Private banks stealing a march over PSBs in incremental credit offtake: SBI research report

Are private sector banks (PvSBs) stealing a march over their public sector counterparts in granting loans? An analysis by State Bank of India’s economic research department seems to suggest so.

Post FY14, public sector banks’ (PSBs) incremental credit offtake is estimated at ₹13-lakh crore, against PvSBs’ ₹24-lakh crore.

According to SBI’s research report, titled ‘Ecowrap’, post the crisis period of FY09-FY14, PSBs’ total incremental credit offtake was ₹28.7-lakh crore, whereas PvSBs’ was ₹7.4-lakh crore.

The report said the incremental lending by PSBs, which was at 71 per cent in FY14, had sharply declined to 23 per cent in FY17; it revived in FY18 to 33 per cent, but declined again later with the non-banking finance company (NBFC) crisis.

The decline in PSBs’ credit growth was primarily because of the initiation of an asset quality review (AQR) in 2015, it added.

In 2008-09, the share of PSBs in incremental credit was 86.4 per cent, while PvSBs’ was just 9.8 per cent.

SBI’s analysis of the credit data of the top six banks — three PSBs and three PvSBs that accounted for 52 per cent of the total bank credit (as of March 2019) over one year (December 2019 over December 2018) — reveals interesting results, with both PvSBs and PSBs exhibiting robust growth in the retail segment, at 15.7 per cent and 12.8 per cent, respectively.

The report reasoned this indicates — apart from new retail credit — that the portfolio switch of retail loans is working both ways (PvSBs to PSBs and vice-versa).

Corporate credit: Switch from PSBs to PvSBs

Further, in the case of the top eight PSBs, corporate credit exhibited a decline of ₹81,535 crore during December 2019 over December 2018, while during the same period the top three PvSBs’ corporate pie grew by ₹1.04-lakh crore.

“This clearly explains the portfolio switch in the corporate credit portfolio from PSBs to PvSBs. This indicates that incremental credit demand is largely in the retail segment, but, in the corporate segment, it is largely a portfolio switch from PSBs to PvSBs,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

Referring to the FY04-FY08 period,when incremental credit expansion by PSBs was at ₹11.8-lakh crore, and that by PvSBs at ₹3.3-lakh crore, Ghosh said: “Such a rapid growth was also a paradox as the share of the private sector in overall banking aggregates barely increased at a time when the country witnessed its most rapid growth and one that was fuelled by the private sector. It was an anomalous case of private sector growth without private sector bank financing.”

Lowest credit growth in 57 years

Based on the trend growth, the report said all scheduled commercial banks’ (ASCBs) credit in FY20 may incrementally increase by ₹6-lakh crore, with a year-on-year (YoY) growth of 6.3 per cent. This would be the lowest growth in the last 57 years (after 5.4 per cent in FY62), it added.

For the current fiscal (up to Febuary 14, 2020), ASCBs’ YoY credit growth data indicate a downward journey, touching 6.4 per cent (vis-à-vis 14.8 per cent in the previous-year period).

Even on a year-to-date (YtD) basis, ASCBs’ advances declined to 2.8 per cent (₹2.69-lakh crore) in FY20, compared to last year’s YtD growth of 9.4 per cent (₹8.1-lakh crore). Thus, this year’s incremental credit growth is merely 33 per cent of the previous year’s number.

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