Private sector banks in India say they’re unlikely to witness any flight of deposits, even as fears of slow economic growth continue to gain acceptance. Bankers believe private lenders are well prepared to trounce any crisis of confidence such as was seen during the economic downturn of 2008.
“People have realised that no bank has ever failed in this country post-nationalisation. The phobia that ran through depositors during the last crisis was unfounded,” said Romesh Sobti, managing director and chief executive officer of IndusInd Bank.
In January 2009, at the height of the crisis, India's second largest software exporter, Infosys Technologies, had stunned the street by shifting almost its entire deposits in ICICI Bank to State Bank of India, SBI). The software outsourcer had reduced its deposits in ICICI Bank to Rs 10 crore from Rs 1,000 crore between April and December 2008. Infosys' deposits with SBI during this period doubled to Rs 2,000 crore and it kept nearly 70 per cent of its total deposits with public sector banks.
However, private banks emerged out of that crisis relatively unscathed. Incidentally, Infosys has named K V Kamath, a seasoned banker and non-executive chairman of ICICI Bank, as successor to N R Narayana Murthy, its iconic founder-chairman.
“There is no fear of losing deposits with private sector banks in this country. The yields will decide where we want to keep our deposits,” V Balakrishnan, a member of the board and chief financial officer of Infosys, told Business Standard.
Bankers also said the current macro-economic environment was much more conducive for business than during 2008-09. Most banks currently have surplus funds to lend and expand their loan portfolios.
“Last time, there was a problem of liquidity. This time, the liquidity situation is comfortable. Today, the issue is about cost of money, which has become expensive. But even then, if you look at the credit growth for the industry, it has remained fairly strong so far this calendar year,” said V A Joseph, managing director and chief executive officer of South Indian Bank. The Thrissur-based private lender has exceeded its internal business target by Rs 1,000 crore in the first three months of this financial year. “I don’t think it would have been possible if people did not have confidence in private banks,” Joseph said.
ADDRESSING CONCERNS
Private banks are also convinced they have been able to ring-fence their banking operations from risks in the non-banking businesses. This was a key cause of concern during the economic slowdown of 2008 that turned sentiments negative towards some of the private banks. The country’s third largest private lender, Axis Bank, which acquired the broking business of Enam Securities last year, believes its non-banking businesses does not pose any threat to its banking operations.
“Our non-banking businesses at the current juncture are not material enough to impact or impair the performance of the core bank. We realise the importance of judicious use of capital and have invested that capital well to achieve optimum returns for our shareholders,” Axis Bank said in an emailed response to the questions sent for this story.
Bankers also emphasised the need for a strong capital base to weather any meltdown in economic growth. While most private banks currently have capital adequacy ratios way above regulatory requirements, many of them have started exploring fund raising opportunities to strengthen their capital base further.
