Despite state-run banks’ relatively high interest rates on deposits, private lenders continue to gain deposit share, shows latest data. PSBs lost a staggering 770 bps market share in deposits since FY11, with the loss gradually picking pace in the past few years. In 2018 alone, the lost market share is as high as 250 bps. The reasons for the declining trend could be two-fold. One, unlike private peers, more than half of the PSBs freezed branch expansion with 11 banks under PCA framework until recently and two, because of slower adoption of technology.
For instance, following rapid expansion in branches over the past 5 years (at 7 per cent CAGR), growth moderated with overall branches increasing by a mere 1 per cent y-o-y in FY18. Tellingly, growth was flat in urban areas after witnessing 10 per cent rise in FY17, while rural areas saw slight pickup in branch expansion (up 2 per cent) after decline of 3.5 per cent in FY2017.
On the other hand, the loss in branch share of private lenders is far less at 200 bps in FY18 and 450 bps since FY11. Private banks have always had somewhat dominant presence when it comes to retail loans, but with effective usage of technology and adoption of cross selling products (insurance, demat accounts etc), they have been steadily increasing their retail deposit base too.
Though PSBs witnessed massive improvement in savings accounts penetration, a significant number comprise zero-balance accounts.
Meanwhile, among regions, North India continues to see improvement in deposit share. Central, East and North-East India showcased smooth growth in deposit share with broadly stable share of branches. Concerns continue to persist in Western India as it witnessed the fourth consecutive year reduced deposit market share. South India has been a standout performer over the past decade and it currently holds the highest share in deposits, improving each year, according to brokerage Kotak.