Indian banks have shown a much better performance in terms of revenue generation in comparison to the other Asian banks. A report by Morgan Stanley has said that the revenue growth of the Indian banks is expected to take the highest leap in the Asia- Pacific region for FY'11.
Credit penetration is still in lower levels in this region which leaves a huge potential for growth for the Indian banks.
"The credit to gross domestic product ratio in India is among the lowest in the world. This is a clear indication of how much scope it leaves for banks for the penetration of credit," said M. Narendra, executive director of Bank of India.
The report by Morgan Stanley focuses on three aspects: net interest income, fee income and core income. A rise of 20-30% is expected in all the three aspects. This is much higher than the expectations of the other Asia- Pacific counterparts.
"Interest rates are rising in India. Lending rates will also go up soon and this would add to interest income for banks," said P Sitaram, chief financial officer at IDBI Bank.
The lending rates are expected to rise by 75 basis points in this fiscal. Also estimations by The Planning Commission suggest that investment in the infrastructure sector as per the Eleventh Five Year Plan (2007-12) will be close to the target of $500 billion.
"Banks will play an active role in funding these infrastructure projects. So fee-based income will also grow for banks," Sitaram said.
Indian banks are expected to be ahead of their Chinese counterparts. Analysts support this stance saying, "This is because the asset quality of Chinese banks is a bigger concern than India. Chinese banks have more exposure to mortgage loans and are also more prone to mark-to-mark losses on their investment portfolio."