Chapter II: Developments in Commercial Banking (Part 3 of 4) - ആർബിഐ - Reserve Bank of India
Chapter II: Developments in Commercial Banking
(Part 3 of 4)
The State Bank group showed the lowest increase in other income (14.3 per cent) from Rs.4,223.3 crore in 1998-99 to Rs.4,827.9 crore in 1999-2000 [Appendix Tables II.4(A) to (G)]. There was an improvement in the ratio of other income to total assets among all the groups of banks barring the State Bank group during 1999-2000. The ratio of other income to total assets of SCBs increased from 1.34 per cent in 1998-99 to 1.43 per cent in 1999-2000. In the case of PSBs the ratio increased from 1.22 per cent in 1998-99 to 1.28 per cent in 1999-2000. The State Bank group showed a fall from 1.48 per cent in 1998-99 to 1.44 per cent in 1999-2000. In respect of old private sector banks, the ratio increased from 1.33 per cent in 1998-99 to 1.68 per cent in 1999-2000. The nationalised banks showed an improvement from 1.08 per cent in 1998-99 to 1.19 per cent in 1999-2000. The ratio increased from 2.43 per cent in 1998-99 to 2.60 per cent in 1999-2000 in the case of foreign banks.
Expenditure
2.24 The expenditure of SCBs registered an increase of 13.1 per cent from Rs.95,571.7 crore in 1998-99 to Rs.1,08,079.6 crore in 1999-2000. Among the bank groups, new private sector banks recorded the maximum increase (29.6 per cent) from Rs.3,733.4 crore in 1998-99 to Rs.4,838.1 crore in 1999-2000, followed by old private sector banks (14.8 per cent) from Rs.7,050.7 crore in 1998-99 to Rs.8,094.8 crore in 1999-2000. The foreign bank group showed the lowest increase in expenditure at around 1.8 per cent from Rs.9,191.0 crore in 1998-99 to Rs. 9,360.2 crore in 1999-2000 [Appendix Tables II.4(A) to (G)]. The ratio of expenditure to total assets of scheduled commercial banks declined marginally from 10.05 per cent in 1998-99 to 9.73 per cent in 1999-2000. There was an overall decline in this ratio among all bank groups during 1999-2000. In the case of PSBs, the ratio declined from 9.82 per cent in 1998-99 to 9.63 per cent in 1999-2000. The State Bank group showed a fall from 9.76 per cent in 1998-99 to 9.32 per cent in 1999-2000. In the case of old private sector banks, the ratio declined from 10.77 per cent in 1998-99 to 10.42 per cent in 1999-2000. The nationalised banks exhibited a decline from 9.85 per cent in 1998-99 to 9.82 per cent in 1999-2000. In the case of foreign banks, the ratio declined from 12.0 per cent in 1998-99 to 11.3 per cent in 1999-2000 (Table II.19).
Interest Expended
2.25 The interest expended of SCBs showed an increase of 13.8 per cent from Rs.60,905.0 crore in 1998-99 to Rs.69,317.0 crore in 1999-2000. Among the bank groups, new private sector banks exhibited the maximum increase (19.8 per cent) from Rs.2,776.9 crore in 1998-99 to Rs.3,326.6 crore in 1999-2000, followed by the State Bank group (17.2 per cent) from Rs.16,982.8 crore in 1998-99 to Rs.19,897.1 crore in 1999-2000. The foreign banks group recorded a decline (4.1 per cent) in interest expended from Rs.5,200.6 crore in 1998-99 to Rs.4,986.2 crore in 1999-2000 [Appendix Tables II.4(A) to (G)]. The ratio of interest expended to total assets of scheduled commercial banks declined from 6.41 per cent in 1998-99 to 6.24 per cent in 1999-2000. The decline in this ratio was seen in all the bank groups during 1999-2000 except in the case of PSBs and nationalised banks. In the case of PSBs, the ratio increased marginally from 6.21 per cent in 1998-99 to 6.22 per cent in 1999-2000. The State Bank group exhibited a fall from 5.94 per cent in 1998-99 to 5.92 per cent in 1999-2000. The ratio declined from 7.77 per cent in 1998-99 to 7.24 per cent in 1999-2000 in respect of old private sector banks. The nationalised banks showed an increase from 6.37 per cent in 1998-99 to 6.40 per cent in 1999-2000. In the case of foreign banks, the ratio declined from 6.79 per cent in 1998-99 to 6.02 per cent in 1999-2000 (Table II.20).
Operating Expenses
2.26 The operating expenses of SCBs showed an increase of 9.1 per cent from Rs.25,346.3 crore in 1998-99 to Rs.27,645.6 crore in 1999-2000. Among the bank groups, the new private sector banks registered the highest percentage increase (25.1 per cent) from Rs.669.3 crore in 1998-99 to Rs.837.0 crore in 1999-2000, followed by old private sector banks (14.2 per cent) from Rs.1,482.3 crore in 1998-99 to Rs.1,692.1 crore in 1999-2000. The foreign bank group registered a decline in operating expenses of 3.3 per cent from Rs.2,745.0 crore in 1998-99 to Rs.2,655.4 crore in 1999-2000 [Appendix Tables II.4(A) to (G)]. The ratio of operating expenses to total assets of SCBs declined from 2.67 per cent in 1998-99 to 2.49 per cent in 1999-2000. The decline in this ratio was characteristic of all the bank groups during 1999-2000. The ratio declined from 2.66 per cent in 1998-99 to 2.52 per cent in 1999-2000 in the case of PSBs. The nationalised banks showed a fall from 2.63 per cent in 1998-99 to 2.56 per cent in 1999-2000. The State Bank group exhibited a decline from 2.70 per cent in 1998-99 to 2.46 per cent in 1999-2000. In the case of new private sector banks, the ratio of operating expenses to total assets declined from 1.74 per cent in 1998-99 to 1.42 per cent in 1999-2000 (Chart II.8). The ratio declined from 2.26 per cent in 1998-99 to 2.18 per cent in 1999-2000 in respect of old private sector banks. In the case of foreign banks the ratio declined from 3.59 per cent in 1998-99 to 3.21 per cent in 1999-2000 (Table II.21).
Wage Bill
2.27 The ratio of wage bill to total assets showed large divergences among the bank groups. While it was the highest in the case of nationalised banks, it was the lowest in the case of new private sector banks reflecting the greater impact of computerisation in the latter. The wage bill of SCBs exhibited an increase of 10.9 per cent from Rs.16,649.5 crore in 1998-99 to Rs.18,467.4 crore in 1999-2000. Among the bank groups, new private sector banks showed the maximum proportional increase (36.0 per cent) from Rs.120.0 crore in 1998-99 to Rs.163.2 crore in 1999-2000 followed by old private sector banks (17.4 per cent) from Rs.920.0 crore in 1998-99 to Rs.1,080.3 crore in 1999-2000. The share of wage bill in the case of new private sector banks in their operating expenses was 19.5 per cent in 1999-2000 in sharp contrast to the respective shares at 72.8 per cent, 73.6 per cent, 71.6 per cent and 63.8 per cent for the 27 PSBs, 19 nationalised banks, SBI group and the 24 old private sector banks respectively [Appendix Tables II.4(A) to (G)]. There was an overall decline in the ratio of wage bill to total assets among all the groups of banks excepting the foreign bank group which showed a marginal rise. The ratio of wage bill to total assets of scheduled commercial banks declined from 1.75 per cent in 1998-99 to 1.66 per cent in 1999-2000. The wage bill ratio of PSBs declined from 1.93 per cent in 1998-99 to 1.84 per cent in 1999-2000. The State Bank group exhibited a fall from 1.92 per cent in 1998-99 to 1.76 per cent in 1999-2000. The nationalised banks showed a decline from 1.93 per cent in 1998-99 to 1.88 per cent in 1999-2000. The ratio declined from 1.41 per cent in 1998-99 to 1.39 per cent in 1999-2000 in the case of old private sector banks. However, in the case of foreign banks, the ratio increased from 1.01 per cent in 1998-99 to 1.04 per cent in 1999-2000 (Table II.22).
Provisions and Contingencies
2.28 The provisions and contingencies of SCBs showed an increase of 19.3 per cent from Rs.9,320.4 crore in 1998-99 to Rs.11,117.0 crore in 1999-2000. Among the bank groups, new private sector banks showed the highest increase (134.8 per cent) from Rs.287.2 crore in 1998-99 to Rs.674.4 crore in 1999-2000, followed by old private sector banks (61.0 per cent) from Rs.480.7 crore in 1998-99 to Rs.773.8 crore in 1999-2000. The foreign bank group registered an increase of 38.0 per cent from Rs.1,245.5 crore in 1998-99 to Rs.1,718.6 crore in 1999-2000. The State Bank group was the only one which showed a decline of 0.6 per cent in provisions and contingencies from Rs.3,182.4 crore in 1998-99 to Rs.3,162.3 crore in 1999-2000 [Appendix Tables II.4(A) to (G)]. The ratio of provisions and contingencies to total assets of SCBs increased marginally from 0.98 per cent in 1998-99 to 1.0 per cent in 1999-2000. The increase was maximum in the case of foreign banks by 0.44 percentage point from 1.63 per cent in 1998-99 to 2.07 per cent in 1999-2000. In the case of PSBs, the share of provisions and contingencies in total assets declined from 0.95 per cent in 1998-99 to 0.89 per cent in 1999-2000 which was lowest in the banking sector (Chart II.9). The State Bank group showed a decline from 1.11 per cent in 1998-99 to 0.94 per cent in 1999-2000. Old private sector banks exhibited an increase from 0.73 per cent in 1998-99 to 1.0 per cent in 1999-2000. New private sector banks also showed an increase in this ratio from 0.75 per cent in 1998-99 to 1.15 per cent in 1999-2000 (Table II.23).
Spread
2.29 The ratio of spread (net interest income) to total assets of SCBs declined from 2.78 per cent in 1998-99 to 2.72 per cent in 1999-2000 [Appendix Tables II.4(A) to (G)]. There was a decline in this ratio among all the bank groups except the old private sector banks and foreign financial parameters of foreign banks in India are given in Appendix Tables II.7(A) to (H).
2.30 In view of the indifferent performance banks which showed an improvement in 1999-2000. In the case of old private sector banks the spread ratio increased from 2.15 per cent in 1998-99 to 2.33 per cent in 1999-2000.The ratio of spread to total assets in the case of foreign banks increased to 3.85 per cent in 1999-2000 from 3.47 per cent in 1998-99 (Chart II.10 and Table II.24). The details in respect of financial parameters of individual PSBs are furnished in Appendix Tables II.5(A) to (I), while Bank-wise details for private sector banks are given in Appendix Tables II.6(A) to (H). Bank-wise details of the of a few banks in the public sector in the recent past, a committee was appointed by the Reserve Bank in consultation with the Government of India to suggest measures for strengthening of weak banks. The Committee on Restructuring Weak PSBs identified three banks as ‘weak’, requiring restructuring. Globally the process of restructuring is a common phenomenon to strengthen the banking system. In this context, the strategies adopted in different countries towards the restructuring of weak banks has been quite varied (Box II.2).
Off-Balance Sheet Activities of Scheduled Commercial Banks
2.31 The off-balance sheet activities of scheduled commercial banks include activities relating to forward exchange contracts, guarantees and acceptances, endorsements, etc. The off-balance sheet exposures of all SCBs showed an increase of 27.6 per cent from Rs.4,58,092 crore in 1998-99 to Rs.5,84,440.9 crore in 1999-2000. The off-balance sheet exposure (contingent liabilities) as a proportion of total liabilities of all SCBs also increased by 4.4 percentage points from 48.2 per cent in 1998-99 to 52.6 per cent in 1999-2000. The increase in off-balance sheet exposures resulted primarily from a 31.4 per cent increase in forward exchange contracts whose share in total contingent liabilities increased by 4.4 percentage points from 35.2 per cent in 1998-99 to 39.6 per cent in 1999-2000. The proportion of guarantees in the total liabilities of all SCBs declined by 0.5 percentage point while that of acceptances, endorsements, etc. increased by 0.6 percentage points during 1999-2000 as compared to the previous year (Table II.25).
Box II.2: Strategies for Strengthening Weak Banks: Cross-Country Experience
Bank restructuring gained prominence in the recent past in view of the occurrence of banking crises in developing countries in the 1980s as well as in the 1990s emanating from multiple factors, viz., higher volatility in macroeconomic variables in these countries, tendency of banks to lend liberally during the upswings of business cycles with excessive concentration of credit in real estate and equity markets, sharp increase in the ratio of broad money to GNP due to deregulation and financial innovation without a commensurate increase in bank capital, booming output and rapidly rising collateral values which gave banks a false sense of security and allowed firms to become highly leveraged, inadequate preparation for financial liberalisation particularly in respect of banking supervision, large scale government involvement in the banking sector and loose controls on connected lending, accounting conventions which are not rigorous enough to prevent banks and their borrowers from concealing the true size of the non-performing loan portfolio and bad loans made to look good many a time by additional lending to troubled borrowers (evergreening), etc. Moreover, major international banks in the industrial world were ready to extend loans to poorly rated banks in emerging markets to fund an increasing proportion of their domestic assets by foreign borrowing, where the exchange rate risk in such overseas borrowing was often ignored. Much of the borrowing was short-term and required frequent rollover, leaving banks vulnerable to swings in confidence of overseas lenders.
Cross-country experience reveals that several strategies were adopted to restructure the banking systems. Bank restructuring process adopted in many countries seek to achieve some important goals: preventing bank runs, avoiding a credit crunch, improving the efficiency of the financial intermediation process and attracting new equity into the banking industry. Andrew Sheng (1996) lists the conditions of successful bank restructuring as clear links with enterprise restructuring, stable macroeconomic environment, strong political will, effective restructuring agency, transparent accounting standards, legal framework, financial discipline, incentives favouring private sector growth and competition, availability of professional bankers and effective bank supervision and enforcement. The early step in any bank restructuring programme is to measure correctly how far loans are impaired. Supervisors generally require banks to distinguish three types of Non-performing Loans (NPLs): substandard, doubtful and loss. In line with the practice adopted in G-10 countries and recommendations of the Basle Committee on Banking Supervision, there is a growing tendency to define loans more than three months overdue as substandard.
In both industrial and emerging economies, bank rescues and mergers are far more common than outright closure. There are several restructuring methods, viz., government capital injection, establishment of asset management corporations, domestic bank mergers and foreign bank takeover. The greater participation of foreign banks has played a key role in restructuring the Brazilian financial system. The main channels have been, first, capital increases in banking institutions where foreign banks were already minority shareholders and, secondly, the entry of new banks. Foreign institutions have also setup or taken over non-banking financial institutions. Brazil also introduced a deposit insurance scheme encompassing all financial institutions subject to liquidation or intervention. This was meant to protect the interest of small depositors who can not be expected to monitor the soundness of their asset portfolio and also to promote savings and better exploit the benefits of a large scale payments system. Sheng (1996) stresses that if a deposit insurance scheme is established, the agency needs adequate powers: "The creation of deposit insurance scheme with insufficient resources or legal powers to deal with the problems can be disastrous. These institutions give the illusion of a responsible agency without the substance. Deposit protection agencies in Kenya and
Philippines were not provided with sufficient resources to deal with the level of bank problems, and in the end the rescuer had to be rescued". The comprehensive approach to bank restructuring undertaken in Brazil has prevented a systemic crisis.
In China, bank restructuring process included not only the restructuring of commercial banks, but also non-bank financial institutions. From 1995 to 1998, more than 2000 urban credit co-operatives were merged into 88 city commercial banks on the basis of assessing assets and capital, writing off some bad debts, estimating net worth of equity and encouraging new shareholders. During 1997 and 1998 one insolvent bank and three trust and investment companies have been closed in China. The asset management company responsible for dealing with NPLs of state banks was established in April 1999.
In Korea, the government is helping the viable banks to recapitalise and dispose of non-performing loans by injecting public funds on the condition that they make efforts on their own to rehabilitate by mergers, injection of foreign capital and improvement of management. Seven banks have been carrying out their rehabilitation plans through mergers, capital increase by inducement of foreign capital, consolidation with subsidiaries, and partial limitation of their banking business activities. To increase the efficiency of bank management through downsizing their organisation and staff, all conditionally approved banks shed more than 32 per cent of their workforce as of end-1997. To resolve the large amounts of NPLs held by financial institutions, the government setup the Non-performing Asset Management Fund in KAMCO in November 1997. In Mexico, the policies adopted for bank restructuring succeeded in avoiding bank runs in the context of very acute problems of the banking system. Banks and governments shared the cost of restructuring. Only a few banks remained with shareholders who had acquired them at the beginning of the 1990s. In Saudi Arabia, to strengthen the banking system a number of steps were undertaken: tax holidays, tax deductibility of provisions for doubtful accounts, withholding tax on inter-bank transactions, creation of banking disputes committee, strengthening of the technological infrastructure, corporate governance and exchange of information on large borrowers and on delinquent loans.
Policy responses have similarities in Thailand, Malaysia and Indonesia in 1997 and early 1998 in the restructuring process; all have setup agencies to manage bad assets and introduced schemes to inject public money as capital into the banks. Asset Management Corporations (AMCs) have been established in all these economies. The first AMC in the region was that in Thailand entrusted with disposing off the assets of the insolvent finance companies. Malaysia established a public company owned by the Ministry of Finance, Danaharta in June 1998 whose objectives are to acquire, manage, finance and dispose of assets and liabilities of financial institutions to allow them to focus on the core business of lending. In Indonesia, the Asset Management Unit is a component of the Indonesia Bank Restructuring Agency (IBRA). In September 1998 the authorities in Indonesia announced that four state owned banks would be merged into the new bank Mandiri. Their bad assets will be transferred to IBRA. The Malaysian authorities announced plans for the country’s banks and finance companies to be merged into six large groups by September 1999. There were schemes to support the recapitalisation of the banking system in all the three economies.
In India the banking system is predominantly under the state ownership. A number of initiatives have been undertaken to strengthen the banking system since 1992 as an integral part of the financial sector reforms, through the introduction of prudential norms on capital adequacy, asset classification, income recognition and provisioning based on the recommendations of the Committee on Financial System (Chairman: Shri M. Narasimham) to strengthen the accounting standards and transparency in the banking system. The CAMEL (Capital Adequacy, Asset Quality, Management, Earnings and Liquidity) method was adopted in 1997 with a modification to it, adding an 'S' for systems, to assess the bank performance. The Committee on Banking sector Reforms (Narasimham Committee-II) had recommended that a weak bank would be one a) where accumulated losses and net NPAs exceed the net worth of the bank or b) one whose operating profit less the income on recapitalisation bonds has been negative for three consecutive years. The Working Group on Restructuring Weak Public Sector Banks (Chairman: Shri M.S. Verma) has recommended the use of seven parameters in conjunction with the two suggested by Narasimham Committee II: i) capital adequacy ratio, ii) coverage ratio, iii) return on assets, iv) net interest margin, v) ratio of operating profit to average working funds, vi) ratio of cost to income and vii) ratio of staff cost to net interest income (NII) plus all other income. After taking into account the above criteria, three banks were identified as weak, viz., Indian Bank, UCO Bank and United Bank of India. Among the various types of methods available in the bank restructuring process, in the Indian context recapitalisation and mergers were resorted to, primarily the former. The total amount of capital injected into the 19 public sector banks during 1992-93 to 1998-99 amounted to Rs.20,446.12 crores, of which Rs.5,729.3 crore (28.0 per cent of the total) was injected into the above three weak banks.
The Working Group recommended an overall cost of restructuring over the next three years of the order of Rs.5,500 crore. In the case of mergers, two have taken place so far in the public sector viz., New Bank of India merged with Punjab National Bank in May 1993 and a non-scheduled bank, Bareily Corporation Bank Limited, merged with Bank of Baroda in June 1999. The Narasimham Committee has recommended the setting up of Asset Reconstruction Fund to manage the bad debts of the banking sector, which is yet to be established. As a part of the restructuring process, the Working Group on Restructuring Weak Public Sector Banks had suggested the constitution of a Financial Restructuring Authority (FRA). As a sequel to this, the Union Government expressed its intention to have a modified version of the FRA. The Government has decided to consider recapitalisation of the weak banks to achieve the prescribed capital adequacy norms, provided a viable restructuring programme is made available by the concerned banks which is also acceptable to the Government and the Reserve Bank. Tarapore (2000) added a note of caution regarding FRA that, ‘It would be highly desirable to setup the FRA as part of the Reserve Bank infrastructure rather than create a new institution and a predictable turf war’. In view of the severe budgetary strain of the Government, the capital has to be raised from the public which leads to reduction in Government shareholding. In order to facilitate this process, the Government has decided to accept the recommendations of Narasimham Committee-II on Banking Sector Reforms for reducing the requirement of minimum shareholding in nationalised banks to 33 per cent. This is imperative due to the fact that the restructuring process through the government has its attendant fiscal costs. In an IMF study, Sundararajan and Balino (1991) have observed that the use of public money for recapitalisation often endangers efforts to rein in budget deficits. Even if budget deficits are viewed as (domestic) transfers rather than as real economic costs, it could compel the authorities towards less benign ways of deficit financing (e.g. an inflation tax); the rescue process itself can weaken the incentives for creditors to monitor the behaviour of banks on a continuous basis.
References
Bank for International Settlements (1999), ‘Bank Restructuring in Practice’, BIS Policy Papers.
Government of India (2000), ‘Budget for 2000-20001’, Speech of Shri Yashwant Sinha, Minister of Finance, February.
Goldstein Morris and Phillip Turner (1996), ‘Banking Crises in Emerging Economies: Origins and Policy Options’, BIS Economic Papers No.46, October.
Goldstein Morris (1997), ‘The Case for an International Banking’, Institute for International Economics, April.
Narasimham, M. (1991), ‘Committee on the Financial
System’, Government of India.
-- (1998), ‘Report of the Committee on Banking Sector Reforms’, Government of India, April.
Reserve Bank of India (1999), ‘ Report of the Working Group on Restructuring Weak Public Sector Banks’, October.
Sheng Andrew (1996), ‘Bank Restructuring Lesson from the 1980s’, The World Bank, Washington D.C.
Sundararajan, V and T.Balino (1991) Banking Crises: Cases and Evidence, International Monetary Fund, Washington D.C.
Tarapore, S.S (2000), ‘The Malaise of the Indian Financial System: The Need for Reforms’, Special Lecture Under T.S. Santhanam Chair in Financial Economics, February.
2.32 A bank group-wise analysis indicates that the new private banks recorded the highest growth rate in off-balance sheet exposures (43.5 per cent), followed by old private banks with a 31.7 per cent increase over the previous year. As a proportion of total liabilities, the off-balance sheet exposures (contingent liabilities) of PSBs increased by 1.7 percentage points from 24.6 per cent in 1998-99 to 26.3 per cent in 1999-2000, 2.7 percentage points in the case of old private banks (from 24.2 per cent to 26.9 per cent) and 53.7 percentage points in the case of foreign banks (from 288.3 per cent to 342.0 per cent) and it declined for new private banks by 5.0 percentage points from 83.1 per cent in 1998-99 to 78.0 per cent in 1999-2000. (Table II.25) (Chart II.11).
3. Non-Performing Assets
2.33 The gross non-performing assets of the SCBs stood at Rs.60,841 crore at end-March 2000 as compared with Rs.58,722 crore in the corresponding period of the preceding year (Table II.26). However, during the year 1999-2000, there has been an overall decline in gross and net NPAs as percentage of gross and net advances as well total assets among all bank groups. Among the major bank groups, in the case of new private sector banks and foreign banks the ratio of net NPAs to net advances were below the median value (6.77 per cent) whereas nationalised banks and old private sector banks remained above the median value (Chart II.12). Similarly, with respect to the ratio of net NPAs to total assets, new private sector banks and foreign banks were below the median value (2.66 per cent) whereas the nationalised banks and old private sector banks remained above the median value (Chart II.13). The Reserve Bank of India has undertaken a number of initiatives to enhance the disclosure standards and transparency in the operations of the banks and also the accounting standards which have a bearing on the overall robustness of the banking system in an increasingly integrated global financial environment (Box II.3).
Table II.25 : Off-Balance Sheet Exposure of Scheduled Commercial Banks in India : 1998-99 and 1999-2000 |
||||||||||
(Amount in Rs. crore) |
||||||||||
|
|
||||||||||
Item |
State Bank Group |
Nationalised Banks |
Public Sector Banks |
|||||||
|
|
||||||||||
1998-99 |
1999-2000 |
variations |
1998-99 |
1999-2000 |
variations |
1998-99 |
1999-2000 |
variations |
||
|
|
||||||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
|
|
|
||||||||||
1. |
Forward exchange |
42,572.15 |
56,680.72 |
33.14 |
64,608.26 |
85,157.77 |
31.81 |
1,07,180.41 |
1,41,838.49 |
32.34 |
contract |
(14.89) |
(16.85) |
1.96 |
(13.34) |
(15.35) |
2.01 |
(13.92) |
(15.92) |
2.00 |
|
2. |
Guarantees given |
17,670.05 |
17,616.79 |
-0.30 |
24,321.51 |
25,220.81 |
3.70 |
41,991.56 |
42,837.60 |
2.01 |
(6.18) |
(5.24) |
-0.94 |
(5.02) |
(4.55) |
-0.47 |
(5.45) |
(4.81) |
-0.64 |
||
3. |
Acceptances, |
16,564.52 |
22,798.68 |
37.64 |
23,710.74 |
26,769.54 |
12.90 |
40,275.26 |
49,568.22 |
23.07 |
endorsements, etc. |
(5.80) |
(6.78) |
0.98 |
(4.90) |
(4.83) |
-0.07 |
(5.23) |
(5.56) |
0.33 |
|
Total Contingent |
76,806.72 |
97,096.19 |
26.42 |
1,12,640.51 |
1,37,148.12 |
21.76 |
1,89,447.23 |
2,34,244.31 |
23.65 |
|
Liabilities |
(26.87) |
(28.87) |
2.00 |
(23.26) |
(24.73) |
1.47 |
(24.60) |
(26.29) |
1.69 |
|
|
|
||||||||||
Item |
New Pvt. Sec. Banks |
Old Pvt. Sec. Banks |
Foreign Banks |
All SCBs |
|||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||
1998-99 |
1999-2000 |
variations |
1998-99 |
1999-2000 |
variations |
1998-99 |
1999-2000 |
variations |
1998-99 |
1999-2000 |
variations |
||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||
1 |
11 |
12 |
13 |
14 |
15 |
16 |
17 |
18 |
19 |
20 |
21 |
22 |
|||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||
1. |
Forward exchange |
23,663.41 |
35,357.44 |
49.42 |
11,270.35 |
15,313.19 |
35.87 |
1,92,645.03 |
2,47,472.95 |
28.46 |
3,34,759 |
43,9982.1 |
31.43 |
||||||||||||||||||||
contract |
(61.41) |
(60.07) |
-1.34 |
(17.21) |
(19.71) |
2.49 |
(251.60) |
(298.70) |
47.10 |
(35.21) |
(39.62) |
4.41 |
|||||||||||||||||||||
2. |
Guarantees given |
4,116.02 |
5741.2 |
39.48 |
2,540.44 |
2,906.94 |
14.43 |
14,166.63 |
15,878.41 |
12.083 |
62,814.7 |
67,364.15 |
7.24 |
||||||||||||||||||||
(10.68) |
(9.75) |
-0.93 |
(3.88) |
(3.74) |
-0.14 |
(18.50) |
(19.17) |
0.66 |
(6.61) |
(6.07) |
-0.54 |
||||||||||||||||||||||
3. |
Acceptances, |
4,223.39 |
4,836.17 |
14.51 |
2,062.78 |
2,685.58 |
30.19 |
13,956.68 |
20,004.68 |
43.33 |
60,518.1 |
77,094.65 |
27.39 |
||||||||||||||||||||
endorsements, etc. |
(10.96) |
(8.22) |
-2.74 |
(3.15) |
(3.46) |
0.31 |
(18.23) |
(24.15) |
5.92 |
(6.37) |
(6.94) |
0.58 |
|||||||||||||||||||||
Total Contingent |
32,002.82 |
45,934.81 |
43.53 |
15,873.57 |
20,905.71 |
31.70 |
2,20,768.34 |
2,83,356.04 |
28.35 |
4,58,092.0 |
5,84,440.9 |
27.60 |
|||||||||||||||||||||
Liabilities |
(83.06) |
(78.04) |
-5.01 |
(24.24) |
(26.90) |
2.66 |
(288.33) |
(342.01) |
53.68 |
(48.18) |
(52.63) |
4.45 |
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|
|
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Notes : 1. Figures in brackets are percentages to Total Liabilities. |
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Box II.3: Accounting Standards
The need for sound accounting standards in the banking system came to the fore in the light of the occurrence of banking crises in many countries. There are significant differences in the accounting practices across emerging economies. Many analysts, therefore, felt that the existing accounting systems, disclosure practices and legal frameworks are hindering the operation of market discipline and the exercise of effective banking supervision. Neither the private investors nor bank supervisors will be able to discipline errant banks without timely, accurate, comprehensive and transparent information on their creditworthiness, as well as on the creditworthiness of their customers. In many countries, accounting conventions for classifying bad assets as impaired or non-performing are not tight enough to prevent banks from making bad loans look good by lending more money to troubled borrowers. The publicly reported figures gave little early warning of the banking crises in Chile and Colombia in the early 1980s. Distinguishing healthy from unhealthy banks is often hindered by the absence of financial statements on the consolidated exposure of banks, by the lack of uniform reporting requirement for banks within a country, by differences in accounting standards across countries, by the lack of published key financial data on individual banks, by the absence of serious penalties for submitting inaccurate reports to supervisors or the public and by the paucity of private credit ratings for banks.
There is an urgent need to have a sound accounting standards particularly in the financial sector in the context of increasing integration of domestic economies with the rest of the world. "The US Generally Accepted Accounting Principles (GAAP)" is a very useful document relating to accounting standards, encompassing the conventions, rules, and procedures necessary to define accepted accounting practices at a particular time. The standards of generally accepted accounting principles includes not only broad guidelines of general application but also detailed practices and procedures. The generally accepted principles are conventional, that is, they become generally accepted by agreement rather than by formal derivation from a set of postulates or basic concepts. These principles have been developed on the basis of experience, reason, custom, usage, and to a significant extent by practical necessity. There are two broad categories of accounting principles-measurement and disclosure. The measurement principles determine the timing and basis of items which enter the accounting cycle and influence the financial statements. The disclosure principles deal with factors that are not always numerical. Such disclosures involve qualitative features that are essential ingredients of a full set of financial statements. The disclosure principles complement the measurement standards by explaining these standards and giving other information on accounting policies, contingencies, uncertainties, etc., which are essential ingredients in the analytical process of accounting.
In India, the Accounting Standards Board (ASB) was setup in 1977 by the Institute of Chartered Accountants of India (ICAI) to hormonise diverse accounting policies and practices in the country through the formulation of various accounting standards. The ASB has made sustained efforts for improving the quality of financial reporting in the country and bringing about an overall improvement in accounting and disclosure by enterprises in India. The ASB has so far formulated sixteen Accounting Standards: disclosure of accounting policies, valuation of inventories, cash flow statements, contingencies and events occurring after the balance sheet date, net profit or loss for the period (prior period items and changes in accounting policies), depreciation accounting, accounting for construction contracts, accounting for research and development, revenue recognition, accounting for fixed assets, accounting for the effects of changes in foreign exchange rates, accounting for government grants, accounting for investments, accounting for amalgamations, accounting for retirement benefits in the financial statements of employers and borrowing costs.
An Advisory Group on International Accounting and Auditing (Chairman: Shri Y.H. Malegam) was constituted by the efficiency ‘Standing Committee on International Financial Standards and Codes’ to examine the availability of internationally accepted accounting standards in India. In the Indian context although the accounting standards are not co-terminus with US GAAP and International Accounting Standards, a number of measures were undertaken to improve the transparency in the financial statements of the banking sector. The Reserve Bank achieved this by mandating disclosure of some of the essential indicators and performance related parameters as part of the notes on accounts in the annually published accounts of the banks. Some of the important items relate to disclosure of accounting policies, capital adequacy ratio separately under Tier I and II, percentage of government shareholding, percentage of net NPAs to net advances, category-wise provisions towards depreciation, NPAs, the extent of sub-ordinated debt, the gross value of investments less cumulative depreciation, income ratios, business and profit per employee. As a sequel to the recommendations of the Narasimham Committee (II), RBI has advised banks, effective March 31, 2000, to disclose maturity pattern of loans and advances, investment securities, deposits and borrowings, foreign currency assets and liabilities, movement in NPAs, lending to sensitive sectors as defined from time to time. On prudential considerations, in India, it is necessary to adopt the best practices in line with international standards, while duly reflecting local conditions. The improvement of the existing accounting standards in line with the international best practices would help to attain the internationally harmonised public disclosure of bank performance which in turn could help to strengthen foreign banks to do more business with Indian banks.
References
Delaney Patrick R. et al (1999), ‘GAAP 99: Interpretation and Application of Generally Accepted Accounting Principles 1999’, John Wiley and Sons Inc.
Goldstein Morris and Phillip Turner (1996), ‘Banking Crises in Emerging Economies: Origins and Policy Options’, BIS Economic Papers No.46, October.
Reserve Bank of India (2000), ‘Monetary and Credit Policy for the year 2000-2001’, Reserve Bank of India, April.
Talwar, S.P (1999), ‘Regulatory Regime in Financial Sector- Emerging Issues’, Reserve Bank of India Bulletin, August.
Public Sector Banks
2.34 The public sector banks accounted for the maximum share of NPAs among all the bank groups. During 1999-2000, there was an overall decline in the share of NPAs to total advances as well as total assets reflecting the impact of the revised guidelines/directives regarding the prudential norms for banks resulting in the reduction in doubtful and loss assets. The share of standard assets in total advances of PSBs increased from 84.1 per cent in 1998-99 to 86.0 per cent in 1999-2000 (Table II.27). However, in absolute terms, both gross and net NPAs increased during 1999-2000. While gross NPAs increased from Rs.51,710 crore in 1998-99 to Rs.53,294 crore in 1999-2000, that of net NPAs also increased from Rs.24,211 crore in 1998-99 to Rs.26,188 crore in 1999-2000. As a result, the ratio of gross NPAs to gross advances of PSBs declined from 15.9 per cent in 1998-99 to 14.0 per cent in 1999-2000 and net NPAs to net advances also showed a decline from 8.1 per cent in 1998-99 to 7.4 per cent in 1999-2000. The Gross NPAs to total assets declined from 6.7 per cent in 1998-1999 to 6.0 per cent in 1999-2000 and net NPAs to total assets also declined from 3.1 per cent in 1998-99 to 2.9 per cent in 1999-2000 (Details in Appendix Tables II.8(A) and II.8(B)). The distribution of Net NPAs of PSBs showed an improvement in 1999-2000. The number of banks having Net NPAs between 10 and up to 20 per cent declined from 8 in 1998-99 to 5 in 1999-2000. No bank recorded above 20 per cent net NPAs in 1999-2000 as against 1 bank in 1998-99. Number of banks having NPAs up to 10 per cent increased to 22 in 1999-2000 from 18 in 1998-99 (Table II.29). The comparative position of NPAs based on median NPA (excluding weak banks) in terms of the ratio of net NPAs to net advances and net NPAs to total assets are presented in Chart II.14 and Chart II.15.
2.35 The sector-wise analysis of NPAs of PSBs showed that the share of NPAs of priority sector increased marginally from 43.7 per cent at end-March 1999 to 44.5 per cent at end-March 2000. The share of NPAs in respect of public sector declined from 2.9 per cent at end-March 1999 to 2.0 per cent at end-March 2000 while the share of NPAs of non-priority sector increased marginally from 53.4 per cent at end-March 1999 to 53.5 per cent by March 2000. (Table II.28).
Private Sector Banks
2.36 During the year 1999-2000, NPAs of private sector banks (both old and new private sector banks) recorded a considerable decline as percentage of total assets as well as advances reflecting the impact of increase in standard assets from 89.2 per cent in 1998-99 to 91.5 per cent in 1999-2000. Gross NPAs to gross advances of all private sector banks declined from 10.8 per cent in 1998-99 to 8.5 per cent in 1999-2000 and net NPAs to net advances also showed a decline from 7.4 per cent in 1998-99 to 5.6 per cent in 1999-2000. Gross NPAs to total assets declined from 4.5 per cent in 1998-1999 to 3.6 per cent in 1999-2000 and net NPAs to total assets also declined from 2.8 per cent in 1998-99 to 2.3 per cent in 1999-2000. The details are given in Appendix Tables II.8(C) and II.8(D).
ഈ പേജ് ഷെയർ ചെയ്യുക:
റിസർവ് ബാങ്ക് ഓഫ് ഇന്ത്യ മൊബൈൽ ആപ്ലിക്കേഷൻ ഇൻസ്റ്റാൾ ചെയ്ത് ഏറ്റവും പുതിയ വാർത്തകളിലേക്ക് വേഗത്തിലുള്ള ആക്സസ് നേടുക!
