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Asia-PacificAugust 3 2009

India steers clear of global downturn

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Last year might have been one of the worst on record for the financial sector but not all countries experienced a downturn. Indian banks confounded the downward trend with an average annual increase in 2008 pre-tax profits of 20.4%. Furthermore, not one of the 32 Indian banks in Top 1000 rankings made a loss in 2008.

Despite tougher conditions in the global economy, India's banking sector has so far been largely protected from the financial crisis. The large role played by state-owned banks in the country's financial system, strict regulatory controls and the absence of widespread foreign ownership in the banking sector have all helped to keep India largely free from signs of financial contagion.

The 32 Indian banks in this year's Top 1000 ranking increased the US dollar value of their total assets by an average of 37.01%, while Tier 1 capital increased by an average of 45.38%. And although the average return on capital of the five largest Indian banks dipped to 19.97% in 2008 from 22.8% in 2007, the financial year ending March 31, 2009 has delivered encouraging increases in profitability. State Bank of India increased its return on Tier 1 capital to 24.15% as of March 31, 2009, from 21.28% as of March 31, 2008. HDFC Bank also recorded a similar increase in return on capital for its latest financial year end, increasing its return on capital to 24.1% from 20.44% in the previous year.

Indian banks have so far not experienced the levels of asset deterioration already reported in many countries. Compared with the Top 1000 banks' average ratio of non-performing loans (NPLs) to total loans of 3.18%, Indian banks' average NPL ratio is just 2.07%.

Levels of impaired assets reported among the largest Indian banks remain similarly lower. Compared with the Top 1000 average of 5.11% of impaired assets to total assets, as of March 31, 2009, State Bank of India reported impaired assets equal to just 1.51% of its total balance sheet. Meanwhile, HDFC Bank's impaired asset ratio as of March 2009 is even lower at just 1.08%.

Part of the reason why India has yet to experience deteriorating asset quality is that the country's banks have typically taken an unaggressive approach to lending. Total bank lending in India remains relatively low, at about 64% of gross domestic product. Many Indian banks have reported falling loan-to-deposit ratios in recent years. India's largest bank, State Bank of India, reported a ratio of 74.1% as at March 31, 2009, with other Indian banks reporting similar ratios of between 70% and 75%.

Cost-to-income ratios also remain healthy. The average Indian banks achieved a cost-to-income ratio for 2008 of 50.89%, compared with the world average of 63.37%.

Indian Asset Growth (Rs Bn) 2005-09

Indian Asset Growth (Rs Bn) 2005-09

Indian Pre-Tax Profit Growth (Rs M) 2005-09

Indian Pre-Tax Profit Growth (Rs M) 2005-09

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