Public sector banks gain market share

January 19 2010

Account for close to 75 per cent of deposits, advances.

Public sector banks (PSBs) inched closer to acquire 75 per cent market share, as they acquired depositors and borrowers at a faster pace than their rivals during the quarter-ended September 2009.

According to the latest data released by the Reserve Bank of India (RBI), PSBs -- comprising 19 nationalised banks, State Bank of India and its six associates -- increased their share of deposits to 74.3 per cent, while they accounted for 74.2 per cent of the gross bank credit at the end of September 2009.

A bigger share of the pie came at the expense of private and foreign banks. When it came to lending, foreign banks, many of these were affected in their home markets during the financial crisis, have shrunk their loan book. Similarly, many private players, classified as other scheduled commercial banks (SCBs) by RBI, had adopted a similar strategy to ensure that delinquencies, especially in the unsecured loan portfolio, did not mount.

On the deposit side, foreign banks have maintained their share. PSBs – which have increased their market share by 250 basis points between September 2008 and September 2009 – gained at the expense of private sector players, which saw their share of the pie decline 230 basis points during the period.

This, executives said, was largely the result of banks such as ICICI Bank shedding high-cost bulk deposits. “While almost all banks are shedding bulk deposits, those with a lower proportion of low-cost funds such as ICICI Bank have done so at a faster pace,” said a PSB executive.

Following the credit crisis, many depositors, including large companies, had moved their funds from private and foreign banks to PSBs in what was described as flight to safety.

“What has happened is that SBI got very aggressive in the market and they are trying to regain whatever market share they had lost. In addition, post-meltdown, PSBs were seen safe, so deposits shifted,” said Corporation Bank Chairman & Managing Director JM Garg.

Besides, Union Bank of India Chairman & Managing Director MV Nair said PSBs reduced their benchmark prime lending rates during the crisis even if it resulted in lower margins.

Going forward, Oriental Bank of Commerce Chairman & Managing Director TY Prabhu expected the share of PSBs to improve steadily. “We now have efficient operations with most of business being run on core banking platform. Cost management has improved significantly in a highly competitive market,” he said.

At the start of the last decade when private players came with retail products, technology and brand building initiatives, they had virtually occupied everyone’s mindshare.

“Now, we are well-equipped to deal with the competition. Retail lending was their (private sector’s domain), but we have now conquered that too,” said Garg.

“This decade belongs to the public sector since they have responded to the competition by repositioning themselves, upgrading their technology and processes and through brand-building,” added Nair.