Balance sheets for a clutch of 22 state-owned lenders have expanded by just Rs 3.4 lakh crore in FY16, a smaller increase compared to the rise of Rs 4.3 lakh crore for a group of 13 private sector banks, according to data sourced from Capitaline.
Given the base for public sector banks is significantly bigger than that for private sector banks, this expansion was achieved by the latter clocking in a higher growth of 18.1% compared to 4.1% reported by the former. Should PSBs and private sector banks continue to grow at the rate at which they grew in FY16, the latter will overtake the former in terms of balance sheet size by FY2025.
Vibha Batra, senior VP and group head, Financial Sector Rating, ICRA, believes several factors have contributed to the slower expansion in balance sheets of public sector lenders. “The entire focus of PSBs right now is on recovery and the large amounts they have put aside as provision for bad assets has also imposed capital constraints, “ Batra observed.
She adds that the Basel III norms require them to increase tier 1 capital by 0.67% every year and consequently it is no surprise they have lost out. Private sector banks, Batra points out, are more retail-focused than PSBs and might use the next few quarters to consolidate their position as state-owned banks remain risk averse.
Ananda Bhoumik, chief analytical officer, India Ratings & Research, points out the lack of expected internal accruals as also the absence of matching capital injection by the government, are the main reasons behind PSBs’ balance sheet expansion falling behind that of private sector banks. “I don’t think this is a definitive indication of a shift away from PSB domination, but is definitely an indication of things to come. We continue expect that PSBs’ market share will drop from the current 70% to below 50% in the next 10 years,” he added.
The rising stress in the loan portfolio of PSBs comes on the back of the Reserve Bank of India’s diktat, post an extensive asset quality review, to them to come clean on stressed assets and make adequate provisions for them in the last two quarters of FY16. Thanks to this balance sheet clean up exercise, PSBs have reported over Rs 5 lakh crore of gross non performing assets at the end of FY16, which has has necessitated putting aside over Rs 1.5 lakh crore as provision, thereby limiting their ability to lend.
Abizer Diwanji, partner, E&Y, however, is not too pessimistic about the future. “Today, it’s just the NPA drag that is impacting credit expansion of PSBs. But since government spending in sectors like infrastructure, and the Make in India initiative are expected to boost GDP growth, there’s no reason to believe that PSBs’ balance sheet expansion will remain muted for too long,” he said.