RBI’s move to make new bank licences available on tap will encourage non-bank lenders to apply for access to cheaper public deposits, and the increased competition may dent state-run lenders’ market share, ratings agency Icra has said.
Coupled with the capital constraints of public sector banks (PSBs) owing to non-performing assets, their market share can go down by up to 10 percentage points in the next five years from the present 70 per cent, it warned.
“The expected rise in the number of private sector banks over the medium term could result in a decline in the share of public sector banks, which held more than 70 per cent of the market.
“Given the significant capital constraints and the weak asset quality profile of PSBs currently, their market share could drop by 5-10 per cent by March 2021,” it added.
Indian banking system’s NPAs touched 7.6 per cent as of March 2016, with a bulk of it being contributed by the state-run lenders.
It said medium to large-sized NBFCs (non-banking financial companies) would be interested in converting themselves into universal banks because managing large liabilities or resources is easier within the banking structure.
One of the biggest factors which will push such companies towards applying for a bank licence will be the limited reach of the Indian bond market, which has led them to rely on the banking system for their funding needs, it said.
The agency estimated that 42 per cent of the funding for Indian NBFCs was from the banking system as of March 31, 2016.
It said two non-bank lenders granted licences in the last round of bank licensing — IDFC and Bandhan — have so far gathered Rs 200 billion in deposits in the last one year.
The banking consumer will be a beneficiary through the increase in competition which the ‘on tap’ licensing regime will bring, it said.
The RBI, which has so far granted new bank licences once every decade, last month issued the final guidelines for the new system of licensing.
The guidelines caps the large corporates’ ownership in the lenders to 10 per cent.
The central bank’s aim through the measures is to deepen the process of financial inclusion in the country.