The banking sector in India has once again come out with another fiscal of robust performances. This is commendable given the fact that the banking environment has suddenly become quite challenging after the US subprime crisis that surfaced last year and which has resulted in an unprecedented global liquidity crunch. The fiscal also confirmed the end of the era of benign interest rates as the country's apex bank embarked on a belt-tightening spree. Interest rates headed further north as headline inflation hit double-digits led by an unprecedented rise in food and oil prices, thus prompting the banking sector regulator, the Reserve Bank of India (RBI), to come out with a series of tougher measures. This has nevertheless posed significant challenges to the banks to maintain the growth momentum of the last few years. Against this backdrop, The Analyst brings to you the Banking Special issue, which offers insights into the annual performance report card of the domestic banking sector.

The banking sector in India has once again come out with another fiscal of robust performances. This is commendable given the fact that the banking environment has suddenly become quite challenging post the US subprime crisis that surfaced last year and which has resulted in an unprecedented global liquidity crunch. While the domestic banking sector did not remain totally unscathed, the extent of the hit or damage was negligible as compared to the banks in the US, which were hit maximum, as well as those in Europe and even China. The fiscal year also confirmed the end of the era of benign interest rates as the country's apex bank embarked on belt-tightening. Interest rates further headed north as headline inflation hit double-digits led by unprecedented rise in food and oil prices, thus prompting the banking sector regulator, the Reserve Bank of India (RBI), to come out with a series of tougher measures. This has nevertheless posed significant challenges to the banks to maintain the growth momentum of the last few years.

Capital adequacy has emerged as one of the major indicators of the financial health of a banking entity. It is measured as a ratio of bank's own capital (new equity, retained earnings, etc.) to its risk-weighted assets (loans, investments in stock markets, guarantees, etc). Well adherence to capital adequacy regime does play a vital role in minimizing the cascading effects of banking and financial sector crises. The higher the capital adequacy ratio (CAR), the stronger is considered a bank, as it ensures higher safety against bankruptcy. As Indian banks are gearing up to adhere to the internationally acclaimed Basel II norms, there is a growing emphasis on the improvement of banks' performances on this front. It is noteworthy that a majority of the Indian banks have successfully improved their CAR in line with the trends in global banking industry. A majority of the SCBs (Scheduled Commercial Banks) now boast of CAR (%) of more than 12%, which is well above the 9% mark as mandated by Basel Accord II.

Analyst Magazine, Indian Banking Industry, Banking Sectors, US Subprime Crisis, Reserve Bank of India, Financial Sector Crises, Capital Adequacy, Banking Entity, Stock Markets, Capital Adequacy Ratio, CAR, Scheduled Commercial Banks, Global Banking Industry, Capital Markets, Business Per Employee ratio, BPE, Profit Per Employee ratio, PPE.