Sunil Jain: Good, but not enough

PERSPECTIVES

While there can be little doubt Indian public sector banks have done well in 2006-07, they still have a long way to go in comparison with their global counterparts. Using data from the RBI's 'Trend and Progress of Banking in India 2006-07', KBL Mathur, a former economic advisor in the finance ministry, tries to reconcile this with the view in the Percy Mistry report that state-owned banks (SOBs!) are the weakest link in the country's economic chain. While SOBs compare well with new private banks on various parameters such as capital adequacy (12.4 for SOBs versus 12.0 for new private banks), return on funds (7.6 versus 7.7 per cent), spread (3.2 per cent each) and not too badly when it comes to profitability (0.83 versus 0.91 when it comes to operating profits to assets ratio) "� they're worse off on wage bill-to-assets (1.14 versus 0.61 per cent) due to the large rural and semi-urban banking network of SOBs. However, when it comes to comparison with global banks, India figures quite poorly "� capital adequacy at 12.3 is much lower than Brazil's 18.5, for instance; when it comes to capital-to-assets ratio, India's 6.3 is quite poor compared to Argentina's 13.7, Brazil's 9.4 and Mexico's 13.2. 
  

Indicators of Banking Soundness: India and Select Countries (End March 2007, in %)
Countries	Return on Asset Ratio	Gross Non-Performing Loans to Gross Advances Ratio	Provisions to Non- Performing Loans Ratio	Capital Adequacy Ratio	Capital to Asset Ratio
India	0.9	2.5	56.1	12.3	6.3
Emerging markets:
Argentina	2.1	3.2	132.3	-	13.7
Brazil	2.1	4.0	153.0	18.5	9.4
Mexico	3.2	2.2	194.7	16.1	13.2**
Korea	1.1	0.8	177.7	13.0	9.5
South Africa	1.4	1.1	64.3*	12.7	7.8**
Developed countries:
US	1.2	0.8	129.9	13.0	10.6
UK	0.5**	0.9	56.1*	12.9*	8.9**
Japan	0.4**	2.5**	30.3**	13.1*	5.3
Canada	1.0**	0.4**	55.3**	12.4	5.6
Australia	1.8*	0.2	204.5**	10.4	4.9
* Pertains to 2005, ** Pertains to 2006. Source: RBI (2007); KBL Mathur, EPW, Dec 22, 2007