Can Indian Banks survive with thinner NIM

Every Indian Banks have declared good growth and good profit over the last years performance if compared on year to year basis despite the effect of recession looming large and adeherence to Basel II capital adquacy norms.

The Central Bank is keen on reducing the reverse repo rate and the BPLR of all banks have been reduced by atleast 0.50 basis point.Credit offtake is reported to be slow but not alarming.But there is other part of the story.The Brand value of Indian Banks have gone down by 32%.All banks are operating at a net margin level of 2.25 to 3% level.With reduction in lending rate and with no sign of  quality of advances increasing (the view is derived at due to the fact that advances have increased so have the non performing assets and banks declare NPA to advance ratio which does not show the real picture)

With Government keen on implementing Basel II norms ,more capital is required to run the show and one can not totally ignore the hidden NPAs kept in the books of banks which are declared standard by them.

Unless the lending rate is increased which is quite unlikely because of low credit offtake,or deposit rate is reduced which is again unlikely because of political /economic reasons,and with almost volatile market conditions,one can very well imagine more merger and acqusitions.

When GDP is revised downward, and when the economic situation of the world is at its worst,Indian Banks can not remain recession proof.It is tough time ahead for Indian banking.

Time has come now to put more stress on agriculture sector.Here also the Banks became vicitm of politics ,specially the public sector ones,since in debt waiver scheme declared by Government,all credit to all defaulters were written off and they were allowed fresh loan resulting in creation of more wilful defaults who were not defaulters before.