The Reserve Bank today expressed concern over asset quality of banks and lower credit flow to rural areas, despite the fact that performance of Indian banks improved during the 2010-11 period.
In its report titled 'Trend and Progress of Banking in India 2010-2011', RBI said that the Indian banking sector demonstrated continued revival from the peripheral spill over effects of the recent global financial turmoil in 2010-11, but despite the positives, certain concerns continued to persist.
"During the last two years, the writing off ratios were high in the Indian banking sector, which implies foregone profitability in an attempt to clean balance sheets," the report said adding that there was always concern regard to restructured standard accounts.
"Six top metropolitan centres accounted for half of the total banking business of the Indian banking sector. More alarmingly, rural areas accounted for only a small proportion of credit," the report said.
RBI also said that non-adherence to the priority sector lending poses risk of skewed distribution of advances to certain sectors.
The report also stressed on improving efficiency, greater use of technology for financial inclusion, improving quality of banking operation along with review of operation of foreign banks to increase the reach and profitability of Indian banks.
Meantime, the report showed that the consolidated balance sheet of commercial banks recorded higher growth in 2010-11 along with sound growth in profitability.
The report also said that there was concern with relation to rising incremental NPAs from agricultural lending portfolio. The central bank also pointed out that while credit flow to rural areas is low, there is high growth in advances to few sensitive sectors like real estate, infrastructure, NBFCs and personal loan.
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