Covid-19 to accelerate India Inc's migration to safe, large banks

The pace of corporate client migration to big and safest banks in India will gather pace as companies look for security and support during and post the crisis triggered by Covid-19 pandemic. The share of large private banks in corporate relationships have moved from 27 per cent in 2017 to 32 per cent in 2019, according to Greenwich Associates, a Crisil group company.

Besides, scale and domain expertise, digitisation, quality of service and variety of product suite will be the differentiator in taking a call on changing banking relationship.

“Even before Covid-19, Indian companies were worried about the stability of some banks and their own access to funding and liquidity,” said Gaurav Arora, Head of Asia at Greenwich Associates in a statement.

India’s biggest private sector banks were gaining business from their smaller private-sector counterparts, due in large part to fallout from the Yes Bank restructuring.

In 2018, private sector banks accounted for 49 per cent of core corporate banking relationships in India. That total was divided between 28 per cent held by the three largest private sector lenders, ICICI Bank, HDFC Bank and Axis Bank, and 21 per cent held by other, smaller private sector competitors. From 2018 to 2019, group of smaller private banks lost a percentage point of penetration.

Weakness for smaller private sector banks was also visible in their ability to hold on to domestic cash management relationships. The proportion of smaller private sector banks’ clients using them for domestic cash management needs dropped to 46 per cent in 2019 from 49 per cent in 2018.

The spike in demand for digital banking solutions caused by the Covid-19 lockdown plays to the strength of these banks. It could actually create opportunities to capture new relationships, as long as their balance sheets remain relatively strong and they are able to continue lending to hard-pressed companies, it added.