Introduction

The commercial banking sector plays an important role in the mobilisation of deposits and disbursement of credit to various sectors of the economy. A significant proportion of funds is contributed by deposits which account for more than 80 per cent of the liabilities of scheduled commercial banks (SCBs). The assets portfolio of these banks consists mainly of 'loans and advances' and 'investments in approved securities' and other investments. Loans and advances form around 50 per cent of aggregate deposits. More than 75 per cent of the investments of SCBs is channelised into safe and risk-free assets consisting of both Government and other approved securities.

2.2 During the year 1998-99, the financial performance of SCBs came under pressure and the operating profits of these banks declined by Rs.647.8 crore or 4.4 per cent from Rs.14,640.2 crore in 1997-98 to Rs.13,992.3 crore in 1998-99. Among the SCBs, the only bank group which showed an improvement in the operating profits was the nationalised banks. The operating profits of nationalised banks increased by Rs.388.1 crore or 7.0 per cent from Rs.5,541.4 crore in 1997-98 to Rs.5,929.4 crore in 1998-99. In terms of net profit, the foreign banks alone showed a moderate improvement of Rs.63.4 crore or 10.1 per cent from Rs.630.0 crore in 1997-98 to Rs.693.4 crore in 1998-99, while all other bank groups showed declines.

2.3 As a ratio to total assets, both operating and net profits of all SCBs groups showed decline during the year 1998-99. The other distinguishing feature of the financial performance of SCBs during the year was the decrease in spread and balance sheet exposure and an increase in risk weighted assets ratio (CRAR). The highest decline in operating profits to total assets ratio was witnessed by the foreign banks (1.38 percentage points from 3.91 per cent in 1997-98 to 2.53 per cent in 1998-99), followed by the new private banks (1.08 percentage points from 2.86 per cent in 1997-98 to 1.78 per cent in 1998-99), old private banks (0.76 percentage points from 1.97 per cent in 1997-98 to 1.21 per cent in 1998-99), State Bank of India and associates (0.40 percentage points from 2.03 per cent in 1997-98 to 1.63 per cent in 1998-99) and the nationalised banks (0.11 percentage points from 1.33 per cent in 1997-98 to 1.22 per cent in 1998-99).

2.4 In the foreign bank group, the 'provisions and contingencies' showed a substantial decline of 1.31 percentage points from 2.94 per cent in 1997-98 to 1.63 per cent in 1998-99 and, as a result, the net profit ratio of this group has shown only a negligible decline of 0.07 percentage points from 0.97 per cent in 1997-98 to 0.90 per cent in 1998-99. The highest decline in the net profit ratio was found in the case of State Bank of India group (0.55 percentage points from 1.06 per cent in 1997-98 to 0.51 per cent in 1998-99), followed by the new private bank group (0.52 percentage points from 1.55 per cent in 1997-98 to 1.03 per cent in 1998-99), old private bank group (0.33 percentage points from 0.81 per cent in 1997-98 to 0.48 per cent in 1998-99), and the nationalised bank group (0.25 percentage points from 0.62 per cent in 1997-98 to 0.37 per cent in 1998-99).

2.5 The decline in the 'spread' was the highest in the case of foreign bank group (0.46 percentage point from 3.93 per cent in 1997-98 to 3.47 per cent in 1998-99), followed by the old private sector bank group (0.41 percentage point from 2.57 per cent in 1997-98 to 2.16 per cent in 1998-99), State Bank of India group (0.29 percentage point from 3.14 per cent in 1997-98 to 2.85 per cent in 1998-99), and new private sector bank group (0.25 percentage points from 2.23 per cent in 1997-98 to 1.98 per cent in 1998-99). In the case of nationalised bank group, the 'spread' was at 2.79 per cent during 1998-99 as against 2.78 per cent during 1997-98.

2.6 With a view to assessing the real worth of banks and to aiding the investors in their investment decisions, it is necessary to analyse the behaviour of share prices. During 1998-99, the shares of banks listed on stock exchanges showed substantial reduction in their quoted prices. This has impacted on market capitalisation and turnover of bank scrips (Box II.1).

2.7 The policy environment continued to be characterised by the adoption of various measures aimed at strengthening the banking system in India. The major policy measures adopted during the year 1998-99 included the (i) disclosure of additional information in balance sheet of banks and such information mainly relate to the maturity pattern of loans and advances, movements in non-performing assets and maturity pattern of deposits, (ii) reduction in the time frame for classifying an asset as doubtful from 24 months to 18 months, (iii) announcement of policy guidelines for asset-liability management effective April 1, 1999, (iv) enhancement in the flexibility of norms relating to bridge loans effective January 29, 1999, (v) increase in the proportion of approved securities from 70 per cent to 75 per cent under 'current investments', and (vi) issuance of guidelines for setting-up of Settlement Advisory Committees (SACs) for evolving compromise settlement of non-performing assets of small scale sector.

2.8 The present chapter analyses the performance of commercial banks (sections 2, 3, 4, 5, 6, 7, 8, 9, 10, 11) and discusses policy measures (sections 12, 13, 14, 15) adopted during the year 1998-99.

2.

Liabilities and Assets Structure of Scheduled Commercial Banks

2.9 An analysis of the assets and liabilities of scheduled commercial banks is carried out using two distinct sources of data: one based on the Section 42 (2) returns data, and the other based on balance sheet data of banks. The Section 42 (2) returns data are first used to present the trends in the major components of the assets and liabilities of the SCBs, followed by an analysis based on the balance sheet data. The latter provides information regarding total liabilities/ assets of banks and this information can be used to compute the composition pattern of such assets/ liabilities, and to assess financial performance of banks.

Deposits

2.10 The aggregate deposits of the SCBs showed an increase of Rs.1,15,540 crore or 19.3 per cent during 1998-99 (April-March) as compared with the increase of Rs.98,722 crore or 19.8 per cent in the previous year (Table II.1). A notable feature of the growth of deposits is the continued significant growth of over 20.0 per cent in time deposits during the year. The time deposits increased by Rs.1,00,630 crore from Rs.4,95,972 crore as on March 27, 1998 to Rs.5,96,602 crore as on March 26, 1999 (Table II.1).

2.11 During the first half of the current financial year (i.e. upto September 24, 1999), the aggregate deposits increased by Rs.47,653 crore or 6.7 per cent from Rs.7,14,025 crore as on March 26, 1999 to Rs.7,61,678 crore as on September 24, 1999. The time deposits component of aggregate deposits too sustained its upward trend during the first half of the year.

Bank Credit

2.12 Banks deploy their funds (deposits) to optimize returns and profits. A large part of the bank credit is allocated to the non-food sector and during the year 1998-99, the non-food credit constituted as much as 90.3 per cent of total bank credit. However, mainly owing to the operation of the cycles in industrial activity and decline in exports, the non-food credit showed a smaller increase of Rs.40,427 crore (13.0 per cent) during the year 1998-99, as compared with the increase of Rs.40,789 crore (15.1 per cent) during the preceding year. As regards food credit, it constitutes only a small share (9.7 per cent in 1998-99) in the total bank credit. The food credit showed an increase of Rs.4,331 crore during 1998-99 on top of the increase of Rs.4,888 crore during the preceding year.

Box II.1: Stock Prices of Indian Banks

One of the factors contributing to the efficient allocation of resources by financial markets is the ability of the market to disseminate timely information on a continuous basis on the instruments traded in the markets. Among other things, such information regarding a corporate entity is disclosed to the public in a variety of ways such as the audited financial statements, the ratings, and the advertisements, However, commercial banks have experienced severe informational asymmetries (see Berger, King and O'Brien 1991; O'Hara 1993). In order to assess the real worth of banks, besides the above noted information base, a fair assessment based on the on-site/ off-site examinations of regulatory authorities is crucial for investors to take appropriate decisions to invest in the stocks of banks.

In India, as a part of financial sector reforms, private sector is encouraged to open banking companies and Government owned public sector banks are being allowed to diversify their activities and float issues in capital market to strengthen their capital-base. In the process, till end-March 1999, eight (8) public sector banks¹ raised capital through equity issues from the new issues market and nine (9)² new private sector banks have come into existence in the banking system. The growing capital market activity of commercial banks can be seen in the form of increase in the number of banks listed on recognised stock exchanges from 6 scheduled commercial banks (SCBs) in 1994-95 to 28 SCBs in 1998-99. As at end March 1999, on the National Stock Exchange of India, the shares of 8 public sector banks (PSBs) and 17 private sector banks were listed for secondary market trading (Table 1). However, capital market regulations do not encourage listing of stocks of foreign banks/corporate bodies on Indian stock exchanges.

During the financial year 1998-99 (April-March), the listed banking scrips on Indian stocks exchanges remained depressed with substantial declines in the banking shares of both public sector banks (PSBs) and private sector banks. The analysis of PSBs banking share prices indicated that the share price of Bank of Baroda steeply declined by 54.5 per cent, followed by State Bank of Travancore 54.4 per cent, Bank of India 52.4 per cent, State Bank of India 23.6 per cent, etc. In the case of private sector banks, during the year 1998-99, the share price of Bank of Rajasthan Ltd. declined by 63.8 per cent, and that of the Federal bank by 52.9 per cent, etc. The share price of HDFC Bank Ltd., a private sector bank, showed a decline of mere 1.1 per cent during the year. The decline in share prices of banking scrips was mainly attributed to the declining performance of banks and the concern of the market over the non-performing assets of banks during 1998-99. During the same period of 1998-99, however, the general stock market trend, measured in erms of S&P CNX Nifty Index for selected traded scrips, declined by 38.9 points (3.5 per cent) on NSE. At the end of March 1999, the closing price of banking scrips as against their issue prices also indicated substantial declines. In respect of PSBs, the share price of Bank of India declined by 55.4 per cent as against the issue price and the State Bank of Bikaner & Jaipur share price showed a decline of 57.7 per cent. In the share price of private sector banks too, a substantial decline was witnessed as compared with the issue prices of shares. While IndusInd Bank Ltd. share price showed a decline of 57.8 per cent as compared with issue price, the share price of City Union Bank Ltd. showed a decline of 54.9 per cent at the end-March 1999 (Table 2).

Table 1: Listed Banks on NSE

Name of the Bank

Date of Commencement of Trading on NSE

Public Sector Banks

State Bank of India

October 24, 1994

Oriental Bank of Commerce

February 8, 1995

Dena Bank

January 22, 1997

Bank of Baroda

February 26, 1997

Bank of India

May 7, 1997

Corporation Bank

December 5, 1997

State Bank of Bikaner & Jaipur

February 4, 1998

State Bank of Travancore

March 3, 1998

Old Private Sector Banks

Federal Bank Ltd.

November 26, 1994

The Bank of Rajasthan Ltd.

December 28, 1994

The United Western Bank Ltd.

February 8, 1995

The Karur Vysya Bank Ltd.

May 10, 1995

The Lakshmi Vilas Bank Ltd.

May 10, 1995

Vysya Bank Ltd.

May 10, 1995

Bank of Madura Ltd.

September 18, 1996

Nedungadi Bank Ltd.

September 11, 1996

J & K Bank Ltd.

August 3, 1998

City Union Bank Ltd.

September 9, 1998

The South Indian Bank Ltd.

December 14, 1998

New Private Sector Banks

Bank of Punjab Ltd.

June 14, 1995

HDFC Bank Ltd.

June 14, 1995

Global Trust Bank Ltd.

November 26, 1994

ICICI Banking Corporation Ltd.

September 24, 1997

IndusInd Bank Ltd.

January 29, 1998

UTI Bank Ltd.

December 3, 1998

Source : NSE, Mumbai.

In addition to the decline in share prices, considerable fluctuation (measured by coefficient of variation (CV) was also witnessed during 1998-99. The CV for the State Bank of India scrip increased from 13.4 per cent in 1997-98 to 19.6 per cent in 1998-99 (Table 3). In the private sector banking group, the CV of HDFC Bank Ltd. increased marginally from 9.4 per cent in 1997-98 to 11.9 per cent in 1998-99. It has been observed from the Table that the CV of all selected banking scrips remained generally high during the year 1998-99.

The substantial reduction in share prices can also be mirrored in other two indicators viz. turnover and market capitalisation. While the turnover of banking scrips on NSE has declined in absolute terms from Rs.51,165 crore in 1997-98 to Rs.26,647 crore in 1998-99, market capitalisation of bank stocks also showed steep decline from Rs.28,322 crore in 1997-98 to Rs.19,561 crore in 1998-99 (Table 4).

Table 2: Price Changes in Banks' Scrips Traded on NSE during 1998-99

Name of the Bank

Issue Price³

Close Price as on

% change

(Rs.)

March 31, 1999

in Price

(Rs.)

Public Sector Banks

1.

Corporation Bank

80

78.10

-2.38

2.

Bank of India

45

20.05

-55.44

3.

State Bank of Bikaner & Jaipur

540

228.25

-57.73

4.

State Bank of Travancore

600

226.00

-62.33

Private Sector Banks

1.

ICICI Bank Ltd.

35

27.40

-21.71

2.

J & K Bank Ltd.

38

28.00

-26.32

3.

UTI Bank Ltd.

21

14.05

-33.10

4.

The South Indian Bank Ltd.

32

16.60

-48.13

5.

City Union Bank Ltd.

35

15.80

-54.86

6.

IndusInd Bank Ltd.

45

19.00

-57.78

Table 3: Coefficient of Variation of Select Scrip Prices

Year

SBI

BoB

BoI

Corporation

ICICI

HDFC

IndusInd

Bank

Bank Ltd.

Bank Ltd.

Bank Ltd.

1996-97

2.17

6.63

-

-

-

4.53

-

1997-98

13.43

15.23

24.21

11.83

8.79

9.35

5.47

1998-99

19.61

33.85

30.55

19.70

24.92

11.89

22.22

Table 4: Select Market Indicators of Banks' Shares

1997-98

1998-99

Particulars

Turnover

Market Capitalisation

Turnover

Market Capitalisation

All Banks (Rs. crore)

51,165

28,322

26,647

19,561

Top 5 banks (Rs. crore)

49,929

23,269

25,687

16,200

NSE Total of all traded scrips (Rs. crore)

3,70,193

4,81,503

4,14,474

4,91,175

% of All Banks scrips to NSE

13.82

5.88

6.43

3.98

% of Top 5 Banks scrips to Total

97.58

82.16

96.4

82.82

Source : NSE.

Further analysis of these two indicators showed that out of 25 banks traded on NSE, the share of top five bank in turnover and capitalisation constituted 96.4 per cent and 82.82 per cent, respectively, during 1998-99. This clearly indicates the skewed pattern of trading of bank stocks on stock exchanges. With the exception of heavy volume in the scrip of State Bank of India, and four other banks, trading activity on the remaining banking scrips was not found to be significant.

The Indian stock exchanges are witnessing reforms in the spheres of trading, clearing and settlement of transactions, etc. Major stock exchanges are giving thrust to international practices in their trading and associated operations. Nevertheless, many banking scrips remain illiquid/ not frequently trading on exchanges. The secondary market has to provide more varying investors' perception, liquidity, and depth for the traded scrips. Further, banking stocks need to be given thrust in view of the banks' need to raise capital from the primary market to meet the regulatory standards in coming years.

References

Berger, Allen N., Kathleen King, and James O'Brien (1991), 'The Limitations of Market Accounting and a More Realistic Alternative,' Journal of Banking and Finance, Vol.15, pp.753-83.

O'Hara, Maureen (1993), 'Real Bills Revisited: Market Value Accounting and Loan Maturity.' Journal of Financial Intermediation, Vol.3, pp.51-76.

1.

The eight public sector banks are: (1) State Bank of India, (2) State Bank of Bikaner & Jaipur, (3) Oriental Bank of Commerce, (4) Dena Bank, (5) Bank of Baroda, (6) Bank of India, (7) Corporation Bank, and (8) State Bank of Travancore.

2.

The nine new private sector banks are: 1) IndusInd Bank Ltd., 2) Global Trust Bank Ltd., 3) UTI Bank Ltd., 4) ICICI Banking Corporation Ltd., 5) HDFC Bank Ltd., 6) Times Bank Ltd., 7) Bank of Punjab Ltd., 8) Centurion Bank Ltd., and 9) IDBI Bank Ltd.

3.

The price of a share at the time of floating it in the primary market.

2.13 During the current financial year so far (i.e. upto September 24, 1999), the bank credit increased by Rs.9,557 crore or 2.6 per cent as compared with an increase of Rs.6,611 crore or 2.0 per cent during the corresponding period last year (Table II.1).

2.14 Apart from lending credit to the non-food segment of the commercial sector, the SCBs also invest their funds in various financial papers including commercial papers (CPs), PSU bonds, and the bonds floated by the private corporate sector. The SCBs investment in these papers at Rs.47,949 crore as on March 26, 1999 showed a substantial increase of Rs.14,865 crore or 44.9 per cent over the level of Rs.33,084 crore as on March 27, 1998. The increase in such investment combined with the flow of funds to non-food sector (including bills rediscounted) aggregated to Rs.53,021 crore during 1998-99 as compared to Rs.53,662 crore during 1997-98. The trends in the investment and total funds patterns of SCBs are depicted in Chart II.1 and Chart II.2.

Sectoral Deployment of Bank Credit

2.15 An analysis of the deployment pattern of incremental bank credit during 1998-99 (April- March) indicates that the priority sector receives a predominant share of total bank credit (40.4 per cent) followed by medium and large industries (34.7 per cent). The remaining 24.9 per cent of bank credit was distributed among other sectors including (i) wholesale trade (other than food procurement) (2.0 per cent), (ii) housing (6.3 per cent), (iii) consumer durables (1.5 per cent) and (iv) other non-priority sector personal loans (5.8 per cent), etc. (Table II.2). The relaxation given by the Reserve Bank for investments in housing and the demand for white goods enabled the banks to extend credit facilities to 'other sectors' under non-food credit.

Table II.1: Important Banking Indicators: Scheduled Commercial Banks: 1997-98 and 1998-99

(Amount in Rs. crore)

Item

Variations during

Variations during

Outstanding as on

the financial year

April - September

March 28,

March 27,

March 26,

Sept. 25,

Sept. 24,

1997-98

1998-99

1998-99

1999-2000*

1997

1998

1999

1998

1999*

over

over

over

over

March 28

March 27

March 27

March 26

1

2

3

4

5

6

7

8

9

10

(3-2)

(4-3)

(5-3)

(6-4)

1.

Total Demand and

Time Liabilities @

561,982

678,731

820,443

749,923

873,501

116,749

141,712

71,192

53,058

2.

Aggregate Deposits (a+b)

499,763

598,485

714,025

661,658

761,678

98,722

115,540

63,173

47,653

(19.8)

(19.3)

(10.6)

(6.7)

(a)

Demand Deposits

90,610

102,513

117,423

101,953

111,076

11,903

14,910

-560

-6,347

(13.1)

(14.5)

-(0.5)

-(5.4)

(b)

Time Deposits

409,153

495,972

596,602

559,705

650,602

86,819

100,630

63,733

54,000

(21.2)

(20.3)

(12.9)

(9.1)

2a.

Ceritificate of Deposits

12,134

14,296

3,717

5,686

3,305

2,162

-10,579

-8,610

-412

(17.8)

-(74.0)

-(60.2)

-(11.1)

2b.

Aggregate Deposits (excl.

487,629

584,189

710,308

655,972

758,373

96,560

126,119

71,783

48,065

Ceritificate of Deposits)

(19.8)

(21.6)

(12.3)

(6.8)

3.

Borrowings from RBI

560

395

2,894

3,306

4,204

-165

2,499

2,911

1,310

-(29.5)

(632.7)

(737.0)

(45.3)

4.

Liability to Banks

21,193

32,287

45,204

38,081

47,530

11,094

12,917

5,794

2,326

(52.3)

(40.0)

(17.9)

(5.1)

5.

Bank Credit (a+b)

278,402

324,079

368,837

330,690

378,394

45,677

44,758

6,611

9,557

(16.4)

(13.8)

(2.0)

(2.6)

a.

Food Credit

7,597

12,485

16,816

16,079

20,532

4,888

4,331

3,594

3,716

(64.3)

(34.7)

(28.8)

(22.1)

b.

Non-food credit

270,805

311,594

352,021

314,611

357,862

40,789

40,427

3,017

5,841

(15.1)

(13.0)

(1.0)

(1.7)

c.

Non-food credit excluding

268,551

308,902

347,373

312,436

356,463

40,351

38,471

3,534

9,090

petroleum credit

(15.0)

(12.5)

(1.1)

(2.6)

6.

Investments (a+b)

190,514

218,705

254,594

251,867

289,596

28,191

35,889

33,162

35,002

(14.8)

(16.4)

(15.2)

(13.7)

a.

Govt. Securities

158,890

186,957

223,217

220,725

258,367

28,067

36,260

33,768

35,150

(17.7)

(19.4)

(18.1)

(15.7)

b.

Other Approved Sec.

31,624

31,748

31,377

31,142

31,229

124

-371

-606

-148

(0.4)

-(1.2)

-(1.9)

-(0.5)

7.

Cash Balances (a+b)

53,195

61,306

67,910

66,607

69,600

8,111

6,604

5,301

1,690

(15.2)

(10.8)

(8.6)

(2.5)

a.

Cash in hand

3,347

3,608

4,362

3,812

4,235

261

754

204

-127

(7.8)

(20.9)

(5.7)

-(2.9)

b.

Balances with RBI

49,848

57,698

63,548

62,795

65,365

7,850

5,850

5,097

1,817

(15.7)

(10.1)

(8.8)

(2.9)

Memorandum Items :

A

Credit-Deposit Ratio

55.7

54.1

51.7

50.0

49.7

B

Non-food credit (excl.

Petr.credit) / Deposit Ratio

53.7

51.6

48.6

47.2

46.8

C

Incremental CD Ratio

34.0

46.3

38.7

10.5

20.1

D

Cash Balance-Deposit Ratio

10.6

10.2

9.5

10.1

9.1

E

Investment/Deposit Ratio

38.1

36.5

35.7

38.1

38.0

F

Investment+Credit/Deposit Ratio

93.8

90.7

87.3

88.0

87.7

Notes :

1.

* Provisional.

@ Excluding borrowings from RBI/IDBI/NABARD.

2.

Figures in bracket are percentage variations.

3.

Constituent items may not add up the totals due to rounding off.

Export Credit

2.16 Commercial banks extend credit facility to exporters to promote export activities. The Reserve Bank, through various policy measures, has also relaxed norms for commercial banks so as to encourage the flow of credit to the export sector. Banks, however, are required to lend 12 per cent of advances as export credit. During the year under review (1998-99), one of the important measures taken by the Reserve Bank was the downward revision in the refinance rates for export credit (Table II.2). Export credit as a percentage of net bank credit (NBC), however, declined to 10.6 per cent in 1998-99 from 11.4 per cent in the previous year, reflecting decline in exports. It further declined to 10.3 per cent as on June 18, 1999. The outstanding export credit of SCBs at Rs.35,891 crore as on March 26, 1999 showed an increase of Rs.1,944 crore or 5.7 per cent over the outstanding credit of Rs.33,947 crore as on March 27, 1998. As on June 18, 1999, the outstanding export credit amounted to Rs.34,504 crore indicating an increase of Rs.2,833 crore or 8.9 per cent over the same period in the corresponding year.

2.17 During 1998-99 (April-March), export credit refinance limits of SCBs showed a more than three-fold increase from Rs.2,403 crore in March 1998 to Rs.7,269 crore in March 1999. The significant increase in the export credit refinance limit is mainly attributable to the restoration of export credit refinance limit of banks, effective the fortnight beginning May 9, 1998, from 50 per cent to 100 per cent of the increase in export credit eligible for refinance over the level of such credit as on February 16, 1996. During the current financial year, this limit was further increased and this stood at Rs.7,378 crore as on October 8, 1999 (Appendix Table II.1).

2.18 An analysis of the utilisation of export credit refinance facility availed of by the SCBs shows that the average utilisation of export credit refinance ranged between 0.5 per cent to 8.6 per cent during April 1998 to August 14, 1998. During the subsequent fortnights of the year 1998-99, the average utilization of export credit refinance has shown a perceptible increase, varying in the range of 70.8 per cent and 97.2 per cent. This can be attributed to the reduction in interest rate on export credit refinance from 9.0 per cent to 7.0 per cent, effective August 6, 1998. With effect from April 1, 1999, export credit refinance is being provided to scheduled commercial banks at the Bank Rate. During April 1999 to October 1999, the average utilisation of export credit refinance was in the range of 46.9 per cent and 95.7 per cent.

Industry-wise Deployment of credit

2.19 An analysis of the industry-wise deployment of gross bank credit indicates that out of the bank credit allocated to industry (constituting of small, medium and large industries) during the year 1998-99, infrastructure industries received the maximum share of 15.5 per cent, followed by those of iron and steel (14.1 per cent), electricity (12.0 per cent), chemicals, dyes, paints, etc. (10.1 per cent) and other textiles industries (7.5 per cent). During the year 1998-99, the industries that witnessed substantial declines in bank credit include engineering (7.3 per cent), petroleum (3.6 per cent), rubber and rubber products (2.9 per cent), and jute textiles (1.4 per cent) (Table II.3).

Table II.2: Sectoral Deployment of Gross Bank Credit by Major Sectors

(Rs. crore)

Sectors

Outstanding as on

Variations during

March 28,

March 27,

March 26,

June 19,

June 18,

Financial year

April-June

1997

1998

1999

1998

1999*

1997-98

1998-99

1998-99

1999-

2000*

1

2

3

4

5

6

7

8

9

10

(3-2)

(4-3)

(5-3)

(6-4)

I.

Gross Bank Credit (1+2)

258,991

300,283

342,012

295,373

338,654

41,292

41,729

-4,910

-3,358

1.

Public Food Procurement

Credit

7,597

12,485

16,816

16,828

22,221

4,888

4,331

4,343

5,405

2.

Non-Food Gross Bank Credit

251,394

287,798

325,196

278,545

316,433

36,404

37,398

-9,253

-8,763

(A+B+C+D)

[100.0]

[100.0]

[100.0]

[100.0]

A.

Priority Sectors

84,880

99,507

114,611

98,064

113,433

14,627

15,104

-1,443

-1,178

(40.2)

(40.4)

(15.6)

(13.4)

(i)

Agriculture

31,442

34,869

39,634

34,448

38,393

3,427

4,765

-421

-1,241

(9.4)

(12.7)

(4.5)

(14.2)

(ii)

Small Scale Industries

35,944

43,508

48,483

42,374

47,166

7,564

4,975

-1,134

-1,317

(20.8)

(13.3)

(12.3)

(15.0)

(iii)

Other Priority Sectors

17,494

21,130

26,494

21,242

27,874

3,636

5,364

112

1,380

(10.0)

(14.3)

-(1.2)

-(15.7)

B.

Industry (Medium & Large)

102,604

117,530

130,516

112,172

123,983

14,926

12,986

-5,358

-6,533

(41.0)

(34.7)

(57.9)

(74.6)

C.

Wholesale Trade (other than

12,340

13,217

13,965

12,937

13,966

877

748

-280

1

food procurement)

(2.4)

(2.0)

(3.0)

(0.0)

D.

Other Sectors

51,570

57,544

66,104

55,372

65,051

5,974

8,560

-2,172

-1,053

of

which :

(16.4)

(22.9)

(23.5)

(12.0)

(i)

Housing

7,773

9,057

11,404

9,020

11,764

1,284

2,347

-37

360

(3.5)

(6.3)

(0.4)

-(4.1)

(ii)

Consumer durables

2,297

2,527

3,090

2,679

3,269

230

563

152

179

(0.6)

(1.5)

-(1.6)

-(2.0)

(iii)

Non-banking financial

5,154

6,227

6,082

5,375

5,565

1,073

-145

-852

-517

companies

(2.9)

-(0.4)

(9.2)

(5.9)

(iv)

Loans to individuals

2,066

1,904

1,625

2,603

1,596

-162

-279

699

-29

-(0.4)

-(0.7)

-(7.6)

(0.3)

(v)

Real Estate Loans

1,546

1,899

1,625

2,104

1,668

353

-274

205

43

(1.0)

-(0.7)

-(2.2)

-(0.5)

(vi)

Other non-priority sector

12,392

10,133

12,289

9,240

12,534

-2,259

2,156

-893

245

personal loans

-(6.2)

(5.8)

(9.7)

-(2.8)

(vii)

Advances against

1,505

11,815

15,106

12,139

16,405

10,310

3,291

324

1,299

Fixed Deposits

(28.3)

(8.8)

-(3.5)

-(14.8)

(viii)

Tourism and tourism

-

822

612

423

694

-

-210

-399

82

related hotels

-(0.6)

(4.3)

-(0.9)

II.

Export Credit (included

under item I.2)

30,008

33,947

35,891

31,671

34,504

3,939

1,944

-2,276

-1,387

III.

Net Bank Credit

(including inter-bank

participation)

245,999

297,265

339,477

292,782

336,273

51,266

42,212

-4,483

-3,204

Memorandum Items :

A.

Priority Sector credit

as % to NBC

34.5

33.5

33.8

33.5

33.7

B.

Agricultural Sector credit

as % to NBC

12.8

11.7

11.7

11.8

11.4

C.

Export Sector credit as % to NBC

12.2

11.4

10.6

10.8

10.3

Notes :

1.

* Provisional.

2.

Data relate to selected scheduled commercial banks which account for about 90-95 per cent of bank credit of all scheduled commercial banks. Gross bank credit data include bills rediscounted with RBI, IDBI, EXIM Bank, other approved financial institutions and inter-bank participations

3.

Figures in bracket are proportions to incremental non-food gross bank credit.

Bank Credit to Sick/Weak Industries

2.20 Commercial banks extend financial assistance for the revival of sick/weak industrial units. Recently, the number of sick/weak industrial units financed by banks declined from 2,37,400 as at end-March 1997 to 2,24,012 as at end-March 1998. The outstanding bank credit to sick/weak industries as a proportion of bank credit allocated to industry also declined from 10.0 per cent as at end-March 1997 to 9.7 per cent as at end-March 1998. The bank credit locked up in small-scale sick industries and non-SSI sick/weak industrial units recorded a significant increase of 13.7 per cent from Rs.13,787 crore as at end-March 1997 to Rs.15,682 crore as at end-March 1998 (Appendix Table II.2).

Credit to Small-Scale Industries

2.21 During the year 1998-99, the Reserve Bank issued guidelines to encourage the growth of small-scale industries (SSI) and to ensure prompt payment of dues by medium/large industrial borrowers to SSI Units. These guidelines include (i) commercial banks should periodically ascertain, from their medium/large industrial borrowers, the extent of their dues to SSI suppliers and the action proposed to be taken by these borrowers to clear off the overdues, if any, to SSIs and (ii) commercial banks should ensure that the medium/large borrowers finance their domestic credit purchases from SSI Units, at least to the extent of 25 per cent by way of bills drawn on and accepted by them.

2.22 The foregoing analysis concerning the deposits and sectoral allocation of bank credit, is now supplemented with analysis based on balance sheet data, and it provides a focus on the asset/ liability composition as well as the financial performance of the SCBs¹. The structure and asset composition of the SCBs is delineated in Chart II.3. The disaggregated details of the assets/ liabilities of the scheduled commercial banks, based on balance sheet data, are presented in Tables II.4, II.5, II.6, II.7.

2.23 On the liabilities side, deposits constituted the major component (with 81.1 per cent as on March 31, 1999) of total liabilities of the SCBs. A substantial part of bank deposits are from term deposits, and these deposits accounted for 65.3 per cent of the aggregate deposits as on March 31, 1999. As regards the assets of the SCBs, a major share was on account of the 'loans and advances', and 'investments'. As on March 31, 1999, the advances constituted a share of 38.9 per cent while the investments accounted for a share of 35.7 per cent in the total assets of SCBs. The investments portfolio of SCBs is predominated by the investments in safe and riskless assets, i.e. the Government securities. As on March 31, 1999, the investments in Government and other approved securities constituted as high as 75.8 per cent of the total investments of SCBs. The SCBs investments in non-approved securities constituted relatively a much smaller share of 24.2 per cent of total investment as on March 31, 1999. However, such investments showed a substantial increase of 45.3 per cent compared with the 23.3 per cent increase in investment in Government securities during 1998-99.

Table II.3: Industry-wise Deployment of Gross Bank Credit

(Rs. crore)

Industry

Outstanding as on

Variations during

March 28,

March 27,

March 26,

June 19,

June 18,

Financial year

April-June

1997

1998

1999

1998

1999*

1997-98

1998-99

1998-99

1999-

2000*

1

2

3

4

5

6

7

8

9

10

(3-2)

(4-3)

(5-3)

(6-4)

Industry (Total of Small, Medium

and Large Scale)

138,548

161,038

178,999

154,546

171,149

22,490

17,961

-6,492

-7,850

1 .

Coal

570

801

1,114

729

1,032

231

313

-72

-82

2 .

Mining

65

975

1,360

937

1,349

910

385

-38

-11

3 .

Iron & Steel

11,668

15,767

18,291

15,405

17,998

4,099

2,524

-362

-293

4 .

Other Metals and Metal Products

5,276

5,193

5,918

5,302

5,717

-83

725

109

-201

5 .

All Engineering

22,684

22,833

21,513

20,832

20,598

149

-1,320

-2,001

-915

of which : Electronics

(4699)

(4472)

(4872)

(4511)

(4635)

-(227)

(400)

(39)

-(237)

6 .

Electricity

3,506

4,652

6,813

5,129

6,960

1,146

2,161

477

147

7 .

Cotton Textiles

8,053

9,331

10,430

9,363

10,433

1,278

1,099

32

3

8 .

Jute Textiles

543

1,089

844

1,105

820

546

-245

16

-24

9 .

Other Textiles

9,685

10,651

12,000

9,927

12,187

966

1,349

-724

187

10.

Sugar

2,547

2,959

3,338

2,824

3,399

412

379

-135

61

11.

Tea

814

1,028

825

1,035

775

214

-203

7

-50

12.

Food Processing

3,655

4,134

4,750

4,326

4,746

479

616

192

-4

13.

Vegetable Oils and vanaspati

1,955

2,296

2,710

2,365

2,555

341

414

69

-155

14.

Tobacco and Tobbaco Products

934

1,076

1,005

1,007

891

142

-71

-69

-114

15.

Paper and Paper Products

2,580

2,742

2,938

2,905

2,902

162

196

163

-36

16.

Rubber and Rubber products

1,817

2,534

2,014

2,277

1,818

717

-520

-257

-196

17.

Chemicals, Dyes, Paints, etc.

15,393

18,120

19,929

17,610

19,629

2,727

1,809

-510

-300

of which :

i)

Fertilisers

(2358)