PSBs to lose biz to private banks

Mumbai: With public sector banks coming under greater scrutiny following the multi billion dollar scam in PNB, private sector banks are likely to further increase their market share in coming days. Industry experts believe that the higher non performing assets (NPA) coupled with several instances of loan frauds, which had attracted greater regulatory scrutiny are likely to slowdown the decision making processes in the state owned bank resulting in further gains for the private banks.

According to analysts at global financial service firm Jefferies, private banks have already gained market share from the worst performing state-owned banks following RBI’s prompt corrective action (PCA) guidelines.

“For the quarter ending December 2017, average loan growth for private banks was 25 per cent year-on-year versus 12 per cent y-o-y for PSBs not under PCA, and a negative 4 per cent for ones under PCA,” Jefferies said adding that this is not too surprising as the banks under PCA had to rapidly cut risk weight exposures, reduce capital consumption and control costs.  “What makes this strain more stressful is the loss in savings deposits, where the average growth in savings account was 24 per cent for private sector banks against near zero growth for state-owned banks not under PCA and a slight negative growth for ones under PCA,” it noted.   

With the RBI and ministry of finance tightening the noose on the PSBs with greater scrutiny and stringent norms like asking them to examine all NPAs above Rs 50 crore for frauds, analysts at Jefferies expects decision making and business trends to slow further resulting in market share losses.  

Given the higher NPAs and weak capitalisation of PSBs, ICRA had earlier projected private sector banks market share in the banking sector advances to increase to 38 per cent – 40 per cent by 2020 from 27.5 per cent as on March 31, 2017.