A higher interest rate of up to 7% on savings bank deposits seems to be helping small new-generation banks like Yes Bank, IndusInd Bank and Kotak Mahindra Bank expand their market share at the cost of the old public sector banks.
The data suggest that small new-generation banks have seen their incremental savings account deposit market share grow four-fold from 1% in the first quarter of previous fiscal, 2011-12, to 4% in the fourth quarter (January-March).
During the same period, the combined savings account market share of PSU banks has declined, but the large private banks have so far managed to hold onto their market share.
Since the Reserve Bank of India's deregulation of the savings bank account interest rates in October 2011, the small new-generation private banks have raised their interest rates to relatively higher level than most of the other banks, helping them with better savings account acquisitions.
As per the latest report by global financial giant Espirito Santo Investment Bank, the smaller new generation private banks that have raised rates have seen higher SA (savings account) momentum, while large private sector banks are witnessing early weaknesses and PSU banks have seen a deterioration in their savings bank deposits mobilisation.
"We expect smaller new generation private sector banks to gain market share at the cost of PSU banks in the initial phase," the report noted.
Yes Bank offers 6% savings account interest rate for deposits below Rs 1 lakh and 7% above Rs 1 lakh level. IndusInd Bank and Kotak Mahindra Bank offers 5.5% for below Rs 1 lakh and 6% above Rs 1 lakh savings account deposits.
As per the report, the three new generation private sector banks that have increased their SA interest rates are likely to continue to offer higher SA interest rates than competitors to maintain their competitive advantage in terms of pricing differential.
It further said that since SA deregulation, Yes, Indusind and Kotak have increased rates which has helped them to gain significant momentum on SA deposit mobilisation, with rise in their incremental SA deposit market share from 1% in Q1 FY12 to 4% as of Q4 FY12.
The large private banks (ICICI Bank, HDFC Bank and Axis Bank) are holding the fort for now, as they have managed to hold on to their market shares over the last couple of quarters, as they managed to maintain their Savings Account ratio at 27.9% from Q1 to Q4 FY12.
On the other hand, the PSU banks are losing market share. The top five PSU banks have continuously lost market share and their combined SA market share decreased from 26.6% in Q1 FY11 to 25.2% in Q4 FY12.
The leading PSU banks in the country include SBI, PNB, Bank of Baroda, Canara Bank and Union Bank of India.