India's State-Owned Banks Lose Market Share to Private Rivals

Strategic Insights -

India's state-owned banks are continuing to lose market share in loans to private rivals, with data from the Reserve Bank of India (RBI) showing a decline in market share in both deposits and loans. The share of public sector banks in deposits shrunk by 119 basis points (bps) between March and September 2023, while in loans, this declined by 296 bps over the same period. This loss in market share is attributed to the lack of pickup in corporate loan demand, even as private sector lenders rolled out credit on the retail side, attracting borrowers and savers alike.

Key Takeaways:

  • The share of public sector banks in deposits shrunk by 119 basis points (bps) between March and September 2023, while in loans, this declined by 296 bps over the same period.
  • Experts attribute the loss in market share to the lack of pickup in corporate loan demand, even as private sector lenders rolled out credit on the retail side.
  • Public sector banks have a higher inclination towards lending to the manufacturing sector and other corporate entities, as compared to private peers who have a greater focus on the retail sector.
  • Private lenders are relatively focused on the retail front, especially on digital acquisition of customers, while PSU banks also have a focus on retail, agri, and MSME (popularly called the RAM sectors).
  • India witnessed a decline in the value of new project announcements to Rs.1.5 lakh crore in the September quarter, as against Rs.5.3 lakh crore in the September quarter of FY23, according to data from the Centre for Monitoring Indian Economy (CMIE).
  • The rate of decline in market share has slowed down in the recent financial years as compared to FY18 as PSU banks cleaned up bad loans and freed up bandwidth to lend.
  • Several state-owned banks were removed from RBI's prompt corrective action (PCA) list, allowing them to lend more freely.

Statistics:

  • 119 basis points (bps) decline in public sector banks' share in deposits between March and September 2023.
  • 296 bps decline in public sector banks' share in loans between March and September 2023.
  • Rs.1.5 lakh crore decline in the value of new project announcements in the September quarter, as against Rs.5.3 lakh crore in the September quarter of FY23, according to data from the Centre for Monitoring Indian Economy (CMIE).
  • 314 bps decline in loan market share between September 2022 and September 2023.
  • Private lenders' credit growth is stronger compared to that of PSUs, and so they need to build deposits resources more aggressively than PSU banks.

Sources:

  • Reserve Bank of India (RBI)
  • Centre for Monitoring Indian Economy (CMIE)
  • IDBI Bank
  • Hindustan Times