RBI circular helps large lenders gain corporate banking mkt share: Report

The Reserve Bank of India's (RBI) insistence on companies opening current accounts with banks is among the factors that has helped large lenders such as HDFC Bank, ICICI Bank and SBI raise their shares of the competitive corporate banking market in 2020, according to a report.

Apart from the RBI rules, the government's mega merger to reduce the number of state-owned banks has also helped in the trend, rating agency Crisil said on Wednesday in the report.

In mid-2020, the RBI had come up with the circular that specified which bank can open a current account for a borrower, in order to check any misuse through multiple current accounts.

A fourth of the large and medium corporates said they were banking with at least one among ICICI Bank, Axis Bank and HDFC Bank as against 17 per cent in 2016, it said adding that the private sector banks have grown at over 25 per cent per year.

In most of the four-year period, SBI defended its market-leading penetration levels but in 2020, the lender expanded its footprint. Now, nearly a third of corporates do business with the largest lender and 30 per cent name it as their cash management provider.

"Several trends have contributed to the pick-up in market penetration among the leading banks, including the 'mega merger' of the country's public sector banks and the Reserve Bank of India's 'circular on current accounts', which essentially rules that banks can only open current accounts for companies to whom they are also major credit providers, the report said.

It said the pressures exerted by the pandemic will accelerate the consolidation of the Indian corporate banking industry, as the market's biggest banks prove themselves best-positioned to help large- and middle-market companies overcome crisis disruptions.

"When the pandemic sent the country into lockdown last year, companies needed immediate assistance from banks, at first to ensure financial stability, and then to keep businesses running," says Gaurav Arora, head of Asia at Coalition Greenwich, part of Crisil, said.

The 2021 'Coalition Greenwich' research study mentioned State Bank of India, along with leading private sector banks Axis Bank and HDFC Bank, and foreign banks Citi and HSBC, as companies' top sources of support during the crisis.

The report said that even before the start of the global pandemic, India's corporate banking market was on a consolidation path, driven by decisive steps by regulators to solidify the country's banking sector, and the rapid evolution and growth of the leading private banks.