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Asia-PacificJuly 5 2010

Slow progress

Open door: the merger between ICICI and the Bank of Rajasthan is the first consolidation in India since 2008Indian banks are demonstrating a return to good health and new players are set to enter the market. But overbanked urban areas and a seeming reluctance to enter a period of consolidation continues to hamper the industry's development. Writer Rekha Menon
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Slow progress

Holding its own against the uncertain economic climate impacting many countries around the world, the Indian economy is powering ahead. After clocking an average growth of 9% a year in the five financial years to 2007/08, India's gross domestic product (GDP) rate slipped below 6% at the height of the financial crisis. Since this dip, normal service has been resumed. The country's central statistical bureau states that the GDP growth rate for the financial year 2009/10 was 7.4%. Furthermore, the Indian government has indicated that it expects the country's economy to grow at 8.5% in the current fiscal year, with the medium-term target being to achieve 10% economic growth annually.

India's banking sector has naturally benefitted from this economic recovery. Industry margins are expected to be higher this year and credit growth has picked up. Credit growth for Indian banks, more than 25% in fiscal 2007, moderated to a 13-year low of about 10% towards the end of 2009. However, aided by the banking regulator's monetary policies and broader positive economic conditions, credit growth has increased to 16.5%. This trend is expected to continue. While the institutional research team at stockbroking firm HDFC Securities estimates that credit growth will be at 18% between financial years 2009 and 2012, many other analysts expect the growth to expand beyond 22%.

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