The proposed privatization of two public sector banks (PSBs) in FY22 could accentuate PSB’s already declining market share in lending, with the share of private sector banks (PvSB) set to increase further.
A realignment of loan market share has occurred in the banking space over the past four years.
The market share of PSBs (or public banks) in lending fell to around 59% (of all planned commercial banks’ outstanding credit) in December 2020 from around 65% in December 2017.
However, during this period, PvSB’s market share increased to around 36 percent from around 30 percent, according to data from the Reserve Bank of India.
The aforementioned development comes as PSBs wary of loan growth in the face of stress on their balance sheets and IDBI Bank was classified as PvSB after the Life Insurance Corporation of India became its promoter with a management check in January. 2019.
PSB lending growth also slowed, with some of them focusing on streamlining operations following mega-mergers within the consortium.
Dena Bank and Vijaya Bank merged with Bank of Baroda with effect from April 1, 2019.
The aforementioned consolidation exercise was followed by mega-mergers in the PSB space in FY20-21.
With effect from April 1, 2020, Oriental Bank of Commerce and United Bank of India merged with Punjab National Bank; Syndicate Bank merged with Canara Bank; Andhra Bank and Corporation Bank merged with Union Bank of India; and Allahabad Bank merged with Indian Bank.
Over the past four years, PvSBs have continued to grow lending. Many medium and large PvSBs were neither capital constrained nor too burdened with bad debts.
Realignment and privatization
Now, if the government holds its budget announcement to privatize two PSBs in FY22, the market share of public banks could decline further by around 3-4 percentage points, with the share of PvSB increasing accordingly.
In 2018, Uday Kotak, Managing Director and CEO of Kotak Mahindra Bank, observed that the market share of private sector banks will increase significantly and will be on par with that of public sector banks over the next five years.
“… This major mega trend in redefining the structure of the industry is something playing out as we speak,” Kotak said afterwards.
Banking expert V Viswanathan estimated that PvSBs focus on lending to small and medium-sized businesses (which offer guarantees), wholesale, home loans and related top-up loans, loans for property, auto loans. and personal loans, among others, in a big way.
Meanwhile, small financial banks increased their lending market share to around 1 percent in December 2020, from around 0.22 percent in December 2017. The share of foreign banks fell to 3.98 percent from 4.44 percent.