Private sector banks have managed to record better growth than their public sector counterparts in the last few years as the latter remained burdened with asset quality woes. The year 2015, has seen private sector banks wrest more market share from the PSBs.
The report pointed out that the private sector banks continue to outperform the PSBs on various parameters. "While the PSBs continue to play a vital role in Indian economy and financial system, they have been lagging their private sector counterparts on performance and efficiency indicators. Presently the PSBs with a predominantly high share in infrastructure financing are observed to be facing the highest amount of stress in their asset quality and profitability," said the Financial Stability Report released by the Reserve Bank of India.
It is not only on one front but the PSBs seem to be lagging behind private banks on several fronts including asset quality, profitability, credit growth etc. For instance, it is the PSBs that have recorded the highest level of stressed assets at 14.1 per cent followed by private banks at 4.6 per cent and foreign banks at 3.4 per cent.
Because of the pressure on asset quality, the PSBs have been also lending more cautiously, thus resulting in muted credit growth for them. "Within the bank-groups, public sector banks (PSBs) continued to register subdued performance in credit as well as deposits, whereas private sector banks (PVBs) and foreign banks (FBs) showed robust growth during the same period," said the Financial Stability Report.
On the profitability front, the report pointed out that Profit After Tax (PAT) of the scheduled commercial banks declined by 4.4 per cent during the first half of the financial year 2015-16, due to lower growth in earnings before provisions and taxes and higher provisions and write-offs. Even here the state-owned banks were worst affected. "PAT declined by 22.7 per cent for PSBs, whereas, it increased by 11.5 per cent for PVBs and 4.6 per cent for FBs during the same period," said the report.
Going ahead, the picture doesn't seem too rosy for public sector banks as well. A research report by Brickwork Ratings has estimated that In FY15, PSBs would have lost market share by 2 per cent, which has been gained by the private sector banks. "If the current growth trend continues for another three years, by FY18, our estimate is that PSBs share would have come down to 71 per cent ( from 75 per cent in FY15) and the entire gain will be of private banks."
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