Priority sector lending by banks registered accelerated growth in FY14

Total lending in priority sector saw 28.2% growth in FY14 (15.3% in FY13) compared with
14.5% growth in total advances. The proportion of priority sector lending as a percentage of total
advances increased from 29% in FY13 to 32.5% in FY14, primarily driven by accelerated
lending to micro and small enterprises and other weaker sections. Among bank groups, private
sector banks saw accelerated and the highest growth in priority sector lending in FY14.

The RBIs mandates, which remained in force until Mar 31, 2014, of classifying incremental
bank loans to medium manufacturing enterprises after Nov 2013; incremental bank loans to
medium service enterprises after Nov 2013, up to the credit limit of ` 100 mn; and incremental
loans to micro and small service units up to credit limit of ` 100 mn under the priority sector
lending target further aided growth in priority sector lending.
Revival in deposit growth seen due to higher interest rates in FY14
Aggregate bank deposits, which accounted for 77.8% of the total liabilities of SCBs in FY14,
recorded an accelerated 15% growth in FY14 compared with 13.8% growth in FY13 due to the
high interest rate environment in FY14. The median deposit rate of SCBs grew by 35 bps in
FY14, which aided growth in aggregate bank deposits. The growth in bank deposits exceeded

RBIs initial target of 14% in FY14. The momentum in mobilising FCNR (B) deposits on
account of the swap facility also drove growth in aggregate deposits. RBI opened a special
window for banks to swap their FCNR (B) dollar funds and overseas borrowings until Nov 2013.

All bank groups recorded accelerated growth in deposits except private sector banks. The growth
in deposits of private banks decelerated to 14% in FY14 from 18.9% in FY13. The public sector
banks recorded growth in deposits of 14.8% in FY14 compared with 13.2% in FY13. However,
foreign banks recorded the highest growth in deposits of 22.8% in FY14 compared with 3.1% in
FY13.
Term deposits accounted for 68% of the total deposits of the featured SCBs in FY14 and
registered higher growth of 16.3% in FY14 (15.4% in FY13) compared with 12.1% growth
(10.6% in FY13) in CASA deposits (demand and savings). The low cost CASA deposits as a
percentage of total deposits have dropped from 33.5% in FY12 to 32.5% in FY13 to 31.7% in
FY14 due to slowdown in growth of CASA deposits in FY14. The CASA ratio for public sector
banks stood at 30.1% in FY14 (31% in FY13), for private sector banks stood at 37.7% in FY14
(37.1% in FY13), and for foreign banks stood at 35.2% in FY14 (41% in FY13).

On the contrary, term deposits as a percentage of total deposits rose from 66.5% in FY12 to
67.5% in FY13, it increased to 68.3% in FY14 due to accelerated growth in term deposits in
FY14.
Marginal moderation registered in credit deposit ratio in FY14
Credit deposit (CD) ratio marginally moderated to 79.3% in FY14 from 79.7% in FY13 (78.4%
in FY12) due to superior growth in deposits vis--vis advances. CD ratio moderated across all
bank groups, except private sector banks, which registered an increase in CD ratio from 79.8% in
FY13 to 82.2% in FY14.

Deteriorating asset quality of SCBs continues to be a major concern

SCBs saw significant deterioration in asset quality in FY13, which further deteriorated in FY14
owing to slowdown in economic growth, rise in interest rates, and slowdown in industrial output,
which impacted the interest and loan repayment obligations of borrowers and led to a sharp
increase in non-performing assets (NPAs).
SCBs posted Net NPA (NNPA) ratio of 2.2% in FY14 compared with 1.7% in FY13 and 1.1% in
FY12. This was due to higher growth of 43.2% in net NPAs compared with 14.5% growth in net
advances in FY14. Further, aggregate restructured assets of the featured SCBs increased from `
3.4 trillion in FY13 to ` 4.1 trillion in FY14. Restructured assets as a proportion of total advances
stood at 6.2% in FY14, growing from 5.8% in FY13.
PSBs recorded the highest rise in NNPA ratio to 2.7% in FY14 from 2.1% in FY13 and 1.3% in
FY12, followed by foreign banks with a NNPA ratio of 0.9% in FY14 compared with 0.7% in
FY13 and 0.6% in FY12. As per RBI, the infrastructure, iron and steel, textiles, aviation, and
mining sectors have been identified as the stressed sectors. Further, as per RBI, PSBs have high
exposures to the industry sector and to such stressed sectors. In addition to higher NPAs, PSBs
saw a rise in restructured assets as a percentage of advances to 7.5% in FY14 from 7.1% in
FY13.