The counters in the banking hall of a state-owned bank in India. (Photographer: Sondeep Shankar/Bloomberg News.)

After Credit, Private Lenders Eat Into Deposit Market Share Of PSU Banks

India’s public sector banks continued their slow decline in fiscal year 2017-18, with these legacy lenders losing market share to their private peers. While PSU banks have seen their market share in loans slide for atleast the last three years, there are now early signs that their stronghold over deposits may also be weakening.

Total outstanding loans of public sector banks accounted for 64 percent of all loans across scheduled commercial banks as of March 2018, shows data compiled by BloombergQuint. This is 4 percentage points lower than the 68 percent share of loans held by these banks at the end of March 2017.

Since 2015, when the bad loan clean-up began, share of PSU banks in outstanding loans has declined by 7 percentage points. The data has been compiled using advances reported by individual banks and comparing it to outstanding advances across the system as reported by the RBI.

Over the 12 month period between April 2017 and March 2018, only 24 percent of the incremental credit came from PSU banks, shows the data.

“With PSU banks constrained for capital and close to 30 percent of PSU bank loans with banks under PCA (prompt corrective action), private banks have continued to gain market share,” said Credit Suisse in a report on Tuesday.

The drop in market share for loans is not surprising given that banks are still seeing bad loans rise.

Gross non performing assets across listed Indian banks rose to Rs 10.17 lakh crore at the end of the March quarter. Of this, government owned banks held Rs 8.9 lakh crore in bad loans.

While bad loans have risen, capital levels across a number of these banks remain weak despite recapitalisation funds provided by the government. This has forced weak lenders to either contract their books or grow them very marginally. In financial year 2017-18, eight public sector banks saw their loan books contract.

The situation may not change even in the ongoing financial year as bankers remain focused on recoveries rather than fresh lending. Rajkiran Rai, chief executive officer of Union Bank told reporters that the bank would not focus on growing its balance sheet even in the new financial year as it remains focused on resolving stressed assets. M.K. Jain of IDBI Bank said that his bank has decided to halt corporate lending.

The result is that private banks are picking the best of the credit opportunities available, said Motilal Oswal in a report.

For FY18, credit growth recovered to about 10 percent from 5 percent in the previous year. We note that this growth is glaringly concentrated in the hands of private banks, which have collectively reported 21 percent credit growth for FY18 and are generally sighting strong credit opportunities.
Motilal Oswal Report

Deposit Market Share Under Risk?

Private banks have been slowly eating into the share of loans given out by public sector banks. However, it has always been assumed that these government backed banks will have no trouble in holding on to the share of deposits.

This conventional wisdom,too, may be getting challenged.

In its report, Credit Suisse noted that private banks have also started gaining market share on the deposit side. Private banks now hold 26 percent of total system deposits. These banks accounted for close to 60 percent of incremental deposits over the past 6-12 months, the brokerage house noted.

After Credit, Private Lenders Eat Into Deposit Market Share Of PSU Banks

According to Credit Suisse data, deposits across private banks grew at 17 percent year-on-year. Growth across public sector banks was much slower.

Government owned banks which are not under prompt corrective action saw deposits grow by 5 percent. PSU banks which are under prompt corrective action saw deposits contract by 4 percent.

While PSU banks have been shedding higher cost deposits, given their low loan-to-deposit ratios and weak loan growth, private banks have seen stronger growth in CASA deposits as well. Savings account deposit growth at the private banks has outpaced growth seen at the PSU banks.
Credit Suisse Report
After Credit, Private Lenders Eat Into Deposit Market Share Of PSU Banks

Siddharth Purohit, senior banking analyst at SMC Global Securities shares that view. Banks are no longer chasing deposits as their lending capabilities are limited, Purohit told BloombergQuint.

“Most public banks have inevitably spent their time and resources in reviewing their asset quality. It has been a conscious decision their part to limit deposit growth,” he said.