‘Private banks grow by cannibalising PSB projects’

State-run lenders’ risk-taking during the crisis years has helped private sector banks report healthy asset growth by “cannibalising” the completed projects, said State Bank of India Chairman Arundhati Bhattacharya.

“Why did the private sector not participate (in lending in 2008-09 during the period of the financial crisis)? Because they saw the risk and stayed out. Today why is the private sector growing at 22 per cent? Because they are cannibalising the completed projects at low cost because risks have gone down,” she said at the annual FIBAC conference here on Monday.

During the financial crisis, the State-run lenders supported projects by lending, which helped build infrastructure and generate employment. However, private sector lenders stayed out because the risks were too high then, she added.

Bhattacharya further said the State-run lenders supported the economy during the difficult time, given the social mandate that comes with government capital.

She emphasised that the private sector banks have not been able to cannibalise a large-size lender like SBI, but the smaller State-run banks have suffered. 

It may be pertinent to note that even as the banking system’s credit growth is at multi-year lows, some of the successful private sector lenders have been able to report higher credit growth, much of it driven by the working capital requirements of corporates, she said.

The SBI chief also sought to dismiss the notion that State-run banks get a lot of capital from the government, pointing out that the support which Chinese banks receive from their government is much larger. 

Indian banks have done a “great job”, which has benefited the country, especially given the low levels of capital that they receive, she added.

Amid continued concerns over competition from the 11 upcoming payments banks, Bhattacharya stated that it would be a dog-eat-dog world out there.

“The financial sector has been moving faster than the way we have been responding to it,” she said.

According to her, the new banks are coming with no legacy and will not be held hostage by industry agreements. “Burning capital and gaining market share has become the new reality and we have to look at responding to that,” she said, adding that she is not sure if the new banks have the capital to burn.