HDFC Bank and Kotak Mahindra Bank have emerged the largest wealth creators among the private sector banks. Six new private sector banks feature among the top 10 banks in market capitalisation (total value of shares issued), according to the latest report on the banking sector released by Motilal Oswal Securities.

Impressive market-cap

In fact, the market capitalisation of HDFC Bank at ₹1.58 lakh crore is equivalent to the market-cap of all State-owned banks, put together, excluding State Bank of India. The seven private sector banks have created wealth of ₹4.2 lakh crore with a total investment of ₹76,500 crore. These banks have registered a compounded annual growth of 28 per cent between FY2000-13.

Over the last two decades, the Reserve Bank of India had issued 12 new bank licences (10 in 1993 and two in 2003-04). Of these, seven have survived the intense competition and volatile economic growth.

Alpesh Mehta, Banking Analyst, Motilal Oswal Securities, said over the last two decades private sector banks have been continuously gaining market share from the State-owned banks.

“We expect the private banks to grow further despite intense competition from new banks jumping into the field. Existing private banks have been strengthening their foothold in semi-urban and urban areas, where State-owned banks’ dominance would be challenged,” he said.

This apart, he said, State-owned banks are struggling to meet the capital requirements and employee-related issues. The dependence of public banks on Government fund will increase with stringent capital norms kicking in.

Traditionally, a bank’s success depends on attracting low-cost deposits. Smaller private banks were quick to use the RBI move to free saving bank interest rate. They also managed to open new accounts with attractive interest rates for savings accounts.

Interestingly, this move will be challenged with the RBI issuing fresh licences for new banks, thus further intensifying competition.

Poaching of employees and shift of large corporate accounts could be another threat faced by existing private banks. However, there seems to be enough opportunity for all players to co-exist.

Assuming a nominal GDP growth of 12 per cent (against the average of 14 per cent over the last 20 years) and the average loan multiplier of 1.4 times in the last decade), Indian banks are poised to deliver a loan compounded annual growth of 17 per cent over the next 10 years.

This apart, India will be home to savings of ₹15 lakh crore by 2025, as savings-to-GDP improves in line with the historic trend to 36 per cent, says the report.