Private banks share in advances to hit 38-40% by FY'20: ICRA

Mumbai: The market share of private sector lenders in the banking sector advances is expected to increase to an estimated 38-40 per cent by 2019-20, says a report.

According to credit rating agency ICRA, the market share of private sector banks stood at 19.9 per cent at end of March 31, 2014 and 27.5 per cent in fiscal 2016-17.

The estimated hike in market share is based considering the capital constraints of public sector banks and assuming an incremental market share of 80 per cent for private sector lenders as well as a credit growth of 7-9 per cent for the banking sector between the current fiscal and 2019-20.

ICRA group head (financial sector ratings) Karthik Srinivasan said private sector banks face challenges of increasing competitive intensity because of weak credit demand while the buoyant debt capital markets pose challenge of balancing growth and profitability.

"Notwithstanding these challenges, private sector banks have performed well and capitalised on the opportunities by delivering a credit growth at 3-year compound annual growth rate of 17.8 per cent as against 2.5 per cent for public sector banks and with relatively better asset quality," Srinivasan added.

The report noted that the market share of private sector lenders in deposits increased to 23.5 per cent as on June 30, 2017 from 19 per cent as on June 30, 2014.

However, ICRA said the credit/deposit ratio of the banks could be higher at 94-102 per cent during FY2018-2020 and in such a case the lenders "will need to either aggressively mobilise deposits and have a market share of 60-70 per cent in incremental deposits to maintain a similar credit/deposit ratio of 87 per cent or rely on high cost market borrowings".

"In case the private sector banks are unable to mobilise the requisite quantum of deposits, the ability of the banks to grow advances may be constrained and their market share of advances will be lower than our estimate of 38-40 per cent by 2019-2020, this apart it may also impact the overall credit growth of the banking system," Srinivasan said.

"Private sector banks ability to successfully leverage technology and offer differentiated products will be critical to mobilise deposits as they pursue growth" he added.