India's Banking Sector on the Brink of Radical Change: A New Era of Competition and Opportunities

Strategic Insights -

As the Reserve Bank of India (RBI) prepares to announce in-principle licenses for small business banks, the Indian banking sector is poised for a significant transformation. With eleven payments banks, four foreign banks seeking local incorporation, and many more expected to follow suit, the industry is bracing for a new era of competition and opportunities. State-run banks, however, seem to be a worried lot, with SBI chairman Arundhati Bhattacharya expressing concerns about the risks associated with the launch of new banks and the potential for unhealthy competition.

Key Takeaways:

  • SBI chairman Arundhati Bhattacharya has expressed concerns about the risks associated with the launch of new banks and the potential for unhealthy competition.
  • The payments banks, which got RBI's in-principle licenses on 19 August, have 18 months to meet all requirements and start working, collecting deposits up to Rs.1 lakh, providing payments and remittance services, and distributing third-party financial products.
  • SBI's net interest income grew at 3.62% in the June quarter, while Punjab National Bank's (PNB) net interest income declined by 6% and India's largest private bank ICICI Bank Ltd's net interest income grew at close to 14%.
  • SBI's net profit growth in the June quarter was 10.25%, while PNB and Bank of Baroda (BoB) recorded a sharp drop in net profits.
  • SBI's gross non-performing assets (NPAs) stood at 4.29% in June, higher than BoB's 4.13% and lower than PNB's 6.47%, but its private peers have far lower NPAs: HDFC Bank 0.95%, Axis Bank 1.38% and ICICI Bank 3.68%.
  • The public-sector banks have about 70% market share in assets, but are hampered by industry-wide wage pact and government ownership, which restricts their ability to pay and attract talent.
  • RBI may give in-principle licenses to a dozen-odd small business banks, which too will have 18 months to get ready for starting operations, and four foreign banks have already sought the regulator's approval for local incorporation.

Statistics:

  • SBI's net interest income grew at 3.62% in the June quarter.
  • ICICI Bank Ltd's net interest income grew at close to 14% in the June quarter.
  • HDFC Bank Ltd's net interest income grew at 23.54% in the June quarter.
  • Axis Bank Ltd's net interest income grew at 22.53% in the June quarter.
  • SBI's net profit growth in the June quarter was 10.25%.
  • PNB's net interest income declined by 6% in the June quarter.
  • BoB's net interest income grew close to 4% in the June quarter.
  • SBI's gross non-performing assets (NPAs) stood at 4.29% in June.
  • BoB's gross NPAs stood at 4.13% in June.
  • PNB's gross NPAs stood at 6.47% in June.
  • HDFC Bank's gross NPAs stood at 0.95% in June.
  • Axis Bank's gross NPAs stood at 1.38% in June.
  • ICICI Bank's gross NPAs stood at 3.68% in June.
  • RBI may give in-principle licenses to a dozen-odd small business banks.

Sources:

  • Mint, "India's banking sector on the brink of radical change," August 31, 2016
  • Reserve Bank of India, "In-principle licenses for payments banks," August 19, 2016
  • State Bank of India, "Research report on payments banks," August 2016