While the State Bank of India and some leading private sector banks have largely addressed their asset quality challenges, many public sector banks are still saddled with weak assets, high credit costs and poor earnings, S&P Global noted on Thursday.
As such, the agency expects polarisation in the sector’s performance to persist in 2023. In its Global Banking Outlook-2023 report, the agency further said that the banking sector as a whole will see stronger balance sheets and higher demand, which should boost bank loan growth, but deposit growth will continue to lag.
Data shows that in terms of credit and deposit growth, private banks outperformed public sector banks (PSBs) in the first quarter of the ongoing fiscal. Private sector banks gained market share from PSBs by 120 bps on an annual basis and reached 36.8% as it saw higher retail credit growth and saw an aggressive credit market capture.
Private banks outperformed by a margin of a whopping 650 bps in Q1 in terms of credit growth performance. PSBs’ deposits market share dipped 144 bps year-on-year in Q1 while private banks gained 115 bps.
“Private banks have been continuously gaining market share due to the aggressive acquisition of clients and offering better services,” CareEdge said.
“In terms of credit and deposit growth, private banks outperformed PSBs with a wide margin in Q1FY23 which is expected to continue due to the aggressive acquisition of clients and offering of higher interest rates on deposits (particularly on saving accounts),” it added.
Private banks’ credit growth grew by 18% compared to 9.6% a year ago, owing to an increased focus on the retail credit market. At the same time, PSBs saw a growth of around 11.5% compared to 3.1% over a year ago period owing to retail credit, inflation-induced working capital requirement, MSMEs driven by ECLGS, and low-interest rates.
Growth witnessed by the private sector banks was the highest over the previous nine quarters and reached almost close to pre-pandemic levels.