Private sector banks have steadily gained market share in saving accounts, even before the central bank freed interest rate for that segment. A report by Kotak Securities points out that private sector banks have gained market share by 500 basis points (100 basis points make 1 per cent) since FY05. This share was largely captured from nationalised banks. One of the main reasons for the increase in market share has been focused branch expansion in key geographies.
Current account and saving account (CASA) share of private sector banks has also increased by 300 bps during the same period. Apart from grabbing market shares from nationalised banks, private sector players were also able to take market share from foreign banks.
While market share of nationalised banks (excluding SBI and associates) reduced from 49 per cent to 47.8 per cent, those of foreign banks reduced from 5.8 per cent to 5.2 per cent. Private banks saw a rise in their market share from 14.9 per cent to 17.8 per cent.
Their share in overall saving accounts increased from 11 per cent in 2005 to 16 per cent in 2011. Kotak believes the reason for the jump in market share of private sector banks is their ability to consistently expand branches by over 20 per cent CAGR (compounded annual growth rate). Targeting high growth customers, especially in current account and expansion in high growth areas have been cited as the main reason for growth. However, deposit mobilisation seems to be concentrated in the top 50 centres. In FY11, top 50 centres account for 20 per cent of branches but their share in deposits was 65 per cent and loans were 75 per cent. Western and southern regions contributed the most in deposit and loan growth. Kotak says that low business opportunity beyond these centers raises risks of profitability as costs are likely to be recovered with significant delay. Going forward regulatory constraints that require 25 per cent of new branches to be opened in tier-5 and tier-6 cities are expected to result in branches being opened with lesser profitability. Kotak, however, believes that this will be a cost that banks will be willing to pay to get licenses in tier-1 cities and meet priority sector requirements.