Indian banks of today: Committed to winning

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: This edition of the FE-EY Best Banks survey is set against the backdrop of continued conviction in the Indian economy and the banking system. Indian industry and the banking system have come out trumps despite having encountered a few jolts, over the past few years.

From a macro-historical perspective, the Indian banking industry is seen as quite healthy. The industry continues to enjoy high growth rates with retail credit being at the forefront of action. Alongside this demand for personal consumption are factors such as the upward movement of interest rates, creeping inflationary pressures and escalating asset prices that are a cause for concern. Apart from these, current trends in net interest margins seem to indicate that all is not hunky dory, and banks will have to address these concerns.

As ever, each category of banks-public, old private, new private and foreign banks—face its own unique challenges. For some it is surviving in the face of heightened competition, others have compressing net interest margins, NPAs, manpower and technology to deal with.

In terms of the future, a high growth scenario creates challenges of its own. Bankers cannot remain complacent as they would require managing a host of dynamics like interest rate movements, escalating asset prices on the funding side. On the operational side, significant pressure will be felt in the areas of achieving growth in earnings and returns, managing and deploying financial and human capital and proactively dealing with powerful competitive forces.

Considering this scenario, Ernst & Young has ranked the players within the Indian banking sector. These include:

1. Public sector banks (28)

2. Old private sector banks (19)

3. New private sector banks (7 and excludes those banks who merged in 2004-05 or 2005-06)

4. Foreign banks (10).

In the ranking process, five major criteria were selected to compare performances.

These criteria are:

A. Growth

B. Credit Quality,

C. Strength and Soundness,

D. Profitability

E. Efficiency/Productivity.

Considering the current stage of evolution of Indian banking, in the backdrop of continued economic growth, we believe every Indian bank would be evaluating itself and making peer comparisons based on the major criteria mentioned above.