Pri­vate banks to cor­ner 40% ad­vances by 2020

Banking Frontiers - - Research Notes - Psu Vs Private Sector -

The ris­ing mar­ket share of pri­vate sec­tor banks in the bank­ing sec­tor ad­vances is ex­pected to jump to 38-40% by FY2020 from 27.5% as on 31 March 31, 2017. Ac­cord­ing to ICRA, this is af­ter con­sid­er­ing the cap­i­tal con­straints of pub­lic sec­tor banks and as­sum­ing an in­cre­men­tal mar­ket share of 80% for pri­vate sec­tor banks and a credit growth of 7-9% for the bank­ing sec­tor dur­ing FY2018-FY2020. Pri­vate sec­tor banks had an al­most 100% share in the in­cre­men­tal bank credit in the trail­ing 12 months (TTM) at the end of Q1FY2018.

Giv­ing de­tails, Karthik Srini­vasan, group head, Fi­nan­cial Sec­tor Rat­ings ICRA, says: “The In­dian bank­ing in­dus­try is cur­rently go­ing through a tran­si­tion and pri­vate sec­tor banks and pub­lic sec­tor banks are fac­ing dif­fer­ent chal­lenges. Pub­lic sec­tor banks are plagued with as­set qual­ity is­sues lead­ing to higher credit costs and losses. With in­creas­ing reg­u­la­tory cap­i­tal re­quire­ments, weak in­ter­nal ac­cru­als and lim­ited cap­i­tal in­fu­sion by the gov­ern­ment of In­dia in re­la­tion to re­quire­ments, pub­lic sec­tor banks have been into cap­i­tal con­ser­va­tion mode by con­strain­ing their lend­ing ac­tiv­i­ties. Pri­vate sec­tor banks on the other hand face chal­lenges of in­creas­ing com­pet­i­tive in­ten­sity be­cause of weak credit de­mand and the buoy­ant debt cap­i­tal mar­kets pose chal­lenges of bal­anc­ing growth and prof­itabil­ity. Not­with­stand­ing these chal­lenges, pri­vate sec­tor banks have per­formed well and cap­i­tal­ized on the op­por­tu­ni­ties by de­liv­er­ing a credit growth at 3-year CAGR of 17.8% as against 2.5% for pub­lic sec­tor banks and with rel­a­tively bet­ter as­set qual­ity.”

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