The Reserve Bank of India in its recent review of credit in major sectors has expressed apprehensions over disproportionate growth of credit especially in real estate, infrastructure, NBFCs and retail segment. Persistent asset- liability mismatches, higher provisioning requirement and reliance on short-term borrowings to fund asset growth are some of the issues confronting RBI.
The RBI released its report on Trend and Progress of Banking in India 2010-11. The report reviews the performances of the global and Indian banking sectors and presents the salient policy developments relating to each of these sectors during 2010-11. Within the domestic banking sector, the report entails a comprehensive analysis of commercial banks, cooperative banks, and non-banking financial institutions.
Reserve bank of India
However the report said during 2010-11, banks were able to improve their profitability and asset quality. Stress test showed that the banking sector remained reasonably resilent to liquidity and interest rate shocks. The RBI said the financial performance of financial institutions deteriorated during 2010-11 mainlyto decrease in operating profits and net profits. There was a sharp rise in operating expenses during the year mainly on account of wage revision.
The report conveys that despite challenges, the banking sector in India can look forward to enormous opportunities in their quest for long term growth. In the long term, the RBI said, banks need to build on four principles, namely, efficiency, stability, transperancy and inclusion. The banking sector needs to focus on growth through inclusion, innovation and diversification while complying with domestic regulations and internalizing international best practices.