The southward shift in market share of state-run banks is in your face; but as Monish Shah, Partner at Deloitte (India), points out: “While market share is important, what is equally relevant is the quality of it — as in what is your share in the profitable segments”.
RBI data shows that the biggest year-on-year share of incremental credit in FY19 (up to September based on banks’ off-site returns) was accounted for by retail banking at 18.8 per cent while credit to industry grew only by 0.2 per cent. Within retail, the uptick was the highest in consumer loans at 110.2 per cent, advance against shares at 33.4 per cent, credit card receivables at 30 per cent, home loans at 18 per cent, and other retail loans at 24.2 per cent.
While bank-wise data vetted by RBI is yet to come in, the wholesale-retail loan split in HIFY20 for SBI stood at 54:46 from the 57:43 in FY19; it is a big change from the 60:40 in FY17. Similar swings were seen for Punjab National Bank, ICICI Bank and Axis Bank. There was a trend reversal at HDFC Bank because it is now picking up on corporate loans of a certain kind.
Observes the central bank in its T&P: “This diversification strategy, while helpful as a risk mitigation tool, has its own limitations: the slowdown in consumption and overall economic growth may affect the demand for and the quality of retail loans”. This is not sustainable.
Says Madan Sabnavis, chief economist at CARE Ratings: “None of this addresses a basic issue – can you hold on to the profitable segments? Most state-run banks have all along played the ‘how to gain share’ game. It does not work beyond a point. What you need is the ability to customise offerings having identified the markets you want to be present in”.
It leads us again to the issue of profitability, and valuations of state-run banks. With limits to retail (and early signs of stress in the portfolio), it may be back to wholesale credit down the line – exactly when, is the issue. The central bank’s Financial Stability Report (FSR: December 2019) hints this will not happen anytime soon: “The consumer credit segment, given the monetary stimulus and regulatory measures, has grown robustly even as wholesale credit growth
nudges lower and firms and financial intermediaries are in the process of deleveraging and improving their business practices”.
So, how are we to view the plot ahead? “Notes Shah: “State-run banks enjoy good customer trust and have a stronger footprint in the hinterland. The challenge, going forward, is how they are able to leverage these legacy advantages using digital platforms”. He feels that “the mergers of state-run banks may help improve competition among the peer group and vis-a-vis private banks. We may be on the cusp of big change, going ahead”.
Join the dots – state-run banks will have to go back to the drawing board and decide in which markets they want to be in; the pursuit of market share for the sake of it will have to be junked. The mergers of four sets of these banks with a cumulative market share of 24.1 per cent may well be the fire-power they need to get at least the pricing power back, and take on private banks in select products and markets.
The big slide — could well be arrested.