Category: Banking & Finance

Net profits of scheduled commercial banks (SCBs) turned around in FY20 after losses in the previous two years. Although PSBs incurred losses for the fifth year in a row, the quantum of losses shrank. Payment banks (PBs) could not break-even as they incurred high initial capital expenditure and wage bills. The improvement in financial performance also reflected an increase in trading income on profit booking in the light of favourable yield movements. In line with the increasing share of private banks (PVBs) in banking assets, their share in operating profits also increased to 43.4% in FY20 at the cost of PSBs.

The consolidated balance sheet of SCBs has grown in H1FY21 after a deceleration in FY20 on account of subdued economic activity, deleveraging of corporate balance sheets and muted business sentiment impacting credit supply.

After a gap of two consecutive years, SCBs’ loan growth decelerated in FY20, reflecting both risk aversion and tepid demand. During FY21 so far, this phenomenon has been accentuated by the pandemic. The loan book of PVBs was affected disproportionately relative to their counterparts on asset quality concerns and higher provisioning requirements. Credit expansion was at a higher pace among PSBs during the March, June and September 2020 quarters, after three consecutive quarters of deceleration.

On the liabilities side, a slowdown in deposit growth contributed to banks’ financial weakness. The recovery in FY21 so far has been driven by investments and deposit growth in spite of the Covid-19 pandemic, the central bank said. SCBs’ deposit growth remained elevated throughout the first three quarters of FY20 relative to the period since September 2017. During the last quarter, however, deposit growth — especially in PVBs — decelerated. Currency with the public surged in response to the Covid-induced dash for cash while solvency issues related to a private sector bank (presumably Yes Bank) also brought about some reassignment of deposits, the RBI said.

During FY21 so far, deposits with PSBs have grown at a higher pace than usual, partly reflecting their perception as safe havens. Term deposits – contributing almost 60% of total deposits – moderated, reflecting the easing of interest rates and the lure of returns on competing asset classes. Term deposit growth of PVBs decelerated sharply even as it quadrupled in PSBs. Foreign banks aggressively raised low-cost current and saving account (CASA) deposits, although their share in total deposits remains low. Subdued credit growth and relatively robust deposit growth for a greater part of the year resulted in a decline in borrowing requirements of banks, except for PVBs, the report said.