Private banks, NBFCs eye greater loan share

Mumbai: The retail credit segment in India is set to see more competition in the coming years as private banks and non banking finance companies (NBFC) are likely to aggressively take on the public sector banks to get a larger pie of the retail loan market. 

The PSU Banks currently enjoys a 35 per cent market share of retail loans with private banks and NBFCs accounting for the remaining portion.

“We expect the retail credit market to see more competition as the structure of India’s credit markets will change dramatically over the next 1-2 years led by powerful forces of corporate deleveraging, digital and technological disruption and formalization of the economy,” said Kotak Securities. 

According to Kotak Securities, the impact of corporate deleveraging is visible in the form of private corporate banks becoming more aggressive in retail lending, especially in the housing finance segment. 

This according to the brokerage house has resulted in net interest margins remaining under pressure in the crowded housing finance market.

Over the last five years, the public sector banks’ market share in retail credit has come down from 42 per cent to 34 per cent while private banks have increased their share to 33 per cent from 30 per cent. 

Similarly, NBFCs have also upped their market share to 32 per cent from 27 per cent during the same period. 

For instance, ICICI Bank, India’s largest private sector lender has increased the share of its retail loan to 51.8 per cent in 2017 from 38 per cent in 2012 whereas Axis Bank has increased the portion of retail loans to 45 per cent from 22.1 per cent.

“Digital disruption is in its early stages and will allow smart lenders (both extant and new) to breach ‘new’ lending segments. The formalization of the economy will allow banks to lend to new segments (smaller SMEs, for example), which they may have been reluctant to lend to earlier,” Kotak Securities said.