 49 61
1 2 3 4 5 6 7 B. Expenditure (i+ii+iii) 1,071 1,257 1,343 1,498
(i) Financial 775 900 913 958
1. Debentures 4,212 5,287 4,855 5,795 -8.2 19.4
Of which
2. Bank 2,377 2,541 2,716 2,527 6.9 -7.0 Interest payment 327 374 387 441
borrowings (ii) Operating 155 182 232 280
3. Borrowings 145 144 159 263 10.4 65.4 (iii) Others 142 175 199 260
from FIs
C. Tax provisions 101 128 124 147
4. Inter- 253 279 356 404 27.6 13.5
D. Operating profit 371 446 441 410
corporate
E. Net profit 270 318 318 263
borrowings
F. Total assets 12,742 15,232 14,832 16,917
5. Commercial 417 549 786 1,119 43.2 42.4
G. Financial ratios (as per cent to total assets)
paper
(i) Income 11.3 11.2 12.0 11.3
6. Borrowings 100 185 195 193 5.4 -0.9
from (ii) Fund income 11.1 10.9 11.7 10.9
government (iii) Fee income 0.3 0.3 0.3 0.4
7. Subordinated 233 273 304 333 11.4 9.5 (iv) Expenditure 8.4 8.3 9.1 8.9
debts (v) Financial expenditure 6.1 5.9 6.2 5.7
8. Other 1,178 1,593 1,299 1,283 -18.5 -1.2 (vi) Operating expenditure 1.2 1.2 1.6 1.7
borrowings (vii) Tax provision 0.8 0.8 0.8 0.9
9. Total 8,916 10,853 10,671 11,917 -1.7 11.7 (viii) Net profit 2.1 2.1 2.1 1.6
borrowings H. Cost to income ratio 74.3 77.8 75.3 78.5
Source: RBI Supervisory Returns. Source: RBI Supervisory Returns.
145Report on Trend and Progress of Banking in India 2016-17
the previous year’s level with infrastructure debt new private banks emerged as the largest lender
fund – NBFCs (IDF-NBFCs), Investment to NBFCs-ND-SI replacing nationalised banks.
Companies (ICs) and LCs having expanded their NBFCs-ND-SI borrow from banks primarily in the
loan portfolios considerably during the year form of term loans and debentures. Traditional
(Chart VII.8). lenders, nationalised banks, largely lent in the
form of term loans, while new private banks lent
Banks’ Exposure to NBFCs-ND-SI
through debentures indicating their expectations
VII.22 Borrowings from banks accounted for 21
of capital gains in the monetary easing phase
per cent of NBFCs-ND-SI borrowings. Group-wise,
(Table VII.11).
Table VII.11: Bank Exposure to
NBFCs-ND-SI Sector
(End-March 2017)
(` billion)
Bank group Term Working Deben- Com- Others Total
loans capital tures mercial
loans paper
1 2 3 4 5 6 7
A. Nationalised 936 10 415 157 147 1,665
banks
B. The State 330 521 3 179 1 1,034
Bank Group
C. Old private 281 31 2 0 0 313
banks
D. New private 447 103 954 204 106 1,814
banks
E. Foreign 67 3 6 92 3 170
banks
All banks 2,060 668 1,381 631 257 4,996
Source: RBI Supervisory Returns.
146Non-Banking Financial Institutions
Table VII.12: Ownership Pattern of NBFCs-D
(End-March)
(Amount in ` billion)
Type 2014 2015 2016 2017 P
Number Asset size Number Asset size Number Asset size Number Asset size
1 2 3 4 5 6 7 8 9
A. Government companies 5 251 5 271 5 285 2 273
B. Non-government companies (1+2) 210 1,506 195 1,781 169 2,114 123 2,482
1. Public ltd. companies 5 1 4 0.2 3 0.2 2 0.2
2. Private ltd. companies 205 1,505 191 1,781 166 2,114 121 2,482
Total (A+B) 215 1,757 200 2,052 174 2,399 125 2,755
P: Provisional.
Source: RBI Supervisory Returns.
Deposit-taking NBFCs Category-wise Key Indicators of NBFCs-D
VII.23 NBFCs-D accounted for 14.0 per cent of VII.25 There are three categories of NBFCs-D –
total assets and 16.2 per cent of the total credit AFCs, LCs and ICs, the last one being negligible
deployed by NBFCs at the end of March 2017. in terms of balance sheet size. Category-wise,
NBFCs-D are allowed to accept fixed deposits from deposits of AFCs shrank during the year reflecting
the public for a tenure of 12 to 60 months. both a decline in the number of companies under
Deposits constituted 11.1 per cent of NBFCs-D this category as well as a reduction in the limit for
funds as of end-March 2017; however, borrowings
Table VII.13: Consolidated Balance
(debentures, bank borrowings and CPs) remained
Sheet of NBFCs-D
the largest source of funds with a share of 66.7
(End-March)
per cent in total funds. The assets of non- (Amount in ` billion)
government-owned NBFCs increased in 2016-17
Items 2016 2017 Percentage
while those of government-owned NBFCs variation
1 2 3 4
contracted (Table VII.12).
1. Share capital 35 33 -5.7
Balance Sheet 2. Reserves and surplus 343 380 10.8
3. Public deposits 271 306 12.9
VII.24 The consolidated balance sheet of NBFCs-D 4. Debentures 539 668 23.9
expanded in 2016-17 on the back of robust credit 5. Bank borrowings 660 614 -7.0
6. Borrowings from FIs 23 31 34.8
growth as well as strong investments as NBFCs
7. Inter-corporate borrowings 6 14 133.8
searched for yields (Table VII.13). Credit was 8. Commercial paper 66 148 124.4
9. Borrowings from government 30 0 -100.0
mainly extended to transport operators, consumer
10. Subordinated debts 88 119 35.2
durables, and medium and large industries
11. Other borrowings 179 246 37.4
sectors. Among liabilities, the expansion was 12. Current liabilities 79 95 20.3
13. Provisions 79 103 30.4
mainly in debentures, public deposits and CPs.
Total liabilities/assets 2,399 2,755 14.8
There was a gradual decline in bank borrowings 1. Loans and advances 2,073 2,405 16.0
as NBFCs-D diversified their sources of funds in 2. Hire purchase and lease assets 45 44 -2.2
3. Investments 92 125 35.9
favour of market-based instruments. Debentures
4. Cash and bank balances 100 88 -12.0
emerged as the largest source of funding for 5. Other assets 90 92 2.2
NBFCs-D.
P: Provisional.
Source: RBI Supervisory Returns.
147Report on Trend and Progress of Banking in India 2016-17
Table VII.14: Major Components of Liabilities and Assets of NBFCs-D by Classification of NBFCs
(End-March)
(Amount in ` billion)
Items Asset finance companies Loan companies Total
2014 2015 2016 2017 P 2014 2015 2016 2017 P 2014 2015 2016 2017 P
1 2 3 4 5 6 7 8 9 10 11 12 13
No. of companies 166 159 137 90 49 41 37 25 215 200 174 115
Deposits 24 60 68 58 107 145 203 248 131 205 271 306
Borrowings 759 841 932 1,059 464 536 660 780 1,223 1,378 1,592 1,838
Total liabilities / assets 1,020 1,172 1,313 1,471 714 847 1,077 1,283 1,734 2,019 2,390 2,754
Total advances 796 961 1,136 1,256 576 720 938 1,149 1,372 1,681 2,073 2,405
Investments 52 59 49 56 18 25 36 69 70 85 86 125
P: Provisional.
Note: Excluding investment companies.
Source: RBI Supervisory Returns.
acceptance of deposits for rated AFCs from 4 times a minimum investment grade rating for NBFCs-D
to 1.5 times of NOF as part of harmonisation of from March 2016 to ensure that only sound and
limits across all NBFC-D. The growth in LCs’ well-managed entities can accept public deposits.
deposits decelerated to 22.2 per cent in 2016-17 Consequently, the number of NBFCs-D declined
while borrowings increased at a faster pace to with many of them converting to non-deposit
finance credit. In terms of assets, credit constituting taking NBFCs. As a result, their deposit growth
87.3 per cent of total assets showed strong growth, decelerated from 32.2 per cent in 2015-16 to
albeit some deceleration was seen over the 12.9 per cent in 2016-17 (Chart VII.9A).
previous year (Table VII.14). Accordingly, the ratio of NBFCs’ public deposits
to aggregate deposits of scheduled commercial
NBFCs-D Deposits
banks (SCBs) declined marginally in 2016-17,
VII.26 The Reserve Bank has not issued any new after witnessing increases in the previous three
CoR for NBFC-D since 1997. It has also mandated years (Chart VII.9B).
148Non-Banking Financial Institutions
Financial Performance Table VII.15: Financial Ratios of NBFCs-D
(End-March)
VII.27 NBFCs-D income increased by 12.3 per (Per cent to total assets)#
cent in 2016-17 whereas their expenditure
Items 2014 2015 2016 2017 P
grew at a higher pace of 13.7 per cent on
1 2 3 4 5
account of both operating expenses and interest
1. Income 15.4 14.9 14.9 14.6
payments. As a result, the growth in the net 2. Fund income 15.3 14.8 14.7 14.4
profits of NBFCs-D moderated during the year 3. Fee income 0.1 0.2 0.1 0.1
4. Expenditure 11.8 11.6 11.9 11.8
(Chart VII.10).
5. Financial expenditure 7.5 7.2 6.9 6.7
6. Operating expenditure 3.2 3.1 3.3 3.3
VII.28 The cost to income ratio of NBFCs-D has
7. Tax provision 1.1 1.0 0.9 1.0
been rising from 2013-14, reflecting a decline in
8. Net profit 2.5 2.3 2.0 1.8
operational efficiency. Their RoA has also declined 9. Return on assets 2.5 2.3 2.1 1.9
in recent years in the wake of slowdown in revenue 10. Cost to income ratio 76.6 77.9 79.8 80.7
growth in a competitive lending rate environment, P: Provisional.
#: For items 1 to 9.
coupled with downward trend in interest rates Note: Numbers may not add up due to rounding-off.
Source: RBI Supervisory Returns.
(Table VII.15).
Soundness Indicators progressive harmonisation of NPA norms vis-à-vis
banks (Chart VII.11).
VII.29 GNPAs of NBFCs-D have shown a rising
trend since 2010-11, reflecting a combination of VII.30 Accretion to NPAs was reported
factors including the slowdown in economic under commercial vehicle and tractor loans.
activity and sector-specific developments such as Category-wise, the deterioration was more
deterioration of asset quality with respect to pronounced in respect of AFCs, which have the
transport operators and construction sectors. The maximum exposure to vehicle and tractor loans
recent increase may partly be attributed to the (Chart VII.12).
149Report on Trend and Progress of Banking in India 2016-17
Residuary Non-Banking Companies
VII.32 The principal business of Residuary Non-
Banking Companies (RNBCs) is collecting deposits
and deploying them as specified by the Reserve
Bank. As of March 2015, only two RNBCs were
registered with the Reserve Bank. In September
2015, the registration of Sahara India Financial
Corporation Limited was cancelled. Both the
RNBCs have stopped accepting deposits and are
in the process of repaying old deposits.
VII.33 Overall, the NBFC sector’s balance sheet
expanded on strong credit growth as it filled the
financing gap due to a slowdown in bank credit.
Credit to commercial real estate, micro and small-
scale enterprises, and consumer durables
increased significantly during the year. Deposit
mobilisation decelerated in response to regulatory
VII.31 The CRAR of NBFCs-D has been declining
initiatives. There was some deterioration in asset
since 2013-14 with the expansion of their credit
quality, which was mainly due to harmonisation
portfolios as well as deterioration in asset quality
of regulations vis-à-vis the banking system and
(Chart VII.13). Nevertheless, the CRAR of NBFCs-D
the transitory impact of demonetisation. NBFCs’
was comfortably above the stipulated norm of 15
capital position remained above the regulatory
per cent.
minimum in 2016-17 although there was a modest
depletion relative to a year ago on account of
enhanced provisions for asset impairment.
III. Payments Banks
VII.34 Payments banks (PBs) were set up in India
on the recommendations of the Committee on
Comprehensive Financial Services for Small
Businesses and Low Income Households
(Chairman: Shri Nachiket Mor, 2014) with the
aim of expanding financial inclusion by providing
(i) small savings accounts, and (ii) payments/
remittance services using the digital medium to
to migrant labour, small businesses, low income
households and other entities in the unorganised
sector. PBs are allowed to accept demand
deposits up to ` one lakh per customer; they are
prohibited from issuing credit cards or accepting
150Non-Banking Financial Institutions
Table VII.16: Brief Profile of Payments Banks
Stage Airtel PB India Post PB Paytm PB Fino PB Aditya Birla NSDL PB Jio PB
Idea PB
1 2 3 4 5 6 7 8
Date of issuing license 11-04-2016 20-01-2017 03-01-2017 30-03-2017 03-04-2017 30-03-2017 27-01-2017
Date of start of operations 23-11-2016 30-01-2017 23-05-2017 30-06-2017 Yet to start operations
Source: RBI.
deposits from non-resident Indians or undertaking
lending activities. These banks are covered by
deposit insurance from the Deposit Insurance
and Credit Guarantee Corporation (DICGC).
VII.35 The Reserve Bank began issuing PB
licenses in 2015-16. So far, seven licenses have
been issued out of which two banks – Airtel
Payments Bank and India Post Payments Bank –
had commenced operations before March 31,
2017 and two others – Paytm and Fino – had
started operations by the quarter ending-June
2017 (Table VII.16).
Balance Sheet
VII.36 At end-March 2017, the capital and
reserves of the two PBs in operation were the
major liabilities with their deposits being only
5.7 per cent. Balances with banks and money at
VII.39 A more realistic assessment of PBs’
call / short notice constituted two-third of their
financial and operational performance will be
assets while investments constituted the
possible once more data are available and as these
remaining one-third. The asset composition
banks expand their operations.
reflects the nature of their operations as they are
not permitted to undertake lending activities Table VII.17: Select Financial Parameters of
Payments Banks
(Chart VII.14).
(End-March 2017)
Financial Performance (` million)
Items Amount
VII.37 PBs’ profit after tax and earning before
1 2
provisions and taxes (EBPT) were negative in
1. Interest income 314
2016-17 mainly due to large expenses on creating 2. Interest expenses 7
new infrastructure in the initial stages of their 3. Net interest income (1-2) 307
4. Non-interest income 1,086
operations (Table VII.17).
5. Operating expenses 3,800
6. Earnings before provisions and taxes (3+4-5) -2,407
VII.38 The impact of the starting-up expenditure
7. Risk provisions 4
was reflected in the negative readings of RoA and 8. Tax provisions 11
9. Profit after tax (6-7-8) -2,422
RoE, notwithstanding a positive net interest
margin (Table VII.18). Source: RBI Supervisory Returns.
151Report on Trend and Progress of Banking in India 2016-17
Table VII.18: Select Financial Ratios of Payments Banks
(End-March 2017)
(Per cent)
Items Return on Return on Investments to Net interest Efficiency Operating Profit margin
assets equity total assets margin (cost income profit to working
ratio) funds
1 2 3 4 5 6 7 8
Ratios -25.2 -36.4 29.2 2.8 272.7 -25.1 -172.9
Source: RBI Supervisory Returns.
IV. All India Financial Institutions Table VII.19: Ownership Pattern of AIFIs
(End-March 2017)
VII.40 There are three broad categories of non- (Per cent)
bank financial institutions: First, term-lending Institution Owner Ownership share
institutions such as the Export Import Bank of
1 2 3
India (EXIM Bank) that engage in direct lending
EXIM Bank Government of India 100.0
by way of term loans and investments. Second,
NABARD Government of India 99.6
institutions such as the National Bank for Reserve Bank of India 0.4
NHB Reserve Bank of India 100.0
Agriculture and Rural Development (NABARD),
SIDBI * Public Sector Banks 61.6
the Small Industries Development Bank of India Insurance Companies 18.5
(SIDBI) and the National Housing Bank (NHB), Financial Institutions 4.5
Others 15.4
which mainly extend refinance to banks and
*: State Bank of India (16.7 per cent), IDBI Bank Ltd. (16.3 per cent)
NBFIs. Third, investment institutions such as the
and Government of India (15.4 per cent) are SIDBI’s three major
shareholders.
Life Insurance Corporation of India (LIC), which
deploy their funds largely in marketable securities.
activity while those by the EXIM Bank declined
State/regional level institutions are another
due to deleveraging in view of bad assets and
distinct group and comprise State Financial
provisioning requirements. The increase in
Corporations (SFCs), State Industrial and
disbursements by the NABARD and the NHB
Development Corporations (SIDCs) and North-
reflects resilience in the agriculture and housing
Eastern Development Finance Corporation Ltd.
sectors (Table VII.20) (Appendix Table VII.2).
(NEDFi).
Table VII.20: Financial Assistance Sanctioned
VII.41 Four AIFIs viz., the EXIM Bank, the and Disbursed by AIFIs
(` billion)
NABARD, the NHB and the SIDBI, are under the
oversight of the Reserve Bank (Table VII.19). Category 2015-16 2016-17 P
AIFIs’3 Operations S D S D
1 2 3 4 5
VII.42 Financial assistance sanctioned by AIFIs
SIDBI 561 559 406 395
during 2016-17 increased by 15.7 per cent NABARD 1,695 1,582 2,401 1,977
NHB 357 219 379 234
whereas their disbursement growth was moderate
EXIM Bank 753 552 709 531
at 7.7 per cent amidst sluggish demand conditions. Total 3,366 2,912 3,895 3,137
Notably, disbursements by the SIDBI contracted
P: Provisional; S: Sanction; D: Disbursement
during the year indicating moderation in industrial Source: Respective financial institutions.
3 The financial year for EXIM Bank, SIDBI and NABARD runs from April to March and for NHB it runs from July to June.
152Non-Banking Financial Institutions
Balance sheet limit’ for raising resources from the money market
as compared to 71 per cent a year ago. Mobilisation
VII.43 AIFIs’ consolidated balance sheet expanded
through CPs increased significantly, reflecting
during 2016-17 on the back of loans and advances,
competitive interest rates on these instruments
which constituted the largest share of assets (Table
(Table VII.22).
VII.21). Investments contracted in contrast, with
the NHB showing a significant decline due to Sources and Uses of Funds
redemption of treasury bills (T-bills) in June 2017.
VII.45 During the year, internal sources of funds
Notably, AIFIs’ cash and bank balances at the close
increased with scaling up of operations as well as
of 2016-17 were 30 per cent lower than a year ago
higher capital and reserves. External sources,
as they did not renew their fixed deposits with
which include resources raised from the market
banks that matured towards the end of the year
and capital infusion from the government,
and instead used them for normal business
increased marginally (Table VII.23). The
activities. Growth in deposit mobilisation was
deployment of resources during 2016-17 indicates
moderate leading to a decline in their share in
a preference for investments followed by fresh
total liabilities over the year. On the other hand,
deployment and repayment of past borrowings.
resources raised through borrowings expanded
The share of interest payments in the deployment
sizeably during the year.
of funds has declined in 2016-17.
VII.44 The resources mobilised by the AIFIs
Maturity and Cost of Borrowings and Lending
picked up during 2016-17 resulting in the
VII.46 The weighted average cost (WAC) of rupee
utilisation of about 83 per cent of their ‘umbrella
resources raised by AIFIs declined in 2016-17 for
Table VII.21: AIFIs’ Balance sheet all AIFIs with faster transmission of monetary
(Amount in ` billion)
policy accommodation. The weighted average
Items 2015-16 2016-17 Percentage maturity (WAM) of rupee resources increased for
variation
1 2 3 4 Table VII.22: Resources Raised by
Liabilities AIFIs from the Money Market
1. Capital 136 155 14.0 (End-March)#
(2.4) (2.6)
(Amount in ` billion)
2. Reserves 435 490 12.6
(7.8) (8.1)
Instrument 2015-16 2016-17
3. Bonds and debentures 1,386 1,472 6.2
(24.7) (24.4) 1 2 3
4. Deposits 2,387 2,467 3.4
A. Total 475 613
(42.5) (40.9)
(i) Term deposits 12 24
5. Borrowings 741 898 21.2
(13.2) (14.9) (ii) Term money 15 22
(iii) Inter-corporate deposits 0 0
6. Other liabilities 528 552 4.5
(9.4) (9.1) (iv) Certificate of deposits 139 125
Total liabilities/assets 5,613 6,034 7.5 (v) Commercial paper 308 442
Memo:
Assets
B. Umbrella limit 672 742
1. Cash and bank balances 273 193 -29.3
(4.9) (3.2) C. Utilisation of umbrella limit 70.7 82.6
(A as percentage of B)
2. Investments 422 408 -3.3
(7.5) (6.8)
#: End-June for NHB.
3. Loans and advances 4,762 5,283 10.9 Note: AIFIs are allowed to mobilise resources within the overall ‘umbrella
(84.8) (87.6) limit’, which is linked to the net owned funds (NOF) of the financial
4. Other assets 157 150 -4.5 institution concerned as per its latest audited balance sheet. The
(2.8) (2.5) umbrella limit is applicable for five instruments – term deposits,
term money borrowings, certificates of deposits (CDs), commercial
Note: Figures in parentheses are percentages to total liabilities / assets. papers (CPs) and inter-corporate deposits.
Source: Audited OSMOS returns. Source: Respective financial institutions.
153Report on Trend and Progress of Banking in India 2016-17
Table VII.23: Pattern of AIFIs’ Sources and
Deployment of Funds
(Amount in ` billion)
Items 2015-16 2016-17
1 2 3
A. Sources of funds
(i) Internal 7,584 11,331
(60.7) (67.2)
(ii) External 3,146 4,374
(25.2) (26.0)
(iii) Others* 1,754 1,148
(14.0) (6.8)
Total 12,484 16,853
(100) (100)
B. Deployment of funds
(i) Fresh deployment 2,706 3,175
(21.7) (18.8)
(ii) Repayment of past borrowings 2,125 2,217
(17.0) (13.2)
(iii) Other deployment 7,653 11,460
(61.3) (68.0)
Of which, Interest payments 253 296
(2.0) (1.8)
Total 12,484 16,853
(100) (100) Financial Performance
*: Includes cash and balances with banks and the Reserve Bank of VII.48 AIFIs posted a modest growth in income
India.
Note: Figures in parentheses are percentages to total. during the year, partly reflecting the impact of
Source: Respective financial institutions.
declining interest rates, lower bank balances and
subdued activity under bill discounting /
the NHB and the EXIM Bank while it declined for
rediscounting. Non-interest income showed strong
the SIDBI and the NABARD. The EXIM Bank had
growth (Table VII.25).
the highest WAC of rupee resources while the NHB
had the longest WAM (Table VII.24). Table VII.25: Financial Performance of
Select AIFIs
VII.47 The long-term prime lending rate (PLR) of
(Amount in ` billion)
all AIFIs declined in 2016-17 reflecting a reduction
Item 2015-16 2016-17 Variation
in the cost of funds for the borrowers. The SIDBI
Amount Per cent
and the NHB had the highest and the lowest PLRs,
1 2 3 4 5
respectively (Chart VII.15).
A. Income 395 424 29 7.3
(a) Interest income 386 409 23 6.0
Table VII.24: Weighted Average Cost and (97.6) (96.5)
Maturity of Rupee Resources Raised by AIFIs (b) Non-interest income 9 15 6 66.7
(2.4) (3.5)
Institution Weighted Weighted B. Expenditure 301 326 25 8.3
average cost average maturity (a) Interest expenditure 279 298 19 6.8
(Per cent) (Years) (92.6) (91.3)
(b) Operating expenses 22 28 6 27.3
2015-16 2016-17 2015-16 2016-17 (7.3) (8.7)
1 2 3 4 5 Of which, Wage bill 15 21 6 40.0
1. SIDBI 7.55 6.54 1.13 0.51 C. Provisions for taxation 22 26 4 18.2
D. Profit
2. NABARD 8.41 7.89 2.27 1.78
Operating profit 70 73 3 4.3
3. NHB 6.32 6.17 4.10 4.62
Net profit 48 47 -1 -2.1
4. EXIM Bank 8.69 8.12 3.33 3.55
Note: Figures in parentheses are percentages to total income/expenditure.
Source: Respective financial institutions. Source: Audited OSMOS returns.
154Non-Banking Financial Institutions
Table VII.26: AIFIs’ Financial Ratios
(Per cent)
Financial Ratios* 2015-16 2016-17
1 2 3
1. Operating profit 1.3 1.7
2. Net profit 0.9 0.8
3. Income 7.5 7.4
4. Interest income 7.3 7.1
5. Other income 0.1 0.3
6. Expenditure 5.7 5.7
7. Interest expenditure 5.3 5.2
8. Other operating expenses 0.4 0.5
9. Wage bill 0.3 0.4
10. Provisions 0.5 0.4
*:- As percentage of total average assets.
Source: Respective financial institutions.
VII.49 Although the operating profit ratio
improved, relatively higher growth in the wage bill
moderated net profits (Table VII.26).
VII.50 Net profit per employee declined across Soundness Indicators
AIFIs in 2016-17 except for NABARD where it
VII.51 The total amount of AIFIs’ net NPAs
remained unchanged. The SIDBI registered the
increased during 2016-17 on account of the EXIM
highest net profit per employee while the EXIM
Bank’s reduction in the provisioning coverage
Bank reported the lowest (Table VII.27). Barring
ratio (PCR) even as the other AIFIs’ net NPAs
the NHB, the ratio of operating profits to average
declined during the year (Table VII.28).
working funds of AIFIs declined, indicating loss
of efficiency in the use of working capital. As a VII.52 The share of AIFIs’ standard assets
result, AIFIs reported lower RoA during 2016-17; declined in 2016-17 again on account of the EXIM
it was the highest for SIDBI and the lowest for Bank (Table VII.29).
EXIM Bank (Chart VII.16).
Table VII.28: AIFIs’ Net NPAs
Table VII.27: AIFIs’ Select Financial Parameters (Amount in ` billion)
Institution Interest Non-interest Operating Net profit Institution Net NPAs Net NPAs / net loans
income/ income/ profit/ per employee (Per cent)
average average average (` million)
working working working 2015-16 2016-17 2015-16 2016-17
funds funds funds 1 2 3 4 5
(Per cent) (Per cent) (Per cent)
EXIM Bank 8.5 48.0 0.9 4.7
2015- 2016- 2015- 2016- 2015- 2016- 2015- 2016-
NABARD 0.2 0.0 0.01 0.00
16 17 16 17 16 17 16 17
NHB 0.3 0.0 0.3 0.00
1 2 3 4 5 6 7 8 9
SIDBI 4.8 3.0 0.7 0.4
EXIM 7.8 7.3 0.5 0.7 2.4 2.1 9.7 1.2
NABARD 6.9 6.8 0.1 0.1 1.3 1.2 6.0 6.0 All FIs 14.1 51.0 0.3 1.0
NHB 7.8 7.4 0.1 0.4 2.4 2.6 7.5 7.2
SIDBI 8.3 7.6 0.4 0.4 2.8 2.2 11.1 9.6 Note: Data relate to end-March for EXIM Bank, NABARD and SIDBI
and end-June for NHB.
Source: Respective financial institutions. Source: Respective financial institutions.
155Report on Trend and Progress of Banking in India 2016-17
Table VII.29: AIFIs’ Assets Classification Operations and Performance of PDs
(Per cent)
VII.55 PDs have mandatory obligations to
Category 2015-16 2016-17 participate in underwriting and auctions of
1 2 3
government dated securities. They are also
Standard 98.9 98.0
mandated to achieve a minimum success ratio
Sub-standard 0.4 0.8
(bids accepted to the bidding commitment) of 40
Doubtful 0.7 1.2
per cent in primary auctions of T-bills and Cash
Loss 0.0 0.0
Management Bills (CMBs), assessed on a half-
Total 100.0 100.0
yearly basis.
Note: Data relate to end-March for EXIM Bank, NABARD and SIDBI
and end-June for NHB. VII.56 During 2016-17, the government auctioned
Source: Respective financial institutions.
dated securities of `5,820 billion, marginally
lower than `5,850 billion during the previous
VII.53 AIFIs reported a marginal improvement in
year. PDs’ share of subscriptions in the primary
CRAR at the aggregate level even as they exceeded
issuance of dated securities declined during
the stipulated minimum of 9 per cent. Institution-
2016-17. Partial devolvement took place on four
wise, CRARs of EXIM Bank and NABARD
instances for `53 billion during 2016-17 as
improved over the year while they declined
against seven instances for `110 billion in
marginally for the others (Chart VII.17).
2015-16. The underwriting commission paid to
PDs during 2016-17 was lower at `356.6 million
V. Primary Dealers
as compared to `470.9 million in the previous
VII.54 As on March 31, 2017, there were 21 year. Reflecting the lower devolvement during the
primary dealers (PDs) – 14 run by banks and 7 year, the average rate of underwriting commission
standalone PDs registered as NBFCs under in 2016-17 declined on a year-on-year basis
Section 45 IA of the RBI Act, 1934. (Chart VII.18).
156Non-Banking Financial Institutions
VII.57 With respect to auctions of T-bills and Table VII.31: Performance of SPDs in the
CMBs, all PDs achieved the stipulated minimum G-secs Secondary Market
(Amount in ` billion)
success ratio. PDs placed higher bids (in relation
to their bidding commitments) in 2016-17; their Items 2013-14 2014-15 2015-16 2016-17
share in subscription of T-Bills / CMBs issued 1 2 3 4 5
during the year, however, declined marginally to Outright
Turnover of SPDs 31,914 37,943 33,021 52,365
74 per cent from 75 per cent in the previous year
Market turnover 89,567 101,561 97,285 168,741
(Table VII.30). Share of SPDs (Per cent) 35.6 37.4 33.9 31.0
Repo
VII.58 In the secondary market, all the 21 PDs
Turnover of SPDs 19,744 28,198 39,558 36,586
individually achieved the required minimum Market turnover 72,281 78,752 86,217 118,350
Share of SPDs (Per cent) 27.3 35.8 45.9 30.9
annual total turnover (outright and repo
Total (Outright + Repo)
transactions) ratio of 5 times in G-secs and 10
Turnover of SPDs 51,658 66,141 72,579 88,951
times in T-bills during 2016-17 and also the Market turnover 161,848 180,314 183,502 287,091
minimum annual outright turnover ratio of 3 times Share of SPDs (Per cent) 31.9 36.7 39.5 31.0
in G-secs and 6 times in T-bills. Notes: 1. Total turnover for market participants for outright and repo
trades includes one side quantity that is, buy or sell.
2. Total turnover for standalone PDs for outright and repo trades
Performance of Standalone PDs
includes both sides quantity that is, buy + sell.
3. In case of repo, only 1st leg is considered for SPDs’ turnover.
VII.59 The secondary market volume of 4. Market turnover includes standalone PDs turnover for both
outright and repo volume.
standalone primary dealers (SPDs) increased by Source: Clearing Corporation of India Ltd.
22.6 per cent in 2016-17 over 2015-16. Yet, their
share in total market turnover declined over the
Sources and Application of SPDs’ Funds
year partly due to a reduction in government
borrowings (Table VII.31).
VII.60 Funds mobilised by SPDs shrank by about
18.5 per cent during 2016-17 mainly reflecting
Table VII.30: Performance of PDs in lower recourse to market repo. Nevertheless,
the Primary Market
borrowings remained the major source of their
(Amount in ` billion)
funding accounting for 83.7 per cent of the total
Items 2013-14 2014-15 2015-16 2016-17 sources of funds as compared to 88.1 per cent
1 2 3 4 5
at the end of the previous year. Unsecured loans
Treasury bills and CMBs
increased during the year reflecting higher access
(a) Bidding commitment 8,299 8,671 8,833 8,340
to call money market. The decline in funds
(b) Actual bids submitted 17,994 19,512 25,020 32,365
(c) Bid to cover ratio 2.6 2.7 3.5 3.9 mobilised is attributable to a contraction of
(d) Bids accepted 4,990 5,657 5,460 4,946 current assets during 2016-17 owing to reduction
(e) Success ratio (d) / (a) 60.1 65.2 61.8 59.3 in market borrowings by the government during
(in Per cent)
the last quarter of the year (Table VII.32).
Central government dated securities
(a) Notified amount 5,570 5,920 5,850 5,820
SPDs’ Financial Performance
(b) Actual bids submitted 8,861 10,830 12,151 12,573
(c) Bid to cover ratio 1.6 1.8 2.1 2.2
VII.61 SPDs’ profit after tax improved significantly
(d) Bids of PDs accepted 2,576 3,012 3,148 2,763
(e) Share of PDs (d) / (a) 46.3 50.9 53.8 47.5 in 2016-17 on account of favourable yields, with
(Per cent)
all seven SPDs posting substantially higher profits
Source: Returns filed by PDs.
than the previous year (Appendix Table VII.3).
157Report on Trend and Progress of Banking in India 2016-17
Table VII.32: Sources and Applications of SPDs’ Funds
(Amount in ` billion)
Items 2013-14 2014-15 2015-16 2016-17 Percentage variation
2015-16 over 2014-15 2016-17 over 2015-16
1 2 3 4 5 6 7
Sources of Funds
1. Capital 16 15 15 15 0.0 0.0
2. Reserves and surplus 28 30 31 36 3.3 16.1
3. Loans (a+b) 196 285 338 261 18.6 -22.8
(a) Secured 149 231 248 154 7.4 -37.9
(b) Unsecured 47 54 90 107 66.7 18.9
Total 239 330 383 312 16.1 -18.5
Application of Funds
1. Fixed assets 0.3 0.3 0.3 0.4 0.0 33.3
2. HTM investments (a+b) 26 14 20 15 42.9 -25.0
(a) Government securities 26 14 20 15 42.9 -25.0
(b) Others 0.03 0.03 0.02 0.02 -33.3 0.0
3. Current assets 235 326 432 318 32.5 -26.4
4. Loans and advances 5 8 8 10 0.0 25.0
5. Current liabilities -28 -18 -77 -31 327.8 -59.7
6. Deferred tax 0.08 0.08 0.03 -0.31 -62.5 -1133.3
7. Others 0.00 0.00 0.00 -0.06 - -
Total 239 330 383 312 16.1 -18.5
Source: Returns submitted by PDs.
Their income rose due to a significant increase in Reflecting improvement in operational efficiency,
trading profits while their expenditure posted a the cost-income ratio of these PDs also improved
marginal decline (Table VII.33). during the year (Table VII.34).
VII.62 In line with the increase in PAT, SPDs’ VII.63 The combined CRAR of standalone PDs
return on net worth increased in 2016-17. improved during 2016-17 and remained
Table VII.33: Financial Performance of SPDs
(Amount in ` billion)
Items 2013-14 2014-15 2015-16 2016-17 Variation
2015-16 over 2014-15 2016-17 over 2015-16
Amount Per cent Amount Per cent
1 2 3 4 5 6 7 8 9
A. Income (i to iii) 28 32 30 42 -2 -6.3 12 40.0
(i) Interest and discount 20 24 27 27 2 12.5 1 0.0
(ii) Trading profits 6 8 3 14 -5 -62.5 11 366.7
(iii) Other income 2 1 1 1 0 0.0 0 0.0
B. Expenses (i to ii) 19 23 25 24 2 8.7 0 -4.0
(i) Interest 17 20 22 21 2 10.0 -1 -4.5
(ii) Other expenses including establishment 2 3 3 3 0 0.0 0 0.0
and administrative costs
C. Profit before tax 4 9 5 18 -4 -44.4 13 260.0
D. Profit after tax 6 6 3 12 -3 -50.0 8 300.0
Note: Figures may not add up due to rounding-off.
Source: Returns submitted by PDs.
158Non-Banking Financial Institutions
Table VII.34: SPDs’ Financial Indicators VI. Recent Developments
(Amount in ` billion)
VII.65 This section discusses developments in
Indicator 2013-14 2014-15 2015-16 2016-17
the NBFI sector during April-September 2017.4
1 2 3 4 5
In view of the limited availability of data for this
(i) Net profit 6 6 3 12
(ii) Average assets 291 359 413 444 period, the discussion is focussed on select
(iii) Return on average assets
1.9 1.7 0.8 2.6 variables.
(Per cent)
(iv) Return on net worth
13.0 13.6 7.5 22.8
(Per cent) NBFCs Sector
(v) Cost to income ratio 22.7 21.5 33.3 16.3
VII.66 NBFCs’ consolidated balance sheet in the
comfortably above the regulatory stipulation of 15 first half of 2017-18 expanded on the back of
per cent (Chart VII.19) (Appendix table VII.4). strong credit growth financed through higher
borrowings (Table VII.35).
VII.64 PDs’ share in the subscription of primary
issuances of dated securities declined in 2016-17 VII.67 NBFCs’ credit growth during April-
due to lower devolvement and increased appetite September 2017 was about seven percentage
from other market participants amidst reduction points higher than in the previous year on the back
in government borrowings and lower bank credit
of retail and services sectors (Chart VII.20).
off-take. The average underwriting commission
paid to PDs during the year also declined. Though VII.68 Disaggregation of credit extended by the
the share of SPDs declined in the total market NBFCs-ND-SI segment indicates a sharp growth
turnover, their net profits improved considerably in credit provided by LCs, followed by AFCs and
in 2016-17 on account of higher trading profits. ICs. LCs have relatively large exposure to
commercial real estate, which saw a sharp
increase in credit, signifying the revival of
economic activity. NBFCs-IFC credit growth, on
the other hand, remained subdued during the
first half of 2017-18 amidst asset quality
concerns in the sector. The share of retail and
Table VII.35: Abridged Balance Sheet of NBFCs
(Amount in ` billion)
Items End- Y-o-Y variation Financial year
Sept. (up to Sept.) variation
2017 (Apr-Sept.)
2016-17 2017-18 2016-17 2017-18
1 2 3 4 5 6
1. Borrowings 14,739 5.1 4.9 12.8 4.9
2. Loans and advances 15,821 7.6 14.9 13.5 7.3
3. Total assets/ liabilities 20,631 7.8 6.5 13.9 4.6
Source: RBI Supervisory Returns.
4 Analysis is based on the provisional data for April-September 2017.
159Report on Trend and Progress of Banking in India 2016-17
Table VII.36: Weighted Average Lending Rates
of Various Categories of NBFCs-ND-SI
(Per cent)
Categories Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep-
15 16 16 16 16 17 17 17
1 2 3 4 5 6 7 8 9
Infrastructure 12.3 12.1 12.0 12.0 12.0 11.6 11.4 11.1
finance
companies
Loan companies 14.3 13.9 14.7 14.3 14.1 13.9 13.1 11.5
Asset finance 13.6 13.5 13.5 13.2 13.0 12.8 12.6 12.4
companies
Investment 11.9 13.5 12.6 11.6 11.4 12.4 11.5 10.2
companies
NBFCs-MFI 19.0 20.6 22.4 22.1 20.5 21.1 20.5 21.3
NBFCs-ND-SI 13.6 13.2 14.1 13.7 13.4 13.2 11.9 11.6
Note: Core Investment Companies, NBFCs-Factor and IDF-NBFCs have
negligible share in credit deployment among NBFCs-ND-SI.
Source: RBI Supervisory Returns.
VII.70 NPAs of NBFCs-ND-SI, which recorded
services sectors improved during the first half of some deterioration in the quarter ending-June
2017-18 (Chart VII.21). 2017, improved at end-September 2017 partly
reflecting higher write-offs (Chart VII.22).
Lending rates of NBFCs-ND-SI
Payments Banks
VII.69 The weighted average lending rates (WALR)
of NBFCs-ND-SI have been declining in line with VII.71 Among the payments banks, Airtel PB
the monetary easing cycle across all categories became the first payments bank in India to
barring NBFCs-MFI which showed some uptick integrate the unified payments interface (UPI) on
in the WALR (Table VII.36). its digital platform. Jio Payments Bank, a joint
160Non-Banking Financial Institutions
venture of Reliance Industries Ltd. (RIL) and the developments indicate the potential role of
State Bank of India (SBI), is expected to begin payments banks in promoting financial inclusion
operations in December 2017. The government is in the country. New categories of NBFCs engaged
working on expanding India Post payments bank’s in P2P lending and account aggregation are
branches for reaching out to rural people. These expected to evolve over time (Box VII.2).
Box VII.2: Account Aggregator: A Cross-Country Analysis
An account aggregator (AA) is an entity that retrieves or information to the account aggregator in standardised format
collects information related to a customer’s financial assets (ASIC, 2001).
from the holders of such information and provides
In the US, aggregators are usually operated by banks, banks’
consolidated information to the customer or other users
agents, wealth managers and software companies such as
specified by the customer. In terms of the Reserve Bank’s
Yodlee, Mint, and Simple. Aggregators allow customers to
guidelines issued in September 2016, NBFC-AAs are
track their spending and saving patterns and manage bills
prohibited from undertaking any other business to support
and payments. The aggregators also analyse the financial
transactions by customers or from using the services of a
data to make recommendations of new products and services
third-party service provider for undertaking the business of
to customers (CMA, 2016).
account aggregation. AA’s utility was discussed in the Reserve
Bank’s Annual Report, 2015–16 (p.73). Somewhat similar In the UK, Citi Bank, Egg, and Money Supermarket started
services are already being provided in India by some account aggregation services in the early 2000s. They
companies such as Perfios in the form of financial data provided information on banking, credit cards, investments,
aggregation based on the application programme interface utilities, communication, travel, shopping and rewards.
(API). Initially, they used the screen scraping method but later
shifted to direct data feed.
Account aggregation was started in 1999 in USA by Vertical
In Canada, account aggregation services are provided by
One, which was subsequently merged with Yodlee. Business
subsidiaries of foreign firms such as Mint as well as banks
activity in this segment has been rising since then (ASIC,
(Gentzoglanis, op. cit.). Mostly, they offer API-based account
2001 and Fujii, et al. 2002). In this context, it is interesting
verification, account transactions (personal or business) and
to note the variations in the regulatory frameworks
balance verification. Aggregation services in Japan developed
prescribed and business models followed in different
around brokerage firms and the Nomura Research Institution
countries.
and Monex started these services (application service
The Consumer Financial Protection Bureau in the US implementation type) in 2001. In Hong Kong, account
released a set of consumer protection principles in October aggregation service is provided by authorised institutions
2017 to ensure only consumer-authorised usage of financial only in co-operation with affiliated banking institution(s),
data (CFPB, 2017). In Canada, financial institutions and which include overseas branches, local or overseas
independent companies provide aggregation service. Their subsidiaries or the parent bank. Aggregators offer services
activities are covered under different regulations and there such as balance enquiries, cross-fund transfers and
is no specific regulation for the aggregation activity securities trading activities (HKMA, 2010).
(Gentzoglanis, et al., 2014). In 2010, the Hong Kong
Cross-country experience indicates variety in the services
Monetary Authority prescribed principles and risk
offered by AAs and points to the fact that financial viability
management controls to be followed and put in place by
of account aggregation on a stand-alone basis could be a
institutions offering account aggregation services (HKMA,
challenge. The security and safety of consumers’ financial
2010).
data are key concerns in the evolution of the regulatory
regime and business models of account aggregators. India
Broadly, two distinct aggregation techniques are used for
being a cost-sensitive market, the fee charged by account
account aggregation – screen scraping and direct data feed.
aggregators for their services will be crucial in their growth.
In screen scraping, aggregator collects the information by
Fast growing Fintech is expected to provide a vantage to AAs
using the consumer’s username and password shared by the
in India. Going forward, the scope of expanding permissible
customer himself with the account aggregator. Direct data
activities for account aggregators needs to be explored while
feed, on the other hand, involves a tri-partite agreement
ensuring the security of financial data.
among account aggregator, financial institution, and
customer. The financial institution provides account
(Contd...)
161Report on Trend and Progress of Banking in India 2016-17
References: Fujii, H., T. Okano, S. Madnick and M. Siegel (2002),
‘E-Aggregation: The Present and Future of Online Financial
ASIC (2001), ‘Account Aggregation in the Financial Services
Services in Asia-Pacific’, CISL Working Paper# 2002-06.
Sector’, Consultation Paper 20, Australian Securities and
Investment Commission, May. Gentzoglanis, A and Avner Levin (2014), ‘Fraud and Privacy
Violation Risks in the Financial Aggregation Industry: The
CFPB (2017), ‘Consumer Protection Principles: Consumer- Case of Regulation’, European Scientific Journal, Vol. 2,
Authorised Financial Data Sharing and Aggregation’
September.
Consumer Financial Protection Bureau, US, October.
HKMA (2010), ‘Risk Management Controls over Internet
CMA (2016), ‘Retail banking market investigation’ Final Banking Account Aggregation Service’, Hong Kong Monetary
Report Competition and Markets Authority, UK, August. Authority, July.
VII. Overall Assessment and higher trading profits. Payments banks
reported negative profits due to high operational
VII.72 The number of NBFCs has declined
expenditures in the initial stage. Financial
because of the regulatory initiatives aimed at
assistance sanctioned by AIFIs during 2016-17
protecting depositors’ interests and safeguarding
increased by about 16 per cent while growth in
financial stability. Nevertheless, the overall balance
disbursements was moderate at 7.7 per cent, a
sheet size of NBFCs has expanded with their credit
possible indication of demand conditions turning
growth recording a higher reading in 2016-17
lacklustre during the year. NABARD and NHB
when bank credit witnessed historically low
disbursed significantly higher financial assistance
growth. More importantly, credit to the micro and
supporting agriculture and housing sectors.
small segments, both in industry and services
sectors, displayed robust growth. Financial
VII.74 Regulations governing NBFCs are being
performance of these companies came under
increasingly harmonised with the banking sector
stress with a decline in profitability and
while encouraging them to focus on specialised
deterioration in asset quality. Their capital
areas as evidenced by the recent notifications for
positions also deteriorated during 2016-17 though
setting up two new types of NBFCs by the Reserve
they remained well above the stipulated norms.
Bank – Account Aggregator and Peer-to-Peer
Their exposure to sensitive sectors such as capital
Lending Platform. Another recent regulatory
markets and real estate at 13.4 per cent of their
development in the sector was the issuance of a
total assets as of March 2017 was marginally
comprehensive Information Technology
higher than the previous year. Notwithstanding a
Framework for NBFCs-ND to be adopted by June
double-digit growth in public deposits mobilised
30, 2018.
by NBFCs, they remained well below 1 per cent of
bank deposits. NBFCs took higher recourse to
VII.75 In the context of a regulatory regime for
market-based instruments for resource
the sector, Financial Stability Board’s peer review
mobilisation while reducing their dependence on
of India has suggested that there is need for
bank borrowings. Conversion of a few large
improving the sector’s risk assessment capacity
NBFCs-MFI into small finance banks may have
and developing appropriate policy tools for non-
implications for credit to the microfinance
banking financial entities (NBFEs) to ensure
segment.
sustainable market-based finance and balance
VII.73 Primary dealers reported an increase in between promoting financial inclusion for
profits during the year due to favourable yields supporting economic development with the
162Non-Banking Financial Institutions
consideration of financial stability risks. The VII.76 The latest developments suggest a healthy
review also suggested that the Reserve Bank may growth in NBFCs’ credit during the first half of
revisit the business criteria definition for NBFCs 2017-18 particularly in the retail and services
on a regular basis, review the merits of deposit- sectors. A substantial improvement in credit to
taking activities by non-financial firms, eliminate commercial real estate during the current year up
regulatory exemptions for government-owned to September portends well for economic activity.
NBFCs, rationalise the number of NBFC categories Available data also show improvements in NBFCs’
and continue harmonising NBFC prudential rules asset quality in the recent quarter pointing to the
with those for banks. Also, there is a need to fading impact of demonetisation. The goods and
improve the timeliness and granularity of data services tax related adjustments may, however,
collected from NBFEs, and enhancing its analysis. need to be watched going forward.
163Report on Trend and Progress of Banking in India 2016-17
Appendix Table V.1: Indian Banking Sector at a Glance
(Amount in ` billion)
Sr. Items Amount Outstanding Percentage Variation
No (As at end-March)
2016 2017* 2015-16 2016-17*
1 Balance Sheet Operations
1.1 Total liabilities/assets 131,293 141,586 9.1 7.8
1.2 Deposits 100,927 111,139 7.0 10.1
1.3 Borrowings 14,488 12,807 26 -11.6
1.4 Loans and advances 78,965 81,162 6.9 2.8
1.5 Investments 33,278 36,522 11.8 9.7
1.6 Off-balance sheet exposure (as percentage of on-balance sheet liabilities) 111 107 - -
1.7 Total consolidated international claims 5,774 7,168 42.5 24.2
2 Profitability
2.1 Net profit 341 439 -61.7 28.6
2.2 Return on Asset (RoA) (Per cent) 0.4 0.35 - -
2.3 Return on Equity (RoE) (Per cent) 3.58 4.16 - -
2.4 Net Interest Margin (NIM) (Per cent) 2.6 2.5 - -
3 Capital Adequacy
3.1 Capital to risk weighted assets ratio (CRAR) @ 13.3 13.6 - -
3.2 Tier I capital (as percentage of total capital) @ 81.2 82.1 - -
3.3 CRAR (tier I) (Per cent) @ 10.8 11.2 - -
4 Asset Quality
4.1 Gross NPAs 6,119 7,918 89.3 29.4
4.2 Net NPAs 3,498 4,331 98.9 23.8
4.3 Gross NPA ratio (Gross NPAs as percentage of gross advances) 7.5 9.3 - -
4.4 Net NPA ratio (Net NPAs as percentage of net advances) 4.4 5.3 - -
4.5 Provision Coverage Ratio (Per cent)** 41.9 43.5 - -
4.6 Slippage ratio (Per cent) 6.3 5.7 - -
5 Sectoral Deployment of Bank Credit
5.1 Gross bank credit 66,500 71,347 9.0 7.3
5.2 Agriculture 8,829 9,924 15.3 12.4
5.3 Industry 27,307 26,800 2.7 -1.9
5.4 Services 15,411 18,022 9.1 16.9
5.5 Personal loans 13,922 16,200 19.4 16.4
6 Technological Development
6.1 Total number of credit cards (in million) 25 30 16.1 21.8
6.2 Total number of debit cards (in million) 662 772 19.6 16.6
6.3 Number of ATMs 198,952 208,354 12 4.9
7 Customer Services
7.1 Total number of complaints received during the year 102,894 130,987 20.9 27.3
7.2 Total number of complaints addressed 101,153 125,345 19.5 23.9
7.3 Percentage of complaints addressed 94.8 92 - -
8 Financial Inclusion
8.1 Credit-deposit ratio (Per cent) 78.2 73.03 - -
8.2 Number of new bank branches opened 6,986 4,830 -20.0 -30.9
8.3 Number of banking outlets in villages (Total) 586,307 598,093 5.9 2.0
*: Provisional **: Based on off-site returns and without write-off adjusted. @: Figures are as per the Basel III framework
Notes:
1. Percentage variation could be slightly different as figures have been rounded off to million/billion.
2. Data on sectoral deployment of bank credit pertains to last reporting Friday of March.
116644Appendix Tables
Appendix Table V.2: Off-Balance Sheet Exposure of Scheduled Commercial Banks in India
(Amount in ` billion)
Item Public Sector Banks Private Sector Banks Foreign Banks Scheduled
Commercial Banks *
2016-17 Percentage 2016-17 Percentage 2016-17 Percentage 2016-17 Percentage
Variation Variation Variation Variation
1 2 3 4 5 6 7 8 9
1. Forward exchange 25,618 2.1 32,375 11.8 72,903 1.0 130,896 3.7
contracts@ (26.3) (89.9) (900.6) (92.5)
2. Guarantees given 6,176 -1.1 3,417 12.1 1,242 -0.2 10,836 2.8
(6.3) (9.5) (15.3) (7.7)
3 Acceptances, 3,488 -5.1 1,892 12.9 483 -8.2 5,863 -0.2
endorsements, etc. (3.6) (5.3) (6.0) (4.1)
4. Others # 3,073 21.2 550 -6.4 394 1.2 4,017 14.4
(3.2) (1.5) (4.9) (2.8)
Contingent liabilities 38,356 2.1 38,233 11.6 75,022 0.91 151,612 3.7
(39.4) (106.2) (926.7) (107.1)
@: includes all derivative products (including interest rate swaps) as admissible.
#: includes inter alia items like (a) Claims against the bank not acknowledged as debt, (b) Liability for partly paid investments, (c) Bills
re-discounted and (d) Letters of Credit.
* Data for 2017 includes small finance bank group.
Note: Figures in parentheses are percentage to total liabilities of the concerned bank group.
Source: Annual accounts of respective banks.
116655Report on Trend and Progress of Banking in India 2016-17
Appendix V.3: Kisan Credit Card Scheme*: State-wise Progress
(As at end-March 2017)
(Amount in ` billion and number of cards in ‘000)
Sr. State /UT Co-operative Banks Regional Rural Commercial Banks Total
No. Banks
Cards Amount Cards Amount Cards Amount Cards Amount
issued sanctioned issued sanctioned Issued sanctioned issued sanctioned
Northern Region 5,749 269.7 1,040 193.1 4,024 455.9 10,813 918.6
1 Haryana 1,233 87.1 225 34.6 657 100.7 2,115 222.4
2 Himachal Pradesh 88 11.9 39 4.6 210 11.1 337 27.6
3 Jammu & Kashmir 10 0.4 62 5.3 275 25.7 346 31.4
4 New Delhi #$ 1 0.1 - - 5 4.7 5 4.9
5 Punjab 988 72.3 130 38.7 863 169.0 1,981 280.0
6 Rajasthan 3,429 97.9 585 109.8 2,004 144.0 6,018 351.7
7 Chandigarh #$ - - - - 10 0.7 10 0.7
North Eastern Region 106 1.2 434 13.6 674 13.9 1,215 28.7
8 Assam 2 0.1 289 9.9 498 10.4 790 20.4
9 Arunachal Pradesh # 1 - 3 0.1 9 0.1 13 0.3
10 Meghalaya # 16 0.3 19 0.9 57 0.7 92 1.9
11 Mizoram # 1 - 7 0.9 12 0.2 20 1.1
12 Manipur # - - 7 0.2 15 0.3 23 0.6
13 Nagaland # 4 0.1 1 - 33 0.7 38 0.9
14 Tripura # 73 0.6 107 1.5 46 1.3 226 3.4
15 Sikkim #$ 8 0.1 - - 5 0.1 13 0.2
Western Region 5,622 259.9 643 69.8 3,526 243.6 9,791 573.3
16 Gujarat 1,415 78.2 284 36.0 1,071 85.2 2,769 199.3
17 Maharashtra 4,205 181.5 359 33.8 2,447 157.8 7,012 373.1
18 Goa $ 2 0.2 - - 7 0.5 10 0.7
19 Daman & Diu @#$ - - - - - 0.1 - 0.1
20 Dadra and Nagar Haveli @$ - - - - 1 0.1 1 0.1
Central Region 11,632 201.5 3,876 354.1 6,700 309.9 22,207 865.5
21 Uttar Pradesh 4,431 58.3 3,136 277.2 4,452 182.1 12,018 517.6
22 Uttarakhand 350 9.7 49 3.0 387 14.5 786 27.2
23 Madhya Pradesh 5,404 122.0 514 63.7 1,641 99.9 7,559 285.6
24 Chhattisgarh 1,447 11.6 178 10.2 219 13.3 1,844 35.2
Southern Region 7,211 273.7 3,144 250.3 4,877 489.2 15,231 1,013.1
25 Karnataka 2,493 107.3 738 85.4 932 132.0 4,164 324.7
26 Kerala 814 28.3 150 12.0 311 52.1 1,276 92.4
27 Andhra Pradesh ** 1,570 68.6 767 65.7 1,754 140.6 4,091 274.9
28 Tamil Nadu 1,311 42.3 303 18.2 506 87.7 2,120 148.2
29 Telangana 1,017 27.0 1,183 68.9 1 - 2,200 95.9
30 Lakshdweep @$ - - - - 15 2.4 15 2.4
31 Puducherry # 6 - 1 0.1 1,357 74.4 1,364 74.6
Eastern Region 5,563 116.1 3,134 143.4 3,519 68.6 12,217 328.1
32 Orissa 3,537 77.7 596 23.1 605 16.9 4,738 117.7
33 West Bengal 1,857 34.8 511 23.6 824 21.7 3,193 80.1
34 Andaman and Nicobar Island @$ 6 0.1 - - - - 6 0.2
35 Bihar 136 3.2 1,667 84.4 1,447 24.3 3,250 111.8
36 Jharkhand ** 26 0.4 361 12.3 642 5.7 1,029 18.4
Total 35,883 1,122.0 12,271 1,024.2 23,320 1,581.1 71,474 3,727.4
-: Nil / negligible.
#: StCB functions as Central Financing Agency. @ No Co-operative Banks in these UTs.
$: No RRB in these States/UTs. ** Data under reconciliation.
*: Refers to live/operative cards.
Note: Components may not add up to their respective totals due to rounding off.
Source: NABARD/Returns from Commercial Banks.
116666Appendix Tables
Appendix Table V.4: Bank Group-wise Lending to the Sensitive Sectors
(As at end-March)
(Amount in ` billion)
Sector Public Sector Banks Private Sector Banks Foreign Banks Scheduled
Commercial Banks*
2016-17 Percentage 2016-17 Percentage 2016-17 Percentage 2016-17 Percentage
Variation Variation Variation Variation
1 2 3 4 5 6 7 8 9
1. Capital Market # 582 12.7 592 3.4 97 23.3 1,271 8.8
(1.0) (2.7) (2.9) (1.6)
2. Real Estate @ 9,969 11.7 5,348 18.0 1,018 9.7 16,342 13.6
(17.9) (24.1) (30.6) (20.1)
3. Commodities - - - - - - - -
Total Advances to Sensitive 10,551 11.8 5,940 16.3 1,115 10.7 17,612 13.3
Sectors (19.0) (26.8) (33.5) (21.7)
- : Nil / negligible.
#: Exposure to capital market is inclusive of both investments and advances.
@: Exposure to real estate sector is inclusive of both direct and indirect lending.
*: Data for 2017 includes Small Finance Bank Group.
Note: Figures in parentheses are percentages to total loans and advances of the concerned bank-group.
Source: Annual accounts of respective banks.
116677Report on Trend and Progress of Banking in India 2016-17
Appendix Table V.5: Shareholding Pattern of Domestic Scheduled Commercial Banks (Continued)
(As at end-March 2017)
(Per cent)
S. Bank Name Total Financial Financial Other Other Total Total Total - Total -
No Government Institutions - Institutions - Corporates - Corporates - Individual - Individual - Resident Non-
& RBI - Resident Non- Resident Non- Resident Non- Resident
Resident Resident Resident Resident
1 2 3 4 5 6 7 8 9 10 11
Nationalised Banks
1 Allahabad Bank 65.9 17.8 3.8 1.2 - 10.2 1.2 95.0 5.0
2 Andhra Bank 61.3 15.3 5.5 3.0 - 14.5 0.5 94.0 6.0
3 Bank of Baroda 59.2 20.6 11.8 1.5 - 6.4 0.4 87.8 12.2
4 Bank of India 73.7 2.6 1.0 15.0 1.6 5.9 0.3 97.1 2.9
5 Bank of Maharashtra 81.6 13.1 0.3 0.3 - 4.5 0.2 99.6 0.4
6 Bharatiya Mahila Bank Ltd. 100.0 - - - - - - 100.0 -
7 Canara Bank 66.3 21.2 5.3 1.3 - 5.8 0.1 94.6 5.4
8 Central Bank of India 81.3 14.2 0.3 2.6 - 1.6 - 99.7 0.3
9 Corporation Bank 70.8 21.9 1.7 0.8 - 4.6 0.3 98.1 1.9
10 Dena Bank 68.6 14.4 4.1 1.3 - 11.1 0.5 95.4 4.6
11 IDBI Bank Ltd. 74.0 15.4 2.5 1.3 - 6.5 0.3 97.2 2.8
12 Indian Bank 82.1 8.2 - 0.3 - 2.3 7.1 92.9 7.1
13 Indian Overseas Bank 79.6 10.7 - 4.3 - 5.2 0.3 99.7 0.3
14 Oriental Bank of Commerce 58.4 24.9 6.0 2.7 - 7.8 0.3 93.7 6.3
15 Punjab and Sind Bank 79.6 10.6 - 1.1 1.8 6.7 0.2 98.0 2.0
16 Punjab National Bank 65.0 19.6 10.0 0.6 - 4.8 - 90.0 10.0
17 Syndicate Bank 72.9 12.1 4.1 1.2 - 9.6 - 95.9 4.1
18 UCO Bank 76.7 14.7 - 0.9 1.3 6.2 0.2 98.6 1.5
19 Union Bank of India 63.4 20.8 5.0 1.9 - 8.7 0.2 94.8 5.2
20 United Bank of India 85.2 11.3 - 0.4 - 3.1 - 100.0 -
21 Vijaya Bank 70.3 17.9 - 1.3 - 10.1 0.3 99.7 0.3
State Bank Group
22 State Bank of India 61.2 18.3 11.0 3.2 - 6.2 0.2 88.8 11.2
23 State Bank of Bikaner and Jaipur - 83.6 - 4.1 1.2 11.0 0.2 98.6 1.4
24 State Bank of Hyderabad - 100.0 - - - - - 100.0 -
25 State Bank of Mysore - 90.0 - 1.3 - 8.7 - 100.0 -
26 State Bank of Patiala - 100.0 - - - - - 100.0 -
27 State Bank of Travancore 0.9 81.3 - 3.4 2.4 10.3 1.8 95.9 4.2
116688Appendix Tables
Appendix Table V.5: Shareholding Pattern of Domestic Scheduled Commercial Banks (Concluded)
(As at end-March 2017)
(Per cent)
S. Bank Name Total Financial Financial Other Other Total Total Total - Total -
No Government Institutions - Institutions - Corporates - Corporates - Individual - Individual - Resident Non-
& RBI - Resident Non- Resident Non- Resident Non- Resident
Resident Resident Resident Resident
1 2 3 4 5 6 7 8 9 10 11
Private Sector Banks
1 Axis Bank Ltd. - 35.7 52.8 4.1 - 7.2 0.2 47.0 53.0
2 Bandhan Bank Ltd. - 0.3 3.2 89.8 6.7 - - 90.1 9.9
3 Catholic Syrian Bank Ltd. - 3.4 - 31.8 15.8 30.9 18.1 66.1 33.9
4 City Union Bank Ltd. - 13.0 36.7 7.0 - 42.6 0.7 62.6 37.4
5 DCB Bank Ltd. - 15.7 - 11.4 40.3 30.9 1.7 58.0 42.0
6 Dhanlaxmi Bank Ltd. - 1.0 16.5 10.1 - 53.8 18.7 64.8 35.2
7 Federal Bank Ltd. - 30.0 38.3 4.4 3.4 18.9 5.0 53.3 46.7
8 HDFC Bank Ltd. 0.1 10.6 - 6.5 74.0 8.6 0.2 25.8 74.3
9 ICICI Bank Ltd. 0.2 27.8 60.4 5.4 - 5.8 0.3 39.2 60.8
10 IDFC Bank Ltd. 7.7 1.4 20.2 57.1 0.1 12.9 0.5 79.1 20.9
11 IndusInd Bank Ltd. - 12.5 43.3 10.3 25.9 7.3 0.7 30.0 70.0
12 Jammu and Kashmir Bank Ltd. 56.5 8.4 16.5 4.0 - 13.9 0.8 82.7 17.3
13 Karnataka Bank Ltd. - 11.5 19.2 9.3 - 58.7 1.2 79.6 20.4
14 Karur Vysya Bank Ltd. - 21.1 1.1 6.6 18.8 51.1 1.4 78.8 21.2
15 Kotak Mahindra Bank Ltd. - 7.9 40.4 3.1 5.8 42.6 0.4 53.5 46.5
16 Lakshmi Vilas Bank Ltd. - 2.2 - 31.9 9.1 55.4 1.5 89.5 10.5
17 Nainital Bank Ltd. - 98.6 - - - 1.4 - 100.0 -
18 RBL Bank Ltd. - 7.6 - 10.9 40.9 39.2 1.4 57.7 42.3
19 South Indian Bank Ltd. - 13.1 0.8 7.1 35.4 36.8 7.0 56.9 43.1
20 Tamilnad Mercantile Bank Ltd. - - - 5.6 20.2 73.5 0.7 79.1 20.9
21 Yes Bank Ltd. - 23.3 - 9.6 46.7 20.0 0.4 52.9 47.1
-:Nil / negligible.
Source: Off-site returns (domestic).
116699Report on Trend and Progress of Banking in India 2016-17
Appendix Table V.6: Branches and ATMs of Scheduled Commercial Banks (Continued)
(As at end-March 2017)
Sr. Name of the Bank Branches ATMs
No.
Rural Semi - Urban Metro- Total On-site Off-site Total
Urban politan
1 2 3 4 5 6 7 8 9 10
Public Sector Banks 29,033 25,647 17,890 18,875 91,445 86,545 62,010 148,555
Nationalised Banks 21,214 18,491 13,460 14,269 67,434 56,960 32,332 89,292
1 Allahabad Bank 1,206 763 648 628 3,245 821 393 1,214
2 Andhra Bank 745 772 668 734 2,919 3,113 816 3,929
3 Bank of Baroda 1,811 1,524 922 1,166 5,423 6,296 4,224 10,520
4 Bank of India 1,829 1,455 804 983 5,071 3,483 4,234 7,717
5 Bank of Maharashtra 617 435 343 502 1,897 1,292 586 1,878
6 Canara Bank 1,773 1,937 1,141 1,241 6,092 5,391 5,128 10,519
7 Central Bank of India 1,608 1,349 847 914 4,718 3,481 1,804 5,285
8 Corporation Bank 586 793 521 557 2,457 2,306 863 3,169
9 Dena Bank 573 434 367 409 1,783 1,290 248 1,538
10 Indian Bank 706 732 574 605 2,617 2,617 741 3,358
11 Indian Overseas Bank 923 1,000 693 767 3,383 2,705 974 3,679
12 Oriental Bank of Commerce 557 619 609 597 2,382 2,296 325 2,621
13 Punjab and Sind Bank 554 276 347 327 1,504 1,049 204 1,253
14 Punjab National Bank 2,538 1,682 1,190 1,094 6,504 5,947 4,734 10,681
15 Syndicate Bank 1,190 1,092 813 856 3,951 3,571 402 3,973
16 UCO Bank 1,074 821 599 579 3,073 2,201 578 2,779
17 Union Bank of India 1,243 1,279 846 906 4,274 4,484 3,034 7,518
18 United Bank of India 778 406 470 358 2,012 1,132 991 2,123
19 Vijaya Bank 470 528 519 513 2,030 1,663 338 2,001
20 IDBI Bank Ltd. 408 585 503 499 1,995 1,822 1,715 3,537
21 Bhartiya Mahila Bank 25 9 36 34 104 - - -
State Bank Group 7,819 7,156 4,430 4,606 24,011 29,585 29,678 59,263
22 State Bank of Bikaner and Jaipur 462 339 226 289 1,316 1,220 798 2,018
23 State Bank of Hyderabad 509 603 374 438 1,924 1,793 572 2,365
24 State Bank of India 5,962 4,888 3,078 3,239 17,167 23,161 27,027 50,188
25 State Bank of Mysore 318 255 228 273 1,074 1,096 330 1,426
26 State Bank of Patiala 456 346 313 228 1,343 1,183 344 1,527
27 State Bank of Travancore 112 725 211 139 1,187 1,132 607 1,739
117700Appendix Tables
Appendix Table V.6: Branches and ATMs of Scheduled Commercial Banks (Continued)
(As at end-March 2017)
Sr. Name of the Bank Branches ATMs
No.
Rural Semi - Urban Metro- Total On-site Off-site Total
Urban politan
1 2 3 4 5 6 7 8 9 10
Private Sector Banks 4,822 7,803 5,158 6,878 24,661 23,045 35,788 58,833
1 Axis Bank Ltd. 542 955 779 1,023 3,299 3,209 10,954 14,163
2 Bandhan Bank Ltd. 275 209 227 129 840 282 - 282
3 Catholic Syrian Bank Ltd. 44 229 88 65 426 205 58 263
4 City Union Bank Ltd. 78 224 112 137 551 805 681 1,486
5 DCB Bank Ltd. 56 66 55 87 264 217 298 515
6 Dhanalakshmi Bank Ltd. 20 108 67 71 266 199 172 371
7 Federal Bank Ltd. 153 683 211 194 1,241 1,151 516 1,667
8 HDFC Bank Ltd. 962 1,509 909 1,332 4,712 5,791 6,469 12,260
9 ICICI Bank Ltd. 979 1,444 987 1,440 4,850 4,988 8,894 13,882
10 IDFC Bank Ltd. 20 23 13 21 77 20 1 21
11 IndusInd Bank Ltd. 252 258 320 381 1,211 874 1,162 2,036
12 Jammu and Kashmir Bank Ltd. 450 156 98 162 866 640 456 1,096
13 Karnataka Bank Ltd. 162 180 209 217 768 549 831 1,380
14 Karur Vysya Bank Ltd. 103 266 152 190 711 763 984 1,747
15 Kotak Mahindra Bank Ltd. 197 280 287 605 1,369 971 1,192 2,163
16 Lakshmi Vilas Bank Ltd. 99 142 111 128 480 362 596 958
17 Nainital Bank Ltd. 33 32 37 31 133 - - -
18 RBL Bank Ltd. 50 68 41 81 240 150 225 375
19 South Indian Bank Ltd. 96 425 159 170 850 763 557 1,320
20 Tamilnad Mercantile Bank Ltd. 106 246 79 75 506 443 620 1,063
21 Yes Bank Ltd. 145 300 217 339 1,001 663 1,122 1,785
117711Report on Trend and Progress of Banking in India 2016-17
Appendix Table V.6: Branches and ATMs of Scheduled Commercial Banks (Concluded)
(As at end-March 2017)
Sr. Name of the Bank Branches ATMs
No.
Rural Semi - Urban Metro- Total On-site Off-site Total
Urban politan
1 2 3 4 5 6 7 8 9 10
Foreign Banks 9 9 39 231 288 219 747 966
1 AB Bank Limited - - - 1 1 - - -
2 Abu Dhabi Commercial Bank PJSC - - - 2 2 - - -
3 American Express Banking Corp. - - - 1 1 - - -
4 American Express Bank Ltd. - - - - - - - -
5 Australia and New Zealand Banking Group Limited 1 - 1 1 3 - - -
6 Bank of America, National Association - - - 4 4 - - -
7 Bank of Bahrain and Kuwait B.S.C. - 1 - 3 4 - - -
8 Bank of Ceylon - - - 1 1 - - -
9 Bank of Nova Scotia - - - 3 3 - - -
10 Barclays Bank Plc 1 1 4 6 - - -
11 BNP Paribas - - - 8 8 - - -
12 Citibank N.A. - - 7 33 40 54 503 557
13 Commonwealth Bank of Australia - - - 1 1 - - -
14 Cooperative Rabobank U.A. - - - 1 1 - - -
15 Credit Agricole Corporate and Investment Bank - - - 5 5 - - -
16 Credit Suisse A.G. - - - 1 1 - - -
17 CTBC Bank Co. Ltd. - 1 - 1 2 - - -
18 DBS Bank Ltd. 2 4 - 6 12 5 25 30
19 Deutsche Bank A.G. 1 - 5 11 17 13 19 32
20 Doha Bank Qsc - - 1 2 3 - - -
21 First Abu Dhabi Bank PJSC - - - 1 1 - - -
22 Firstrand Bank Ltd - - - 1 1 - - -
23 Hongkong and Shanghai Banking Corpn. Ltd. - - 4 22 26 44 54 98
24 HSBC Bank Oman S.A.O.G. - - - - - - - -
25 Industrial and Commercial Bank of China - - - 1 1 - - -
26 Industrial Bank of Korea - - - 1 1 - - -
27 JP Morgan Chase Bank National Association 2 - - 2 4 - - -
28 JSC VTB Bank - - - 1 1 - - -
29 KBC Bank Nv - - - - - - - -
30 KEB Hana Bank - - - 1 1 - - -
31 Krung Thai Bank Public Company Limited - - - 1 1 - - -
32 Mashreq Bank Psc - - - 1 1 - - -
33 Mizuho Bank Ltd. - 1 - 4 5 - - -
34 National Australia Bank - - - 1 1 - - -
35 PT Bank Maybank Indonesia Tbk - - - 1 1 - - -
36 Qatar National Bank Saq - - - - - - - -
37 Sberbank - - - 1 1 - - -
38 SBM Bank (Mauritius) Ltd. - - - 4 4 - - -
39 Shinhan Bank 1 - - 5 6 - - -
40 Societe Generale - 1 - 2 3 - - -
41 Sonali Bank - - 1 1 2 - - -
42 Standard Chartered Bank 1 - 18 81 100 103 146 249
43 Sumitomo Mitsui Banking Corporation - - - 2 2 - - -
44 The Bank of Tokyo-Mitsubishi UFJ Ltd. 1 - - 4 5 - - -
45 The Royal Bank of Scotland Plc - - - 1 1 - - -
46 UBS A.G. - - - - - - - -
47 United Overseas Bank Ltd. - - - 1 1 - - -
48 Westpac Banking Corporation - - - 1 1 - - -
49 Woori Bank - - 1 1 2 - - -
Notes : 1. -: Nil/ Negligible.
2. Branches data exclude administrative offices.
Source: Reserve Bank of India.
117722Appendix Tables
Appendix Table V.7: Statement of Complaints Received at Banking Ombudsman Office (Continued)
(For the Period 2016-17)
Sr. Name of the Bank Number of Complaints in Major Categories Total
No. Number of
Deposit Loans/ ATM/ Pension Failure on Non- Non- Complaints
Account Advances Credit/ Commitments Observance Adherence to
(General Debit and Non of Fair Instructions
& Cards Adherence to Practices on Direct
Housing) BCSBI Codes Code Selling
Agents
and
Recovery
Agents
1 2 3 4 5 6 7 8 9 10
Scheduled Commercial Banks 6,931 5,181 24,278 8,400 12,017 29,521 318 119,673
Public Sector Banks 4,889 3,610 15,105 8,366 8,232 19,835 86 81,309
Nationalised Banks 2,848 2,110 7,434 4,450 4,600 11,175 45 45,369
1 Allahabad Bank 42 62 195 135 153 474 2 1,413
2 Andhra Bank 70 42 286 32 127 340 2 1,308
3 Bank of Baroda 391 187 792 435 477 1,117 6 5,043
4 Bank of India 149 144 612 801 436 1,072 1 4,191
5 Bank of Maharashtra 31 24 93 38 162 320 - 845
6 Canara Bank 433 256 657 673 582 1,320 7 5,248
7 Central Bank of India 91 104 409 370 308 757 3 2,716
8 Corporation Bank 132 73 333 7 139 226 - 1,255
9 Dena Bank 107 65 169 124 79 302 - 1,140
10 Indian Bank 200 215 264 119 106 430 4 1,673
11 Indian Overseas Bank 175 162 490 116 292 718 6 2,633
12 Oriental Bank of Commerce 82 56 331 40 110 369 - 1,523
13 Punjab and Sind Bank 26 38 62 49 50 250 3 690
14 Punjab National Bank 241 259 1,170 890 436 1,187 2 6,226
15 Syndicate Bank 123 94 157 161 136 283 1 1,416
16 UCO Bank 91 69 222 215 222 448 4 1,747
17 Union Bank of India 207 120 441 136 299 676 2 2,559
18 United Bank of India 34 30 177 92 179 193 1 958
19 Vijaya Bank 81 39 106 11 101 151 - 690
20 Bharatiya Mahila Bank Ltd. 2 1 3 - 1 3 - 16
21 IDBI Bank Ltd. 140 70 465 6 205 539 1 2,079
State Bank Group 2,041 1,500 7,671 3,916 3,632 8,660 41 35,940
22 State Bank of India 1,690 1,313 6,844 3,098 3,175 7,297 36 30,579
23 State Bank of Bikaner and Jaipur 138 99 262 514 176 154 2 2,033
24 State Bank of Hyderabad 50 26 205 49 69 271 - 862
25 State Bank of Mysore 105 17 56 14 112 63 1 450
26 State Bank of Patiala 40 28 161 161 59 452 2 1,167
27 State Bank of Travancore 18 17 143 80 41 423 - 849
117733Report on Trend and Progress of Banking in India 2016-17
Appendix Table V.7: Statement of Complaints Received at Banking Ombudsman Office (Continued)
(For the Period 2016-17)
Sr. Name of the Bank Number of Complaints in Major Categories Total
No. Number of
Deposit Loans/ ATM/ Pension Failure on Non- Non- Complaints
Account Advances Credit/ Commitments Observance Adherence to
(General Debit and Non of Fair Instructions
& Cards Adherence to Practices on Direct
Housing) BCSBI Codes Code Selling
Agents
and
Recovery
Agents
1 2 3 4 5 6 7 8 9 10
Private Sector Banks 1,890 1,426 7,937 34 3,491 9,065 213 35,078
1 Axis Bank Ltd. 364 259 1,431 10 677 1,887 27 6,748
2 Bandhan Bank Ltd. 5 2 17 - 14 32 - 102
3 Catholic Syrian Bank Ltd. 7 8 1 - 5 22 - 66
4 City Union Bank Ltd. 6 6 14 1 6 74 - 136
5 DCB Bank Ltd. 11 38 59 - 27 106 - 316
6 Dhanlaxmi Bank Ltd. 7 3 6 - 2 38 - 64
7 Federal Bank Ltd. 28 25 111 - 36 175 2 503
8 HDFC Bank Ltd. 447 385 2,610 3 1,168 2,178 97 9,885
9 ICICI Bank Ltd. 486 402 2,194 16 841 2,489 38 9,541
10 IDFC Bank Ltd. 5 - 1 - 10 11 - 29
11 IndusInd Bank Ltd. 74 50 351 1 136 358 9 1,436
12 Jammu and Kashmir Bank Ltd. 6 4 31 - 3 20 - 140
13 Karnataka Bank Ltd. 51 2 41 - 37 34 - 222
14 Karur Vysya Bank Ltd. 18 4 40 - 27 140 1 298
15 Kotak Mahindra Bank Ltd. 205 165 588 1 332 1,004 37 3,711
16 Lakshmi Vilas Bank Ltd. 18 6 11 1 5 64 - 120
17 Nainital Bank Ltd. 2 2 5 - 1 2 - 25
18 RBL Bank Ltd. 16 11 193 - 36 85 1 417
19 South Indian Bank Ltd. 22 10 17 - 13 90 1 206
20 Tamilnad Mercantile Bank Ltd. 42 26 16 1 9 28 - 144
21 Yes Bank Ltd. 70 18 200 - 106 228 - 969
117744Appendix Tables
Appendix Table V.7: Statement of Complaints Received at Banking Ombudsman Office (Concluded)
(For the Period 2016-17)
Sr. Name of the Bank Number of Complaints in Major Categories Total
No. Number of
Deposit Loans/ ATM/ Pension Failure on Non- Non- Complaints
Account Advances Credit/ Commitments Observance Adherence to
(General Debit and Non of Fair Instructions
& Cards Adherence to Practices on Direct
Housing) BCSBI Codes Code Selling
Agents
and
Recovery
Agents
1 2 3 4 5 6 7 8 9 10
Foreign Banks 152 145 1,236 - 294 621 19 3,286
1 AB Bank Ltd. - 1 2 - - - - 6
2 Abu Dhabi Commercial Bank
PJSC 1 - 1 - 1 4 - 7
3 American Express Banking Corp. 2 1 111 - 13 25 1 187
4 Antwerp Diamond Bank NV - - - - - - - -
5 Australia and New Zealand
Banking Group Ltd. - - - - - 2 - 2
6 Bank of America, National
Association 1 1 3 - - 1 - 12
7 Bank of Bahrain and Kuwait
B.S.C. - - - - - - - 2
8 Bank of Nova Scotia - - - - - - - 2
9 Barclays Bank Plc 2 2 28 - 2 15 2 55
10 BNP Paribas - - - - - - - 1
11 China trust Commercial Bank - - - - - 1 - 1
12 Credit Agricole Corporate and
Investment Bank - - - - 1 - - 1
13 Citibank N.A. 58 37 503 - 107 235 2 1,242
14 Commonwealth Bank Of
Australia 1 - - - - - - 1
15 DBS Bank Ltd. 3 - 1 - 2 8 - 28
16 Deutsche Bank (Asia) 3 8 8 - 13 30 - 105
17 Hongkong and Shanghai Banking
Corpn.Ltd. 34 23 128 - 44 93 - 413
18 HSBC Bank Oman S.A.O.G. - - - - - 2 - 2
19 JP Morgan Chase Bank National
Association - - - - - - - -
20 Mashreq Bank PSC - - 4 - - - 1 5
21 Royal Bank of Scotland 7 3 47 - 7 15 2 126
22 Sberbank - - - - - - - -
23 Societe Generale - - - - - - - 1
24 Sonali Bank - - - - - - - 1
25 Standard Chartered Bank 40 69 400 - 104 190 11 1,086
26 State Bank of Mauritius Ltd. - - - - - - - -
27 The Bank of Tokyo-Mitsubishi
UFJ Ltd. - - - - - - - -
28 UBS A.G. - - - - - - - -
-: Nil / negligible.
117755Report on Trend and Progress of Banking in India 2016-17
Appendix Table VI.1: Select Financial Parameters of Scheduled UCBs
(As at end-March 2017)
(Per cent)
Sr. Bank Name CRAR Net Net Non- Return Average Average Business Profit per
No. Interest Interest Interest on Cost of Yield on per Employee
Income Income Income Assets Deposits Advances Employee (` Million)
to Total to to (` Million)
Assets Working Working
Funds Funds
1 2 3 4 5 6 7 8 9 10 11
1 Abhyudaya Co-operative Bank Limited, Mumbai 11.0 1.6 1.6 1.4 0.0 6.8 9.1 66.3 0.0
2 Ahmedabad Mercantile Co-operative Bank Limited 31.4 3.5 3.0 0.5 1.7 6.7 11.0 77.1 0.9
3 Akola Janata Commercial Co-operative Bank Limited, Akola 17.3 3.0 2.9 1.0 0.8 6.8 12.9 39.7 0.2
4 Akola Urban Co-operative Bank Limited, Akola 8.3 2.1 2.1 2.0 0.1 6.7 11.4 37.4 0.0
5 Amanath Co-operative Bank Limited, Bangalore -72.1 1.8 2.4 1.7 0.4 3.6 2.3 17.1 0.1
6 Andhra Pradesh Mahesh Co-operative Urban Bank Limited 18.5 3.2 3.0 0.4 0.9 7.3 13.8 59.0 0.4
7 Apna Sahakari Bank Limited 12.3 2.3 2.3 1.3 0.4 7.3 11.7 84.6 0.2
8 Bassein Catholic Co-operative Bank Limited 17.3 3.1 2.9 0.6 1.2 7.3 12.0 170.8 1.4
9 Bharat Co-operative Bank (Mumbai) Limited, Mumbai 13.9 2.5 2.4 1.6 1.0 7.9 12.5 124.2 0.9
10 Bharati Sahakari Bank Limited 15.1 2.6 2.5 0.4 0.4 7.4 12.0 72.5 0.2
11 Bombay Mercantile Co-operative Bank Limited 14.6 3.0 3.1 1.8 0.4 4.6 10.4 24.3 0.1
12 Citizen Credit Co-operative Bank Limited, Mumbai 18.7 2.4 2.5 0.6 0.6 6.7 11.0 87.1 0.4
13 Cosmos Co-operative Bank Limited 15.4 1.8 1.9 3.2 0.4 7.4 11.2 93.6 0.3
14 Dombivli Nagari Sahakari Bank Limited 14.4 2.8 2.8 1.3 0.8 7.2 11.1 95.8 0.5
15 Goa Urban Co-operative Bank Limited 14.7 3.2 3.1 0.5 0.1 6.5 10.9 62.8 0.0
16 Gopinath Patil Parsik Janata Sahakari Bank Limited, Thane 18.5 3.9 3.7 1.0 1.4 6.0 12.3 62.3 0.6
17 Greater Bombay Co-operative Bank Limited 10.8 2.3 2.2 1.6 -0.3 6.9 11.3 83.3 -0.2
18 Indian Mercantile Co-operative Bank Limited, Lucknow 17.1 3.9 4.1 0.0 -9.3 6.0 12.0 15.8 -1.6
19 Jalgaon Janata Sahakari Bank Limited 12.4 3.1 3.2 0.7 0.6 6.8 12.9 58.1 0.2
20 Jalgaon People’s Co-operative Bank Limited 12.8 2.4 2.4 0.9 0.5 6.7 11.4 85.8 0.3
21 Janakalyan Sahakari Bank Limited, Mumbai 11.5 2.3 2.3 0.6 0.0 6.6 10.7 91.2 0.0
22 Janalaxmi Co-operative Bank Limited, Nashik 25.3 1.7 3.1 0.9 0.6 5.9 8.9 10.3 0.1
23 Janata Sahakari Bank Limited, Pune 12.9 2.7 2.6 1.2 0.4 7.6 11.9 111.6 0.3
24 Kallappanna Awade Ichalkaranji Janata Sahakari Bank Limited 13.0 2.3 2.3 0.8 0.6 7.6 12.1 57.2 0.2
25 Kalupur Commercial Co-operative Bank Limited 16.9 2.9 2.7 0.6 1.2 6.9 10.6 129.4 1.1
26 Kalyan Janata Sahakari Bank Limited, Kalyan 12.4 3.0 2.8 1.3 0.9 7.1 12.1 86.5 0.5
27 Kapol Co-operative Bank Limited, Mumbai -57.1 -1.6 -0.2 0.8 -6.4 6.4 7.3 21.5 -1.3
28 Karad Urban Co-operative Bank Limited 16.9 2.9 2.7 1.1 0.9 7.9 12.9 66.7 0.4
29 Khamgaon Urban Co-operative Bank Ltd, Khamgaon 18.0 3.7 3.7 1.1 1.5 5.7 12.5 34.4 0.4
30 Mahanagar Co-operative Bank Ltd, Mumbai 13.9 3.4 3.6 0.8 0.6 7.1 13.0 73.5 0.3
31 Mapusa Urban Co-operative Bank of Goa Ltd, Mapusa -18.8 1.2 1.6 0.6 -1.5 6.8 11.9 29.1 -0.4
32 Mehsana Urban Co-operative Bank Limited 14.2 3.0 2.8 0.4 1.1 7.1 11.9 145.6 1.0
33 Nagar Urban Co-operative Bank Limited, Ahmednagar 13.3 3.0 2.9 0.8 0.3 7.7 14.9 49.6 0.1
34 Nagpur Nagrik Sahakari Bank Limited 19.4 2.4 2.4 1.3 0.7 6.2 11.5 40.2 0.2
35 Nasik Merchant’s Co-operative Bank Limited 39.7 4.0 4.0 1.0 1.9 6.4 12.9 47.0 0.8
36 New India Co-operative Bank Limited, Mumbai 12.4 2.1 2.1 1.4 0.4 7.2 11.3 126.9 0.4
37 NKGSB Co-operative Bank Limited, Mumbai 12.3 2.8 2.6 0.8 0.6 7.2 11.4 100.4 0.4
38 Nutan Nagarik Sahakari Bank Limited, Ahmedabad 14.6 2.4 2.2 0.8 0.7 6.7 10.7 84.4 0.4
39 Pravara Sahakari Bank Limited 12.2 2.4 2.4 0.6 0.2 6.4 11.7 42.1 0.1
40 Punjab & Maharashtra Co-operative Bank Limited 12.3 3.8 3.6 1.0 1.0 7.7 14.1 92.0 0.6
41 Rajarambapu Sahakari Bank Limited 12.9 2.9 2.9 0.6 0.8 8.1 12.7 74.8 0.4
42 Rajkot Nagrik Sahakari Bank Limited 15.6 2.4 2.2 1.1 1.3 7.4 12.4 70.8 0.7
43 Rupee Co-operative Bank Limited -442.1 2.2 2.2 1.2 1.3 2.3 4.1 41.1 0.4
44 Sangli Urban Co-operative Bank Limited, Sangli 12.3 2.5 2.7 0.8 0.2 7.9 12.8 35.6 0.1
45 Saraswat Co-operative Bank Limited, Bombay 14.0 2.1 2.1 1.1 0.6 6.8 10.4 134.1 0.6
46 Sardar Bhiladwala Pardi Peoples Co-operative Bank Ltd. 19.1 3.3 3.1 0.3 0.6 5.9 10.7 80.3 0.3
47 Shamrao Vithal Co-operative Bank Limited 12.7 2.5 2.5 1.4 0.8 7.1 11.3 94.0 0.5
48 Shikshak Sahakari Bank Limited, Nagpur 14.7 2.5 2.4 1.3 0.1 7.4 11.2 38.2 0.0
49 Solapur Janata Sahakari Bank Limited 13.1 3.5 3.3 0.5 1.0 8.0 13.8 62.9 0.4
50 Surat Peoples Co-operative Bank Limited 16.5 2.6 2.5 0.5 0.9 7.6 11.7 131.7 0.8
51 Thane Bharat Sahakari Bank Limited 13.7 3.0 2.9 0.9 0.5 6.9 12.5 68.3 0.2
52 TJSB Sahakari Bank 13.8 2.7 2.5 1.0 1.0 7.1 12.1 110.1 0.8
53 Vasai Vikas Sahakari Bank Limited 11.9 1.8 2.3 0.6 0.8 7.3 12.3 81.9 0.6
54 Zoroastrian Co-operative Bank Limited, Bombay 17.3 3.2 3.0 0.3 1.4 6.7 11.9 70.3 0.7
Note: Data for 2016-17 are provisional.
117766Appendix Tables
Appendix Table VI.2: Major Indicators of Financial Performance of Scheduled UCBs (Continued)
(As per cent to total assets)
Sr. Name of the Banks Operating Profit Net Profit after Taxes Interest Income
No.
2015-16 2016-17 2015-16 2016-17 2015-16 2016-17
1 2 3 4 5 6 7 8
1 Abhyudaya Co-operative Bank Limited, Mumbai 0.6 0.9 0.0 0.0 8.0 7.2
2 Ahmedabad Mercantile Co-operative Bank Limited 2.0 1.9 2.0 1.4 8.1 7.6
3 Akola Janata Commercial Co-operative Bank Limited, Akola 1.4 1.4 0.7 0.7 8.9 8.1
4 Akola Urban Co-operative Bank Limited, Akola -0.7 0.1 -1.1 0.1 7.5 7.4
5 Amanath Co-operative Bank Limited, Bangalore 1.9 0.2 1.9 0.2 3.0 1.8
6 Andhra Pradesh Mahesh Co-operative Urban Bank Ltd 2.1 1.7 1.0 0.9 9.5 8.8
7 Apna Sahakari Bank Limited 0.9 1.1 0.5 0.3 8.4 8.5
8 Bassein Catholic Co-operative Bank Limited 2.5 2.1 1.2 1.1 8.9 8.4
9 Bharat Co-operative Bank (Mumbai) Limited, Mumbai 2.0 1.9 1.1 1.0 9.5 8.8
10 Bharati Sahakari Bank Limited 1.1 1.1 0.5 0.4 9.0 8.6
11 Bombay Mercantile Co-operative Bank Limited 0.3 0.3 -0.2 0.3 5.3 5.2
12 Citizen Credit Co-operative Bank Limited, Mumbai 1.3 1.1 0.7 0.6 8.5 8.0
13 Cosmos Co-operative Bank Limited 1.6 1.7 0.2 0.4 9.5 8.3
14 Dombivli Nagari Sahakari Bank Limited 2.2 2.3 0.8 0.8 8.6 8.6
15 Goa Urban Co-operative Bank Limited 1.2 1.7 0.3 0.1 8.3 8.1
16 Gopinath Patil Parsik Janata Sahakari Bank Ltd, Thane 2.1 2.4 1.0 1.3 8.8 8.3
17 Greater Bombay Co-operative Bank Limited 1.1 1.4 0.6 -0.3 8.9 8.1
18 Indian Mercantile Co-operative Bank Limited, Lucknow 0.9 -9.6 0.7 -9.6 9.9 8.4
19 Jalgaon Janata Sahakari Bank Limited 1.8 1.3 0.6 0.5 9.3 8.4
20 Jalgaon People’s Co-operative Bank Limited - 1.0 - 0.5 - 8.0
21 Janakalyan Sahakari Bank Limited, Mumbai 0.6 0.7 0.1 0.0 8.1 6.6
22 Janalaxmi Co-operative Bank Limited, Nashik 1.4 0.6 1.3 0.6 3.5 3.4
23 Janata Sahakari Bank Limited, Pune 1.5 1.8 0.4 0.4 9.8 8.7
24 Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd 1.1 1.1 0.6 0.5 9.0 8.6
25 Kalupur Commercial Co-operative Bank Limited 2.1 1.9 1.3 1.1 8.2 7.4
26 Kalyan Janata Sahakari Bank Limited, Kalyan 1.5 1.6 0.9 0.8 8.9 8.7
27 Kapol Co-operative Bank Limited, Mumbai -3.8 -5.1 -4.9 -7.4 7.2 5.3
28 Karad Urban Co-operative Bank Limited 1.1 1.8 0.4 0.8 9.7 9.0
29 Khamgaon Urban Co-operative Bank Limited, Khamgaon 1.7 2.0 1.2 1.4 8.0 7.8
30 Mahanagar Co-operative Bank Limited, Mumbai 1.4 1.6 0.7 0.6 9.9 9.2
31 Mapusa Urban Co-operative Bank of Goa Limited, Mapusa -0.2 -1.3 -0.2 -1.5 8.2 6.4
32 Mehsana Urban Co-operative Bank Limited 2.1 2.1 1.0 1.0 9.5 8.6
33 Nagar Urban Co-operative Bank Limited, Ahmednagar 1.9 1.2 0.8 0.3 10.0 8.7
34 Nagpur Nagrik Sahakari Bank Limited 0.6 1.0 0.2 0.6 7.8 7.4
35 Nasik Merchant’s Co-operative Bank Limited 3.6 3.1 2.1 1.8 10.3 9.7
36 New India Co-operative Bank Limited, Mumbai 0.7 1.2 0.4 0.5 9.0 8.6
37 NKGSB Co-operative Bank Limited, Mumbai 1.2 1.2 0.6 0.6 8.9 8.4
38 Nutan Nagarik Sahakari Bank Limited, Ahmedabad 1.2 1.1 0.6 0.7 8.4 7.6
39 Pravara Sahakari Bank Limited 1.0 0.2 1.0 0.2 10.0 8.5
40 Punjab & Maharashtra Co-operative Bank Limited 1.5 1.9 0.9 0.9 10.2 9.9
41 Rajarambapu Sahakari Bank Limited - 1.8 - 0.7 - 8.9
42 Rajkot Nagrik Sahakari Bank Limited 1.6 1.4 1.0 0.9 6.7 6.0
43 Rupee Co-operative Bank Limited -1.7 0.1 -0.8 0.8 2.2 3.1
44 Sangli Urban Co-operative Bank Limited, Sangli 0.7 0.7 0.1 0.2 8.7 8.4
45 Saraswat Co-operative Bank Limited, Bombay 0.9 1.4 0.5 0.5 7.3 7.2
46 Sardar Bhiladwala Pardi Peoples Co-operative Bank Ltd 0.9 0.9 0.5 0.5 7.8 7.4
47 Shamrao Vithal Co-operative Bank Limited 1.1 1.3 0.8 0.7 8.8 8.2
48 Shikshak Sahakari Bank Limited, Nagpur 1.0 0.9 0.5 0.1 8.3 7.3
49 Solapur Janata Sahakari Bank Limited 2.0 1.4 1.0 0.9 10.4 9.4
50 Surat Peoples Co-operative Bank Limited 2.0 1.6 0.9 0.8 9.6 8.7
51 Thane Bharat Sahakari Bank Limited 0.7 0.7 0.1 0.5 9.2 8.7
52 TJSB Sahakari Bank 1.4 1.4 1.0 0.9 8.8 7.8
53 Vasai Vikas Sahakari Bank Limited 1.2 1.3 0.7 1.0 8.4 8.3
54 Zoroastrian Co-operative Bank Limited, Bombay 1.7 1.2 1.0 1.2 9.1 8.1
-: Nil / negligible.
Notes: 1. Data for 2016-17 are provisional.
2. The “Jalgaon People’s Co-operative Bank Limited” and “Rajarambapu Sahakari Bank Limited” were included in the second schedule
of RBI Act, 1934 during the financial year 2016-17.
117777Report on Trend and Progress of Banking in India 2016-17
Appendix Table VI.2: Major Indicators of Financial Performance of Scheduled UCBs (Concluded)
(As per cent to total assets)
Sr. Name of the Banks Interest Expended Non-Interest Expenses Provisions and
No. Contingencies
2015-16 2016-17 2015-16 2016-17 2015-16 2016-17
1 2 9 10 11 12 13 14
1 Abhyudaya Co-operative Bank Limited, Mumbai 6.1 5.7 1.9 2.0 0.6 0.8
2 Ahmedabad Mercantile Co-operative Bank Limited 4.8 4.7 1.7 1.5 0.0 0.5
3 Akola Janata Commercial Co-operative Bank Limited, Akola 5.9 5.3 2.4 2.3 0.7 0.7
4 Akola Urban Co-operative Bank Limited, Akola 6.1 5.5 2.4 3.7 0.3 0.0
5 Amanath Co-operative Bank Limited, Bangalore 1.6 0.9 1.2 1.2 0.0 0.0
6 Andhra Pradesh Mahesh Co-operative Urban Bank Limited 6.0 5.8 1.8 1.7 1.0 0.8
7 Apna Sahakari Bank Limited 5.9 6.3 2.2 2.4 0.4 0.8
8 Bassein Catholic Co-operative Bank Limited 5.9 5.5 1.2 1.3 1.3 1.0
9 Bharat Co-operative Bank (Mumbai) Limited, Mumbai 6.6 6.5 1.9 2.0 0.9 0.9
10 Bharati Sahakari Bank Limited 6.3 6.2 1.7 1.7 0.6 0.7
11 Bombay Mercantile Co-operative Bank Ltd 3.4 3.0 2.6 3.2 0.5 0.0
12 Citizen Credit Co-operative Bank Limited, Mumbai 5.7 5.5 1.9 2.0 0.7 0.5
13 Cosmos Co-operative Bank Limited 7.2 6.5 3.0 3.2 1.4 1.3
14 Dombivli Nagari Sahakari Bank Limited 5.9 6.0 1.4 1.6 1.5 1.5
15 Goa Urban Co-operative Bank Limited 5.6 5.2 1.8 1.7 0.9 1.6
16 Gopinath Patil Parsik Janata Sahakari Bank Limited, Thane 4.8 4.7 2.4 2.3 1.1 1.1
17 Greater Bombay Co-operative Bank Limited 6.4 6.0 2.5 2.4 0.5 1.7
18 Indian Mercantile Co-operative Bank Limited, Lucknow 5.7 4.4 3.4 13.6 0.2 0.0
19 Jalgaon Janata Sahakari Bank Limited 6.3 5.4 2.1 2.3 1.2 0.8
20 Jalgaon People’s Co-operative Bank Limited - 5.7 - 2.1 - 0.6
21 Janakalyan Sahakari Bank Limited, Mumbai 5.8 4.7 2.2 1.7 0.5 0.6
22 Janalaxmi Co-operative Bank Limited, Nashik 2.1 1.7 1.6 1.6 0.0 0.0
23 Janata Sahakari Bank Limited, Pune 7.1 6.3 1.7 1.7 1.1 1.5
24 Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd 6.3 6.4 2.0 1.8 0.6 0.6
25 Kalupur Commercial Co-operative Bank Limited 5.4 4.9 1.3 1.2 0.8 0.9
26 Kalyan Janata Sahakari Bank Limited, Kalyan 6.1 6.0 2.2 2.4 0.5 0.8
27 Kapol Co-operative Bank Limited, Mumbai 6.3 5.5 5.7 5.9 1.1 2.3
28 Karad Urban Co-operative Bank Limited 6.9 6.4 2.1 1.9 0.7 1.0
29 Khamgaon Urban Co-operative Bank Limited, Khamgaon 4.8 4.3 2.2 2.5 0.4 0.6
30 Mahanagar Co-operative Bank Ltd, Mumbai 6.5 5.9 2.4 2.5 0.7 1.0
31 Mapusa Urban Co-operative Bank of Goa Limited, Mapusa 6.1 5.2 2.9 2.9 0.0 0.2
32 Mehsana Urban Co-operative Bank Ltd 6.5 5.7 1.1 1.1 1.1 1.2
33 Nagar Urban Co-operative Bank Limited, Ahmednagar 6.1 5.9 2.3 2.4 1.1 0.8
34 Nagpur Nagrik Sahakari Bank Limited 5.6 5.1 5.0 2.6 0.4 0.4
35 Nasik Merchant’s Co-operative Bank Ltd 5.6 5.8 1.8 1.6 1.5 1.3
36 New India Co-operative Bank Limited, Mumbai 6.4 6.4 2.4 2.3 0.3 0.7
37 NKGSB Co-operative Bank Limited, Mumbai 6.3 5.8 2.2 2.1 0.6 0.7
38 Nutan Nagarik Sahakari Bank Limited, Ahmedabad 5.9 5.4 2.1 1.8 0.6 0.5
39 Pravara Sahakari Bank Limited 6.4 6.2 2.9 2.7 0.0 0.0
40 Punjab & Maharashtra Co-operative Bank Limited 6.8 6.4 2.3 2.5 0.7 1.0
41 Rajarambapu Sahakari Bank Limited - 6.3 - 1.3 - 1.0
42 Rajkot Nagrik Sahakari Bank Limited 4.6 4.4 1.0 1.0 0.6 0.5
43 Rupee Co-operative Bank Limited 2.2 1.7 1.6 2.0 -0.9 -0.7
44 Sangli Urban Co-operative Bank Ltd, Sangli 6.4 6.0 2.3 2.4 0.6 0.5
45 Saraswat Co-operative Bank Ltd, Bombay 5.7 5.3 1.7 1.5 0.4 0.8
46 Sardar Bhiladwala Pardi Peoples Co-operative Bank Limited 4.8 4.4 2.3 2.5 0.4 0.4
47 Shamrao Vithal Co-operative Bank Limited 6.6 6.0 2.1 2.2 0.3 0.5
48 Shikshak Sahakari Bank Limited, Nagpur 5.8 5.3 2.4 2.2 0.5 0.8
49 Solapur Janata Sahakari Bank Limited 6.5 6.3 2.4 2.2 1.0 0.5
50 Surat Peoples Co-operative Bank Limited 6.2 6.2 1.6 1.4 1.1 0.8
51 Thane Bharat Sahakari Bank Limited 6.3 5.8 3.0 3.0 0.6 0.2
52 TJSB Sahakari Bank 6.1 5.5 2.1 1.8 0.4 0.6
53 Vasai Vikas Sahakari Bank Limited 6.0 6.0 1.8 1.6 0.5 0.3
54 Zoroastrian Co-operative Bank Limited, Bombay 5.5 5.1 2.3 2.0 0.7 0.0
-: Nil / negligible.
Notes: 1. Data for 2016-17 are provisional.
2. The “Jalgaon People’s Co-operative Bank Limited” and “Rajarambapu Sahakari Bank Limited” were included in the second schedule
of RBI Act, 1934 during the financial year 2016-17.
117788Appendix Tables
Appendix Table VI.3: Salient Indicators of Financial Health of State Co-operative Banks -
Region and State-wise
(As at end-March)
(Amount in ` million)
Sr. Region/State Amount of Profit/Loss NPAs as Percentage of Recovery to Demand
No. Loans Outstanding (Per cent as at end-June)
2015 2016 2015 2016 2015 2016
1 2 3 4 5 6 7 8
Northern Region 1,390 1,065 1.8 1.7 98.1 98.8
1. Chandigarh 50 43 4.2 4.0 72.7 77.1
2. Delhi 78 -126 0.1 5.3 91.5 93.9
3. Haryana 162 238 8.6 0.0 99.9 99.5
4. Himachal Pradesh 599 539 19.6 6.6 78.7 80.9
5. Jammu & Kashmir 25 26 6.4 19.1 55.8 55.6
6. Punjab 213 125 0.8 0.9 97.4 99.6
7. Rajasthan 263 219 0.3 0.3 99.8 99.5
North-Eastern Region 465 -507 14.5 13.1 53.1 59.6
8. Arunachal Pradesh 5 2 70.8 67.2 10.3 0.0
9. Assam 77 27 11.2 11.1 22.9 37.4
10. Manipur -64 -736 95.8 90.5 13.1 11.5
11. Meghalaya 95 25 8.2 7.8 26.1 32.8
12. Mizoram 39 88 11.5 10.9 50.6 78.8
13. Nagaland 6 22 16.2 13.5 65.2 71.1
14. Sikkim 27 21 5.8 4.2 26.9 83.6
15. Tripura 280 44 3.5 3.5 84.6 80.2
Eastern Region 1,160 532 6.2 5.6 94.5 62.4
16. Andaman & Nicobar Islands 44 51 21.7 21.9 57.6 64.1
17. Bihar 394 360 12.2 10.3 64.7 37.0
18. Jharkhand -45 -51 35.3 28.2 6.3 16.2
19. Odisha 156 167 2.9 2.4 100.0 88.2
20. West Bengal 611 6 7.9 7.3 62.3 84.5
Central Region 1,436 1,047 3.0 4.0 95.2 95.5
21. Chhattisgarh 199 215 4.4 3.8 94.5 85.7
22. Madhya Pradesh 741 561 1.4 4.2 95.2 95.1
23. Uttar Pradesh 404 201 4.8 4.2 95.2 96.6
24. Uttarakhand 92 70 2.9 2.5 94.8 97.7
Western Region 4,471 2,534 8.8 7.5 91.0 87.6
25. Goa -81 -76 11.3 9.5 74.2 89.2
26. Gujarat 446 181 2.4 2.5 98.5 98.5
27. Maharashtra 4,106 2,429 11.7 9.3 92.0 82.8
Southern Region 1,898 1,334 5.2 3.6 94.2 94.3
28. Andhra Pradesh 775 331 2.7 0.4 95.6 91.1
29. Karnataka 303 315 3.8 3.3 97.9 96.5
30. Kerala 465 128 16.0 15.6 86.0 84.7
31. Puducherry -59 -151 9.8 5.9 51.1 85.4
32. Tamil Nadu 414 433 4.7 3.1 93.2 98.8
33. Telangana - 278 - 0.04 - 82.8
All India 10,820 6,005 5 4.5 94.9 91.7
-: Nil / negligible.
Notes: 1. Components may not add up to total due to rounding off.
2. Recovery for the year 2015-16 is taken as on 30th June 2015.
Source : NABARD.
117799Report on Trend and Progress of Banking in India 2016-17
Appendix Table VI.4: Salient Indicators of Financial Health of District Central Co-operative Banks - Region
and State-wise
(As at end-March)
(Amount in ` million)
Sr. Region/State 2014-2015 2015-2016 2015 2016
No.
No. of Profit Loss No. of Profit Loss NPA Recov- NPA Recov-
report- report- to ery to to ery to
ing No. of Amt. No. of Amt. ing No. of Amt. No. of Amt. Loans Demand Loans Demand
DCCBs DCCBs DCCBs DCCBs DCCBs DCCBs ratio (per ratio (per
(per cent) (per cent)
cent) (At end- cent) (At end-
June) June) **
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Northern Region 69 56 1,373 13 657 72 60 1,447 12 607 5.2 89.8 5.7 68.5
1 Haryana 17 11 119 6 296 19 14 265 5 158 6.0 67.5 5.8 67.8
2 Himachal
Pradesh 2 2 497 0 0 2 2 535 0 0 10.8 75.7 11.8 49.5
3 Jammu &
Kashmir 3 2 61 1 54 3 1 25 2 243 15.4 56.3 15.1 49.3
4 Punjab 20 18 295 2 102 20 18 222 2 73 4.1 91.5 4.8 87.6
5 Rajasthan 27 23 401 4 206 28 25 399 3 133 3.6 89.9 3.8 88.3
Eastern Region 61 53 943 8 1,019 64 55 1,722 9 531 11.4 71.2 10.7 49.5
6 Bihar 22 18 170 4 418 22 18 108 4 118 30.9 24.8 24.5 30.5
7 Jharkhand 6 2 32 4 601 8 7 417 1 11 43.1 18.8 47.6 25.2
8 Odisha 17 17 294 0 0 17 17 832 0 0 8.3 72.7 7.6 74.1
9 West Bengal 16 16 447 0 0 17 13 364 4 401 9.2 79.1 9.9 68.2
Central Region 103 77 3,327 26 3,196 104 85 3,395 19 1,950 14.3 74.3 13.0 60.9
10 Chhattisgarh 6 6 833 0 0 6 6 738 0 0 15.8 77.6 14.9 72.4
11 Madhya Pradesh 38 33 1,289 5 446 38 34 1,284 4 706 14.4 74.3 13.3 61.0
12 Uttar Pradesh 49 30 786 19 2,584 50 36 961 14 1,076 13.9 71.8 13.2 49.0
13 Uttaranchal 10 8 420 2 166 10 9 412 1 169 9.6 81.7 8.5 61.1
Western Region 46 40 6,885 6 3,259 49 41 4,591 8 1,218 11.9 72.5 12.8 75.7
14 Gujarat 18 16 1,288 2 475 18 17 1,309 1 6 5.7 89.9 5.8 86.0
15 Maharashtra 28 24 5,597 4 2,784 31 24 3,282 7 1,212 14.0 66.4 15.0 65.5
Southern
Region 80 75 5,883 5 2,232 81 78 5,749 3 1,369 7.5 75.9 6.7 85.5
16 Andhra Pradesh 13 11 542 2 1,134 13 12 568 1 139 8.2 52.1 5.7 83.0
17 Telangana 9 9 278 0 0 21 21 1,134 0 0 6.8 51.1 4.5 92.7
18 Karnataka 21 19 1,171 2 466 14 14 1,301 0 0 4.0 93.5 7.7 85.1
19 Kerala 14 14 1,466 0 0 24 22 2,504 2 1,229 8.2 87.4 8.1 79.0
20 Tamil Nadu 23 22 2,426 1 631 9 9 241 0 0 9.2 90.1 5.4 87.7
All India 359 301 18,412 58 10,363 370 319 16,903 51 5,675 9.4 77.3 9.3 79.6
Notes: 1. Components may not add up to the exact total due to rounding off.
2. ** Recovery for the year 2015-16 is taken as on 30th June 2015.
Source : NABARD.
118800Appendix Tables
Appendix Table VI.5: Select Indicators of Primary Agricultural Credit Societies - State-wise (Continued)
(As at end-March 2016)
(Amount in ` million)
Sr. State Number Deposits Working Loans and Advances Societies in Profit
No. of PACS Capital Outstanding
Agriculture Non- Number Amount
Agriculture
1 2 3 4 5 6 7 8 9
Northern Region 11,480 57,488 303,637 126,161 4,152 8,122 13,058
1 Chandigarh 17 0.00 1 - 0.09 10 -
2 Haryana 711 5,048 121,404 108,087 3,675 99 123
3 Himachal Pradesh* 2,135 22,832 28,783 5,864 106 1,718 3
4 Jammu & Kashmir* 643 42 593 376 15 451 4
5 Punjab* 1,609 4,343 12,059 11,834 356 925 1,986
6 Rajasthan 6,365 25,223 140,798 N.A. N.A. 4,919 10,943
North-Eastern Region 3,499 981 6,908 512 61 653 896
7 Arunachal Pradesh* 34 - 194 - - 13 45
8 Assam* 766 - 1,112.3 57 2 309 764
9 Manipur* 223 - 62 - - 24 1
10 Meghalaya 179 74 363 187 17 54 5
11 Mizoram* 136 33 2,586 21 7 N.A. N.A.
12 Nagaland* 1,719 642 1,125 20 36 N.A. N.A.
13 Sikkim 174 N.A. 172 55 - 82 4
14 Tripura 268 232 1,295 173 - 171 76
Eastern Region 18,612 35,997 110,765 61,799 4,056 4,283 451
15 Andaman and Nicobar Islands 46 15 89 110 - 20 1
16 Bihar* 8,463 1,753 5,082 - - 1,180 60
17 Jharkhand n.a n.a n.a n.a n.a n.a n.a
18 Odisha 2,701 15,318 59,297 47,815 1,648 739 185
19 West Bengal* 7,402 18,910 46,297 13,875 2,408 2,344 204
Central Region 15,478 22,054 134,683 64,509 2,810 8,205 2,373
20 Chhattisgarh 1,333 4,705 38,656 16,400 388 912 758
21 Madhya Pradesh* 4,457 8,173 64,555 33,996 1,189 2,153 1,312
22 Uttarakhand* 759 8,495 18,880 6,110 1,234 604 125
23 Uttar Pradesh* 8,929 682 12,593 8,003 - 4,536 177
Western Region 29,977 9,892 293,525 193,832 10,072 14,998 572
24 Goa 79 320 707 140 106 61 12
25 Gujarat 8,804 7,826 117,284 85,331 2,224 6,013 519
26 Maharashtra 21,094 1,746 175,535 108,360 7,742 8,924 41
Southern Region 14,321 884,242 1,163,526 305,298 486,723 8,980 23,166
27 Andhra Pradesh 2,050 13,434 89,335 56,405 7,130 1,287 1,819
28 Telangana 798 3,745 N.A. 7,701 2,357 485 1,655
29 Karnataka 5,337 58,599 180,377 99,507 N.A. 3,867 320
30 Kerala 1,647 727,235 689,034 69,554 368,633 1,033 8,269
31 Puducherry 53 1,306 1,979 370 39 19 17
32 Tamil Nadu 4,436 79,923 202,800 71,761 108,565 2,289 11,086
All India 93,367 1,010,655 2,013,044 752,111 507,875 45,241 40,516
-: Nil / negligible. n.a. = not applicable, N.A. = Not Available
Notes: 1.*: Data relate to previous year.
2. Data are provisional for 2015-16.
Source: NAFSCOB.
118811Report on Trend and Progress of Banking in India 2016-17
Appendix Table VI.5: Select Indicators of Primary Agricultural Credit Societies - State-wise (Concluded)
(As at end-March 2016)
(Amount in ` million)
Sr. State Societies in Loss Viable Potentially Dormant Defunct Others
No. viable
Number Amount
1 2 10 11 12 13 14 15 16
Northern Region 2,771 15,569 2,259 1,767 61 189 7,204
1 Chandigarh 2 - 12 - - 5 -
2 Haryana 612 3,558 N.A. N.A. N.A. N.A. 711
3 Himachal Pradesh* 343 - 476 1,582 51 6 20
4 Jammu & Kashmir* 86 1 463 66 10 96 8
5 Punjab* 472 8,289 1,308 119 - 82 100
6 Rajasthan 1,256 3,721 N.A. N.A. N.A. N.A. 6,365
North-Eastern Region 872 1,150 1,876 442 681 384 116
7 Arunachal Pradesh* 19 72 20 5 4 5 -
8 Assam* 419 991 709 57 - - -
9 Manipur* 194 - 223 - - - -
10 Meghalaya 125 68 34 123 22 - -
11 Mizoram* N.A. N.A. 15 5 - - 116
12 Nagaland* N.A. N.A. 457 228 655 379 -
13 Sikkim 18 - 158 16 - - -
14 Tripura 97 19 260 8 - - -
Eastern Region 9,883 2,790 14,140 2,878 586 411 597
15 Andaman & Nicobar Island 24 6 39 5 - 2 -
16 Bihar* 3,962 9 8,463 - - - -
17 Jharkhand n.a n.a n.a n.a n.a n.a n.a
18 Odisha 1,861 2,630 1,709 616 10 1 365
19 West Bengal* 4,036 145 3,929 2,257 576 408 232
Central Region 4,664 3,221 12,413 2,430 393 172 70
20 Chhattisgarh 421 1,382 1,141 192 - - -
21 Madhya Pradesh* 2,129 1,782 3,663 720 4 - 70
22 Uttarakhand* 146 41 494 249 7 9 -
23 Uttar Pradesh* 1,968 15 7,115 1,269 382 163 -
Western Region 13,576 548 20,979 8,129 642 153 74
24 Goa 17 13 60 9 9 1 -
25 Gujarat 1,820 456 4,862 3,157 579 132 74
26 Maharashtra 11,739 79 16,057 4,963 54 20 -
Southern Region 4,929 41,244 10,383 2,969 275 169 525
27 Andhra Pradesh 679 2,584 1,538 436 6 - 70
28 Telangana 231 1,238 798 - - - -
29 Karnataka 1,470 460 3,657 1,143 132 80 325
30 Kerala 514 6,312 1,464 142 26 12 3
31 Puducherry 34 166 19 34 - - -
32 Tamil Nadu 2,001 30,484 2,907 1,214 111 77 127
All India 36,695 64,521 62,050 18,615 2,638 1,478 8,586
-: Nil / negligible. n.a. = not applicable, N.A. = Not Available.
Notes: 1.*: Data relate to previous year.
2. Data are provisional for 2015-16.
Source: NAFSCOB.
118822Appendix Tables
Appendix Table VI.6: Major Financial Indicators of State Co-operative Agriculture and
Rural Development Banks - State-wise
(As at end-March)
(Amount in ` million)
Sr. Region/State Branches Profit/Loss NPA to Loans ratio Recovery Ratio@@
No. (per cent) (per cent)
(at End-June)
2016 2015 2016** 2015 2016 2015 2016
1 2 3 4 5 6 7 8 9
Northern Region 84 -113 307 32.4 34.8 45.1 44.8
1 Haryana @ 0 -431 - 63.4 73.0 28.2 28.2
2 Himachal Pradesh # 33 96 - 37.2 26.4 53.4 54.7
3 Jammu & Kashmir* 51 -64 - 13.0 11.5 41.7 50.6
4 Punjab @ 0 249 254 1.4 3.6 84.2 86.2
5 Rajasthan @ 0 37 52 39.7 38.5 39.1 35.8
North-Eastern Region 5 -3 7 60.7 41.4 50.7 44.0
6 Assam* - -2 - 91.4 - 13.5 -
7 Tripura* 5 -2 7 50.7 41.4 62.3 44.0
Eastern Region 2 -451 6 36.8 25.0 28.2 38.1
8 Bihar* - -205 - 100.0 - 7.8 -
9 Odisha@ - -3 - 100.0 - 0.0 -
10 West Bengal # 2 -242 6 26.9 25.0 57.2 38.1
Central Region 323 -1,776 152 50.3 42.5 41.8 44.4
11 Chhattisgarh @ - - - - - - -
12 Madhya Pradesh @ - -1,976 - 86.3 - 3.7 -
13 Uttar Pradesh * 323 200 152 38.1 42.5^ 60.1 44.4
Western Region 181 -1,807 241 80.9 48.9 15.3 42.5
14 Gujarat* 181 241 241 46.5 48.9 43.2 42.5
15 Maharashtra @ - -2,048 - 99.9 - 0.0 -
Southern Region 40 256 271 6.9 6.4 75.8 83.0
16 Karnataka @ 25 1 1 23.3 23.5 42.1 35.0
17 Kerala @ 14 234 243 1.1 0.5 98.7 98.8
18 Puducherry* 1 -6 - 9.1 5.5 74.9 94.9
19 Tamil Nadu @ 0 27 27 5.5 9.1 94.9 74.9
All India 635 -3,894 982 30.3 16.6 46.7 63.6
- : Nil / negligible @ Federal structure. # Mixed structure. * Unitary structure ^ Data taken from NAFCARD.
Notes: 1. Components may not add up to the exact total/s due to rounding off.
2. In Chhattisgarh the Short-term co-operative credit structure merged with Long-term during 2014-15. Also Assam, Bihar,
Odisha, Madhya Pradesh and Maharashtra are no longer functional SCARDBs.
3. @@: Recovery for the year 2015-16 is taken as on 30th June 2015.
4. In Tamil Nadu, branches were closed in 2014-15.
5. **: In 2016, figures were reported only for the profit-making institutions.
Source: NABARD.
118833Report on Trend and Progress of Banking in India 2016-17
Appendix Table VI.7: Major Financial Indicators of Primary Co-operative Agriculture and
Rural Development Banks – State-wise
(As at end-March)
(Amount in ` million)
State 2014-15 2015-16 NPAs to Recovery ratio
Loans ratio (per cent)
Profit Loss Profit Loss (per cent) (At end-June)
Number Amount Number Amount Number Amount Number Amount 2015 2016 2015 2016
1 2 3 4 5 6 7 8 9 10 11 12 13
Northern Region 86 360 59 2,593 58 467 106 2,769 43.2 46.8 40.1 41.4
Haryana 1 32 18 1,465 1 10 18 1,007 67.1 62.3 59.2 29.3
Himachal Pradesh 1 2 0 0 9 139 11 - 5.5 58.3 60.7 60.0
Punjab 65 249 24 717 31 254 58 1,280 28.8 38.7 32.6 61.7
Rajasthan 19 77 17 411 17 64 19 482 43.0 43.0 40.1 35.3
Central Region 7 11 31 503 - - - - 68.4 - 8.4 -
Chhattisgarh - - - - - - - - - - - -
Madhya Pradesh 7 11 31 503 - - - - 68.4 - 8.4 -
Eastern Region 6 48 64 401 9 54 15 218 43.2 43.4 57.6 38.5
Odisha 0 0 46 91 - - - - 100.0 0.0 6.1 -
West Bengal 6 48 18 310 9 54 15 218 42.0 43.4 60.0 38.5
Western Region 11 675 18 433 - - - - 100.0 0.0 15.4 -
Maharashtra 11 675 18 433 - - - - 100.0 0.0 15.4 -
Southern Region 209 664 209 1,649 239 657 174 1,649 23.2 22.0 72.0 69.0
Karnataka 50 117 127 514 80 110 92 514 17.9 16.6 80.8 67.5
Kerala 40 236 21 919 40 236 21 919 26.5 26.5 76.3 76.3
Tamil Nadu 119 311 61 216 119 311 61 216 14.3 14.3 32.1 32.1
All India 319 1,758 381 5,579 306 1,178 295 4,636 36.2 37.0 44.6 43.6
-: Not applicable.
Notes: 1. Components may not add up to the exact total due to rounding off.
2. In Chhattisgarh the Short-term co-operative credit structure merged with Long-term during 2014-15.
Also Maharashtra, Madhya Pradesh and Odisha structures are no longer functional.
3. Recovery for the year 2015-16 is taken as on 30th June, 2016.
Source: NABARD.
118844Appendix Tables
Appendix Table VII.1: Credit to Various Sectors by NBFCs
(End-March)
(Amount in ` billion)
Items 2016 2017 Share in 2017 Percentage
(Per cent) variation
1 2 3 4 5
I. Gross advances 13,169 14,846 100 12.7
II. Non-food credit (1 to 5) 13,167 14,846 100 12.8
1. Agriculture and allied activities 392 346 2.3 -11.7
2. Industry 8,063 8,940 60.2 10.9
2.1 Micro and small 326 508 3.4 55.8
2.2 Medium 154 172 1.2 11.7
2.3 Large 3,726 4,375 29.5 17.4
2.4 Others 3,857 3,885 26.2 0.7
3. Services 1,865 2,224 15.0 19.2
3.1 Transport operators 162 173 1.2 6.8
3.2 Computer software 11 6 0 -45.5
3.3 Tourism, hotel and restaurants 49 60 0.4 22.4
3.4 Shipping 11 7 0.1 -36.4
3.5 Professional services 47 71 0.5 51.1
3.6 Trade 279 230 1.6 -17.6
3.6.1 Wholesale trade (other than food procurement) 99 60 0.4 -39.4
3.6.2 Retail trade 180 170 1.1 -5.6
3.7 Commercial real estate 566 958 6.5 69.3
3.8 NBFCs 208 198 1.3 -4.8
3.9 Aviation 5 6 0 20.0
3.10 Other services 526 514 3.5 -2.3
4. Retail loans 2,047 2,490 16.8 21.6
4.1 Housing loans (incl. priority sector housing) 147 106 0.7 -27.9
4.2 Consumer durables 31 57 0.4 83.9
4.3 Credit card receivables 92 138 0.9 50.0
4.4 Vehicle / auto loans 1,150 1,035 7.0 -10.0
4.5 Education loans 32 44 0.3 37.5
4.6 Advances against fixed deposits (incl. FCNR (B), etc.) 1 2 0 100.0
4.7 Advances to individuals against shares, bonds, etc. 78 124 0.8 59.0
4.8 Other retail loans 516 984 6.6 90.7
5. Other non-food credit 801 847 5.7 5.7
Notes: 1) This format of reporting of credit to various sectors was introduced from March 31, 2016. Hence, the comparable data for
previous years are not available.
2) Food credit in 2015-16 was approximately ` 1 billion and nil in 2016-17.
Source: RBI Supervisory Returns.
118855Report on Trend and Progress of Banking in India 2016-17
Appendix Table VII.2: Financial Assistance Sanctioned and Disbursed by
Financial Institutions (Continued)
(Amount in ` billion)
Institutions Loans* Underwriting and direct
subscription
2015-16 2016-17 2015-16 2016-17
S D S D S D S D
1 2 3 4 5 6 7 8 9
A. All India Financial Institutions (1 to 4) 3,332 2,874 3,822 3,043 6 1 12 3
1. NABARD 1,695 1,582 2,401 1,977 0 0 0 0
2. SIDBI 555 558 394 392 6 1 12 3
3. EXIM Bank 726 518 648 447 0 0 0 0
4. NHB** 357 217 379 228 0 0 0 0
B. Specialised Financial Institutions (5, 6 and 7) 11 7 13 7 1 1 2 2
5. IVCF 4 3 3 2 0 0 0 0
6. ICICI venture _ _ _ _ _ _ _ _
7. TFCI 6 4 10 5 1 1 2 2
C. Investment Institutions (8 and 9) 21 12 3 8 392 381 684 329
8. LIC 21 12 3 8 391 381 683 328
9. GIC 0 0 0 0 0 0 0 0
D. Financial Institutions (A+B+C) 3,363 2,893 3,837 3,058 398 383 698 333
E. State Level Institutions (10 and 11)
10. SFCs .. .. .. .. .. .. .. ..
11. SIDCs .. .. .. .. .. .. .. ..
F. Total Assistance by All Financial Institutions (D+E) 3,363 2,893 3,837 3,058 398 383 698 333
118866Appendix Tables
Appendix Table VII.2: Financial Assistance Sanctioned and Disbursed by
Financial Institutions (Concluded)
(Amount in ` billion)
Institutions Others# Total Percentage
Variation
2015-16 2016-17 2015-16 2016-17 2016-17
S D S D S D S D S D
1 10 11 12 13 14 15 16 17 18 19
A. All India Financial Institutions (1 to 4) 27 35 61 91 3,366 2,912 3,895 3,137 15.7 7.7
1. NABARD 0 0 0 0 1,695 1,582 2,401 1,977 41.7 25.0
2. SIDBI 1 1 0 0 561 559 406 395 -27.7 -29.4
3. EXIM Bank 27 33 61 85 753 552 709 531 -5.8 -3.6
4. NHB** 0 2 0 6 357 219 379 234 6.2 6.8
B. Specialised Financial Institutions (5, 6 and 7) 0 0 0 0 11 8 14 9 28.5 17.2
5. IVCF 0 0 0 0 4 3 3 2 -31.0 -32.1
6. ICICI venture _ _ _ _ _ _ _ _ _ _
7. TFCI 0 0 0 0 7 4 12 7 63.3 49.3
C. Investment Institutions (8 and 9) 1 1 1 1 413 394 687 337 66.3 -14.4
8. LIC 1 1 1 1 413 394 687 337 66.3 -14.5
9. GIC 0 0 0 0 0 0 0 0 16.1 16.1
D. Financial Institutions (A+B+C) 29 37 62 92 3,790 3,313 4,597 3,483 21.3 5.1
E. State Level Institutions (10 and 11)
10. SFCs .. .. .. .. .. .. .. .. .. ..
11. SIDCs .. .. .. .. .. .. .. .. .. ..
F. Total Assistance by All Financial Institutions (D+E) 29 37 62 92 3,790 3,313 4,597 3,483 21.3 5.1
S: Sanctions. D: Disbursements. _: Nil .. : Not Available.
*: Loans include rupee loans and foreign currency loans.
**: End-June for NHB.
#: Others include guarantees.
Notes: 1. Data for 2016-17 are provisional.
2. Components may not add up to the whole due to rounding off.
Source: Respective financial institutions.
118877Report on Trend and Progress of Banking in India 2016-17
Appendix Table VII.3: Financial Performance of Primary Dealers (Continued)
(Amount in ` million)
Sl. Name of the Primary Dealers Year Income
No.
Interest income Trading Other Total
(including discount profit income income
income)
1 2 3 4 5 6 7
1 STCI Primary Dealer Ltd. 2014-15 2,902 1,182 50 4,133
2015-16 3,591 -174 25 3,441
2016-17 3,595 2,413 18 6,027
2 SBI DFHI Ltd. 2014-15 3,545 780 44 4,369
2015-16 3,608 648 43 4,300
2016-17 3,753 2,223 33 6,009
3 ICICI Securities Primary Dealership Ltd. 2014-15 9,103 3,528 458 13,088
2015-16 10,305 2,890 425 13,619
2016-17 10,479 5,192 599 16,270
4 PNB Gilts Ltd. 2014-15 3,329 755 22 4,107
2015-16 3,596 -184 31 3,443
2016-17 3,132 1,858 17 5,007
5 Morgan Stanley India Primary Dealer Pvt. Ltd. 2014-15 2,489 252 31 2,773
2015-16 2,433 338 43 2,814
2016-17 1,914 500 25 2,439
6 Nomura Fixed Income Securities Pvt. Ltd. 2014-15 1,733 812 9 2,554
2015-16 1,894 -110 9 1,794
2016-17 3,084 1,260 7 4,351
7 Goldman Sachs (India) Capital Markets Pvt. Ltd. 2014-15 1,022 406 10 1,437
2015-16 1,117 -324 12 805
2016-17 1,369 824 7 2,200
Total 2014-15 24,122 7,716 624 32,461
2015-16 26,545 3,083 588 30,216
2016-17 27,325 14,271 705 42,302
118888Appendix Tables
Appendix Table VII.3: Financial Performance of Primary Dealers (Concluded)
(Amount in ` million)
Sl. Name of the Primary Dealers Year Expenditure Profit Profit Return
No. before after on net
Interest Other Total tax tax worth
expenses expenses expenditure (per
cent)
1 2 3 8 9 10 11 12 13
1 STCI Primary Dealer Ltd. 2014-15 2,502 319 2,822 1,311 801 21.5
2015-16 3,057 249 3,306 136 92 2.4
2016-17 2,920 349 3,269 2,757 1,784 36.4
2 SBI DFHI Ltd. 2014-15 2,681 284 2,965 1,404 935 9.4
2015-16 2,918 291 3,209 1,090 723 7.1
2016-17 2,973 350 3,322 2,687 1,757 16.0
3 ICICI Securities Primary Dealership Ltd. 2014-15 8,643 1,090 9,733 3,355 2,180 26.3
2015-16 9,451 1,148 10,598 3,021 1,955 21.9
2016-17 8,659 1,279 9,938 6,332 4,114 40.3
4 PNB Gilts Ltd. 2014-15 2,605 176 2,781 1,326 888 11.9
2015-16 2,756 172 2,929 515 345 4.6
2016-17 2,257 214 2,471 2,535 1,653 19.1
5 Morgan Stanley India Primary Dealer Pvt. Ltd. 2014-15 2,075 210 2,285 488 321 6.7
2015-16 1,971 194 2,165 649 422 8.0
2016-17 1,327 166 1,492 946 618 10.6
6 Nomura Fixed Income Securities Pvt. Ltd. 2014-15 1,231 321 1,553 1,002 663 11.6
2015-16 1,381 341 1,722 72 46 0.8
2016-17 2,249 454 2,704 1,647 1,056 16.3
7 Goldman Sachs (India) Capital Markets Pvt. Ltd. 2014-15 649 308 956 481 313 6.5
2015-16 741 252 993 -188 -128 -2.7
2016-17 981 310 1,291 909 654 12.4
Total 2014-15 20,387 2,707 23,094 9,367 6,099 13.6
2015-16 22,275 2,647 24,922 5,294 3,455 7.5
2016-17 21,367 3,122 24,489 17,813 11,634 22.2
Notes: 1. Deutsche securities had surrendered its PD license w.e.f. March 28, 2014.
2. All amounts are rounded off to the nearest million.
Source: Returns submitted by the Primary Dealers.
118899Report on Trend and Progress of Banking in India 2016-17
Appendix Table VII.4: Select Financial Indicators of Primary Dealers (Continued)
(Amount in ` billion)
Sr. Name of the Primary Dealers Capital funds CRAR (Per cent)
No. (Tier I + Tier II + Eligible Tier III)
2013-14 2014-15 2015-16 2016-17 2013-14 2014-15 2015-16 2016-17
1 2 3 4 5 6 7 8 9 10
1 SBI DFHI Ltd. 9 10 10 10 95 75 38 91
2 ICICI Securities Primary Dealership Ltd. 12 12 12 13 42 27 25 26
3 Nomura Fixed Income Securities Pvt. Ltd. 5 6 6 7 34 26 53 52
4 STCI Primary Dealer Ltd. 3 4 4 5 21 24 24 39
5 Morgan Stanley India Primary Dealer Pvt. Ltd. 5 5 5 6 69 97 143 82
6 PNB Gilts Ltd. 7 7 7 8 49 65 70 51
7 Goldman Sachs (India) Capital Markets Pvt. Ltd. 5 5 5 5 52 39 164 155
Total 45 48 49 55 46 40 42 47
119900Appendix Tables
Appendix Table VII.4: Select Financial Indicators of Primary Dealers (Concluded)
(Amount in ` billion
Sr. Name of the Primary Dealers Stock of government securities and Total assets (Net of current
No. treasury bills (Market value) liabilities and provisions)
2013-14 2014-15 2015-16 2016-17 2013-14 2014-15 2015-16 2016-17
1 2 11 12 13 14 15 16 17 18
1 SBI DFHI Ltd. 25 29 42 20 9 10 10 30
2 ICICI securities Primary Dealership Ltd. 60 99 123 66 94 139 145 108
3 Nomura Fixed Income Securities Pvt. Ltd. 11 9 19 12 5 6 6 27
4 STCI Primary Dealer Ltd. 14 31 42 36 3 4 4 53
5 Morgan Stanley India Primary Dealer Pvt. Ltd. 19 32 19 20 11 31 20 34
6 PNB Gilts Ltd. 24 31 34 32 7 7 7 44
7 Goldman Sachs (India) Capital Markets Pvt. Ltd. 13 18 23 11 13 18 24 15
Total 165 249 301 196 142 214 216 312
Note: Amount rounded off to the nearest billion.
Source: Returns submitted by the Primary Dealers.
119911