Private Banks further consolidate lending market share

Private sector banks have further consolidated their position in the lending market post Covid, backed by their expertise in retail and services sector lending.
Their cumulative market share has risen to 42% at the end of March from 35% four summers back, when the Covid pandemic began spreading in India in March 2020, according to an IDFC First Bank report. Public sector banks lost their share to 53% from 59% over the same time horizon. In retail lending, private banks’ cumulative share increased to 49% from 41% while public sector banks saw their share shrinking to 49% from 57% during this four-year period.

The private sector banks to continue gaining market share and they have been stock market laggards, should now give better returns given a good business outlook and inexpensive valuations. These banks including the banking sector leaders such as HDFC Bank and ICICI Bank account for a majority share in service sector credit at 51% in FY24. Public sector banks account for majority share in credit to industry at 55% and agriculture credit at nearly 70%. In deposits too, private banks gained market share to 35% at the end of March from 30% as on March 2020, while public sector banks’ share fell to 56% from 62%. The expansion of retail loans helped the household sector gaining prominence in availing themselves of bank credit, accounting for a 57% share. Over the years, the nature of credit deployment has changed with rising share of retail credit and services credit, while share of industry credit reduced. This has resulted in the household sector accounting for a majority share in overall bank credit and the market share of private sector banks rising.

Bank credit growth has shown sustained recovery since FY23, supported by strong domestic growth conditions and strong bank balance sheets. Bank credit grew 16% year-on-year as of May 2024 against 8.6% a year back, excluding the impact of merger of HDFC Bank and Housing Development Finance Corporation. The share of retail loans rose to 32.5% of overall bank credit as of April 2024 and loans to the services sector to 27.8%. Interestingly, metropolitan, urban and semi-urban areas continue to dominate bank credit, accounting for 92% share. The share of rural areas has held steady at 8%. Regional composition has held steady over the years with the West accounting for the largest share at 34% and the South region at 28% share, the report said.