Private banks likely to see 23% loan growth in FY15-17: Morgan Stanley

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Mumbai | Updated: January 7, 2015 1:52:54 AM

Though system loan growth is likely to take some time to pick up, private banks...

Though system loan growth is likely to take some time to pick up, private banks are expected to show a meaningful growth from FY15, Morgan Stanley said in a research report, adding that private banks would see a 23% loan growth between FY15 and FY17.

“While system loan growth will likely take a couple of years to pick up decisively, depending on the capex cycle, we expect private banks to show a meaningful growth acceleration FY15 onwards,” it said.

The report also said that in the second quarter of FY15, when private banks grew 19% on an average, compared with system growth at 13%, it became evident that they would lead the growth. Public sector banks (PSBs) witnessed a 16% loan growth in FY14. The global investment banking firm said that since most state-owned banks are extremely short of capital, private banks have a greater chance to grow faster.

“While private banks will likely gain share from state-owned banks in overall loans at a pace of about 100 basis points (bps) a year, the gains in the better parts of their balance sheets will be even faster, in our view,” it said.

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In last three year, Morgan Stanley looked at the trends in four segments of loan — retail loans, current account deposits, savings account deposits and payments.

In retail loans, over the last three years, private banks have gained almost 3 percentage points in share.

“They (private banks) now have almost 27% share of retail lending in India compared with 15% in overall lending space,” the report added. It said the PSBs have lost market share in retail lending, led by State Bank of India, which focused on corporate lending after FY10 and had recently increased focus on retail loans. SBI’s market share in retail lending has seen a consistent drop from 17% in FY11 to 15% in FY14.

Commenting on savings account deposits, the report said that Axis Bank has seen the biggest share gain over the past the years, with HDFC Bank the second biggest gainer. “Smaller private banks, such as Yes Bank, Kotak Mahindra Bank (KMB) and IndusInd Bank have also gained share, but this was driven by the higher rates that they offered,” it added. While Yes Bank offers 7% interest in savings account, KMB offers 6%.

Market share of PSBs in savings deposits have been broadly stable, with SBI being the biggest share loser from 24.4% in FY11 to 23.2% in FY14, the report said.

“We expect share gains by private banks to intensify, as they have expanded distribution materially over the past three years and new branches will generate more business as they age,” the report said.

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