Indian banks have seen a remarkable recovery over the past 10 years, with fourfold profit increase and bad loans significantly decreasing, according to a report by capital markets and investment group CLSA. The report highlights that the balance sheets of Indian banks are currently the strongest they have been in over a decade.
The CLSA report states that non-performing loans (Net NPL), which had previously been a major issue for the Indian banking sector, have now fallen to their lowest levels in ten years. This improvement is attributed to better asset quality, stronger provision buffers, and improved capital positions.
Additionally, the report notes that deposit growth is expected to align with the acceleration of loan growth. Over the previous two years (FY12-22), loan growth has increased from an average of 10 percent to 15 percent. This trend indicates a healthier banking environment and robust financial health.
Public sector banks have outperformed private sector banks in the past year and over the last five years. However, over the past decade, private sector banks have shown greater success in attracting current account (CA) deposits and reducing non-deposit borrowings. This shift signifies a competitive advantage for private sector banks in certain areas.
The CLSA report also highlights that loan growth in the banking sector has picked up from a decadal average of 10 percent to 15 percent over the past two years. This growth is driven by all sub-segments and possibly due to shifts from corporate bond substitution. Furthermore, the quality of corporate credit has improved significantly over the past 5-7 years.
Overall, the synchronization of loan growth and deposit growth over the long term reflects a stable and healthy banking sector. The CLSA report emphasizes the improved financial stability and performance of Indian banks, suggesting a promising future for the sector.
In summary, the Indian banks seen significant profit increase over the past decade, marked by substantial profit growth and a notable decline in bad loans. With continued improvements in asset quality and capital positions, Indian banks are well-positioned for future growth and stability.
