“Over the last eight quarters, private banks have improved their market share from 26% to 31%. But in the quarter ended December 2018, their share has increased by only 0.2%. While they will continue to grow at a high rate, with public sector banks (PSBs) coming back into the arena the market share gain will be limited,” said Anil Gupta of financial sector ratings ICRA. The tide is expected to turn in favour of PSBs next year when their bad loan provisions are expected to be lesser than operating profits.
According to the rating agency, PSBs have lost out in the last three years because capital constraints have forced them to shrink their loan books, while their private rivals grew. However, since private banks have not been able to grab a commensurate share in deposits, their credit deposit ratio has soared to over 90% as against below 70% for public sector banks. In FY20, PSBs are expected to come back strong thanks to the capital infusion by the government and lifting of lending restrictions on five banks placed by the RBI under its prompt corrective action (PCA) framework. Ideally, banks need to have a capital adequacy ratio of around 71%, considering that 29% of deposits have to be locked in government bonds and cash reserves with the RBI.
PSBs have reported losses in excess of Rs 42,900 crore in the first nine months of FY19 which are expected to cross Rs 65,000 crore for the whole year. Yet they have managed to grow their deposit base. Bankers say that since they are government-owned depositors are not worried despite the headline-grabbing loss numbers. “The deposit mobilisation to match high credit growth continues to remain a challenge for private banks. With PSBs expected to chase credit and deposit growth next year, it may be difficult for banks to cut lending rates as the competition for deposits is expected to heighten,” said Gupta.
The overall fresh slippages for PSBs are estimated to decline to Rs 2.5 lakh crore (4.5%) during FY19 and are expected to decline further to Rs 1.3-1.6 lakh crore (2.1-2.7%) during FY20, as compared to Rs 4.3 lakh crore (8.3%) during FY18. Declining fresh slippages in turn will mean lesser provisions.