‘Large, mid-sized pvt lenders set to take PSB market share’

NEW DELHI: Indian private banks which have stronger loss-absorption buffers than the public sector banks are likely to gain market share from their state-owned peers in the medium term, Fitch Ratings said on Thursday.

Private banks' loss-absorption buffers, in particular, enhanced capital bases, strengthen their ability to recognise losses up-front with less disruption in their efforts to accelerate marketshare gains.

"However, we do not expect immediate gains as the sector's credit growth is likely to remain subdued and will only resume meaningfully once a sustained recovery from the pandemic gets underway," said Fitch in its latest non-rating action commentary.

Private banks have had a decade of strong growth, reflected in much higher loan compound annual growth rate of 19.6 per cent compared with state banks' 8.5 per cent, backed by better capitalisation and fewer asset quality problems.

Most of the gains occurred in the five years preceding the coronavirus pandemic as state banks were hamstrung by ballooning impaired loans, larger losses and tion.

Nonetheless, private banks' risk appetite in some sectors has been significant during this time which has contributed to the downward trajectory in their viability ratings in the last two years. Their larger risk appetites in certain segments render their intrinsic credit profiles more vulnerable to deterioration in the operating environment.

The government-led merger of state-owned banks helped them to consolidate their market positions in the last few years, said Fitch, but their market shares will continue to erode if they do not raise adequate capital to absorb future stress and support growth. weaker capitalisa