No Quickfixes; The Pain Will Continue

It will be a while before banks can breathe easy

- Raghu Mohan

IT WAS MORE OF THE SAME in fiscal 2016 for the banking industry. Balance sheet growth continued to slow down – Mint Road data shows the pace was 7.7 per cent compared to 9.7 per cent in fiscal 2015. Dud-loans or bad loans – in the main on the books of state-run banks – and provisioning for the same lead to further drop in appetite to vend loans; the pressure on capital added to the misery. Net result – a 530 basis fall in the growth in credit given out to 2.1 per cent.

What we saw in the credit markets in fiscal 2016 was the deepening of a trend that has been going on for almost seven years now. A lack of confidence in India Inc., not much by way of capacity addition, stress on balance sheets, poor earnings growth; in turn, has resulted in a flight to safety on the part of banks. During this period, every banking group by colour of capital – state-run, foreign and private – has held back; the last two have shown stomach for credit – on a selective basis, that is. But it is what state-run banks do or don’t that matters as they have a 72 per cent share of the business.