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How Private Banks are Taking Over Indian Banking Research Team | Posted On Saturday, March 07,2020, 05:23 PM

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How Private Banks are Taking Over Indian Banking



The Indian customers are slowly moving their banking bases from public sector banks to the private ones. One of the main reasons why private banks are attracting customers is the higher interest rates offered on savings account, better customer care service and extensive facilities like online banking and loans at an affordable rate of interest.

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How Private Banks are Taking Over Indian Banking

But the sway of customers is not only because of the attractive interest rates. The bad-state of the government-run banks and the burden of bad loans has been largely responsible. What is not well known is that over the last two fiscals, private banks have moved in and have captured a large portion of the Indian market.

Let's take a detailed look into it:

The Overall Situation Based on Outstanding Deposits:

As of 31st March 2019, the overall deposits in the Indian banking system is estimated to be 125 trillion. While the public sector banks have 63.1% of the overall deposits the private sector banks possess 28.7% of the overall share. Though the private sector banks have a significant amount of deposit, they have lost their grip over the market.

See Also: Understanding The Indian Banking Sector

The fact becomes clear when it is compared with the data collected on March 31st, 2011. The data states, that the total amount of deposits in the Indian Banking system was 53.9 trillion, where the public sector banks have an overall share of 74.6%. Back then the share of the private sector banks was a little over 18%. Clearly the private sector banks have emerged way beyond expectations.

The Overall Situation Based on the Outstanding Loans:

The health of the Indian banking system has been deteriorating due to bad loans. Most of these loans are due in public sector banks. Such bad loans are a result of political interference in the decisions of the state-owned banks. The public sector banks have a share of 58.8% of bad loans while the private sector banks are struggling with only 33.6% bad loans. As of 31st March 2011, the total debt burden on public sector banks was 74.9% while the private sector banks had bad loans amounting to 17.8%. Though the private sector banks have slowly captured a significant market share, their share of bad loans has also grown. However, they have been able to make use of the troubles of the public sector banks to establish their business.

How Did The Private Sector Banks Help The Economy:

Experts believe that over the years the private sector banks have been able to capture a significant share of the market over the state-operated counterparts. There are various factors that has contributed to their growth some of which are - stronger balance sheet, stronger governance, better customer care service and are more competitive.

See Also: Banking system in India

If you take a long-term view of the past performance of the private sector banks you can see their current market share has risen to 30%. The private banks will further benefit as certain public banks have been listed on the Reserve Bank's Prompt Corrective Action. Further, it is also believed that the public banks will struggle to hold their position in the future with regard to deposits.

What Does It Tell Us About the Indian Banking Business?

While India has witnessed the nationalization of the banks the reverse has not been experienced. However, private companies have taken over many sectors when  public companies have faltered. While this is true in the case of the airline and telecom sector, the same cannot be applied to the banking sector.

See Also: Mastering the New Realities of India’s Banking Sector

The banking system is the backbone of the economy. And thus with banks like Yes Bank operating in the system, the central bank is more likely to take firm steps on private banks. Along with this, the wide mismanagement of funds in NBFCs is an additional cause to restrict and regulate the growth of private banks. Thus with the growth of private banks, India need better regulations to safeguard the interest of its people. However with reliable private banks like HDFC and ICICI the private banking sector is likely to see steady growth in the future.

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