Private banks take lead in race for deposits against the public sector banks (PSBs) as robust loan growth requires them to focus more on deposit share, a report said. On account of being under prompt corrective action (PCA) framework, the state-run banks reduced their focus on deposits which affected their lending, the report based on data from Reserve Bank of India (RBI) and analysed by Kotak Institutional Equities also said.
“PSU banks have lost 770 bps market share in deposits since FY2011, with the loss gradually picking pace in the past few years. PSU banks lost 250 bps market share in FY2018 alone,” the report noted.
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The public lenders have also taken to cut in expansion of branches in view of surging bad loans, putting further pressure on their profitability, it further said. “….the loss in branch share is far less at ~450 bps since FY2011 and 200 bps in FY2018.
This demonstrates superior performance by private banks and partly reflects strong growth in loans for private banks, which requires them to focus more on deposits,” the report noted.
Even in terms of leveraging technology to add customers, the PSU banks are behind the private banks. As a result, their productivity has been constantly falling since FY13, the Kotak report stated.
In terms of geography, deposit share has continued to improve for private lender after years of muted growth until FY15. Smooth growth has been witnessed in Central, East and North-East India parts.
“Concerns continue to persist in Western India as it witnessed the fourth consecutive year of drop in deposit market share with market share of branches going up. South India has been a standout performer over the past decade and it currently holds the highest share in deposits, improving each year,” the report said.