Earnings of banks came under pressure in FY12

Key earnings parameters of scheduled commercial banks (SCBs) came under pressure during 2011-12 because of slowdown in the economy.

During the year, while the net profit of banks grew at a slower pace, return on assets (RoA) and return on equity (RoE) witnessed declined slightly.

Reserve Bank of India (RBI) said this in its Report on Trend and Progress of Banking in India-2011-12′. Banks reported a slowdown in profit growth, mainly owing to steep increase in interest expenditure.

The report shows that net interest margin (NIM) declined marginally during 2011-12 compared with the previous year. The capital to risk-weighted asset ratio (CRAR) remained well above the stipulated minimum for the system as a whole as well as for all bank groups during 2011-12, indicating that Indian banks remained well-capitalised. As at end-March 2012, Tier I capital accounted for more than 70 per cent of the total capital of Indian banks.

During 2011-12, the deteriorating asset quality of the banking sector emerged as a major concern, with gross non-performing assets (NPAs) of banks registering a sharp increase, RBI noted.

However, banks have progressed well under the financial inclusion plan (FIPs), and have almost completed the process of providing banking outlets in all villages with population more than 2,000.