Public sector banks have lost further market share to private banks in the lending business as they curtailed their exposure to stress-prone sectors as part of clean-up exercise and the ongoing slowdown depressed demand for credit.
While the share of private banks in total credit rose to 34.7 per cent as of September 2019 compared with 31 per cent in September last year, the share of public sector undertaking (PSU) banks contracted from 61 per cent in September 2018 to 57 per cent by September 2019.
The outstanding credit of PSU banks showed a rise of just 1.84 per cent from Rs 55.5 lakh crore in September 2018 to Rs 56.6 lakh crore in September 2019, according to data from the Reserve Bank of India (RBI).
The outstanding credit of private banks rose 21.65 per cent to Rs 34.2 lakh crore from Rs 28.1 lakh crore a year ago.
Regional rural banks showed a 104 per cent growth in outstanding credit at Rs 80,000 crore this September as against Rs 40,000 crore a year ago.
“PSU banks were very selective in their lending business following the asset quality review that started three years ago and the ongoing economic slowdown. They are already saddled with huge NPAs (non-performing assets),” said a senior banker with a nationalised bank.
PSU banks account for the bulk of Rs 9.16 lakh crore NPAs of the banking system, as of September 2019.
The state-owned banks had made total provisions of Rs 891,000 crore since financial year 2015-16 with provisions touching Rs 2.86 lakh crore in FY18 and Rs 2.30 lakh crore in FY19, according to data compiled by Care Ratings.
“This (losing market share) is the result of selective lending undertaken by the government-owned banks, with the intent to curtail the exposures to the stress-prone sectors. Furthermore, private banks benefit from their competitive strengths in risk pricing and operational efficiency, in the retail lending space,” said a report by the rating agency.
Furthermore, the announcement of mergers in the public banking space has led to a shift in focus of PSU banks from expanding business to operationalising the mergers.
The ongoing economic downturn and lack of new investments by the corporate sector also led to a deceleration in the growth of credit offtake.
Total non-food credit outstanding posted a small growth of 0.3 per cent to Rs 86.63 lakh crore in the current financial year till October 25, 2019.
Credit offtake by industry declined by 3.4 per cent to Rs 27.86 lakh crore during the same period, according to RBI data.
The central bank had slashed the repo rate by 135 basis points (bps) cumulatively in 2019. However the one-year median marginal cost of funds-based lending rate (MCLR) has declined by only 49 bps.
While the rate cut transmission has failed to keep pace with the repo rate cut by RBI, the demand for credit also dipped due to the moderation in the overall economic growth.
However, lenders have now started to marginally transmit the rate cuts by RBI in their lending rates.
Private banks moved into the retail space much earlier than their public sector counterparts. PSU banks are now focusing on personal, housing, auto loans due to the slow credit offtake by the corporate sector.
“Retail is showing more demand than the corporate. In the retail segment, more demand is coming from housing. In the corporate segment, we have seen demand in very few sectors,” said the chief executive officer of a nationalised bank.
As most of the banks have now begun to cut their lending rates in quick succession, creating scope for a spur in domestic demand and thereby incentivising growth in credit, credit growth is likely to be in the range of 8-9.5 per cent year-on-year for March 2020, Care Ratings said.
The credit growth is, however, contingent on other policy measures that the government would undertake to stimulate demand, it further said.
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