Private sector banks increase share, deposits still a worry

Private banks see 24.1% growth in credit, while PSBs manage 19.8% rise.

Private sector banks gained market share over their public sector counterparts during the year up to October 8.

According to the latest data by the Reserve Bank of India (RBI), private and foreign banks saw 24.1 per cent and 11.4 per cent growth in credit, respectively, till the end of October 8. At the same time, public sector banks recorded a 19.8 per cent increase in credit flow compared to 15.2 per cent in the same period last year.

During the corresponding period last year, private banks reported a 2.4 per cent increase in credit while foreign banks reported a 15.3 per cent decline.

Public sector banks accounted for 74 per cent incremental credit offtake on a year-on year basis.

An analyst with a rating agency said till September 2009, ICICI Bank, the largest private sector bank, was shrinking its balance sheet while public sector banks were growing substantially. In the 12 months up to the first week of October 2010, ICICI Bank grew its balance sheet through loan growth. Also, other private banks performed better, he said.

This was despite a slump in deposit mobilisation, which went up by 15 per cent as against the central bank’s projection of 18 per cent.

As a result of high credit demand and low deposit growth, banks have increased their borrowings from overseas as well as financial institutions. In addition, banks’ investments in government securities that qualify for statutory liquidity ratio (SLR) requirements and other approved securities declined compared to last year.

“These alternative funds supported higher credit growth, as investment in government and other approved securities, non-SLR securities, as well as foreign currency assets has exhibited deceleration or contraction in y-o-y growth,” RBI said in the macroeconomic and monetary development second quarter review for 2010-11.
 

ON A HIGH NOTE CREDIT FLOW FROM SCHEDULED COMMERCIAL BANKS (Rs CR)
	Oct 8, ’09**  Amount	As on Oct 9, ’09		As on Oct 8, ’10
		Amount	In %	Amount	In %
Public sector banks	25,67,838	2,83,483	15.20	4,24,171	19.80
Foreign banks	1,75,580	-29,770	-15.90	17,979	11.40
Private banks	6,39,361	12,076	2.40	1,24,213	24.10
All scheduled commercial banks*	34,68,999	2,79,305	10.70	5,80,005	20.10
*Including regional rural banks; **Outstanding as on                                                             Source:RBI

Funding from financial institutions went up to 21.3 per cent at the end of October 8, 2010. Also, overseas foreign currency borrowings grew 44 per cent. Banks’ investment in government securities grew 8.3 per cent as against 40.6 per cent a year ago. Generally, banks park excess funds in government securities after meeting the demand for credit.