Public Sector Banks Intensify Competition, Threatening Private Banks' Growth
A report by Bernstein highlights increasing competition from Public Sector Banks (PSBs), posing growth challenges for Private Sector Banks (PVBs). PSBs outpaced PVBs in growth, narrowing deposit growth gaps. This trend questions PVBs' ability to maintain superior loan growth, as PSBs expand in retail segments, albeit at lower margins.
- Country:
- India
According to a report from Bernstein, Public Sector Banks (PSBs) are intensifying their competitive edge against Private Sector Banks (PVBs), posing a risk to PVBs' sustained growth. The report noted that in the most recent quarter, PSBs expanded faster than PVBs, particularly narrowing the gap in deposit growth.
This trend challenges a core component of the PVB investment thesis: their capacity to deliver consistently higher-than-system loan growth. While PSBs have not relied on corporate lending, their robust expansion in retail loans, including home loans and MSME segments, has been the main driver behind their growth.
However, PSBs' aggressive growth strategy has come with trade-offs, particularly affecting their net interest income (NII). Although PSBs exhibit an improving loan-to-deposit ratio, their NII growth lags compared to PVBs, relying more on benign credit costs and treasury gains for support. This scenario is expected to change as these tailwinds fade, potentially impacting both sectors.
(With inputs from agencies.)
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