Depositors still bank on state-run lenders bl-premium-article-image

Radhika MerwinBL Research Bureau Updated - March 02, 2014 at 10:42 PM.

Public sector banks hold 78% of all deposits, lend 76% of loans

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With mounting bad loans and top-level exits, public sector banks are in the news for all the wrong reasons. But they still remain the favourites with Indian depositors.

It has been two decades since new private sector banks made their debut in the country, but public sector banks hold 78 per cent of all deposits and lend 76 per cent of all the loans. In the last two years, about ₹14 lakh crore of incremental deposits flowed into public sector banks, while private banks could collect only a third of this.

New private banks which started out in the 1990s initially captured a 10 per cent share of savings and term deposits. But they haven’t made much headway in the last five years. Around 80 per cent of the incremental deposits of ₹41 lakh crore, flowed into state-owned banks in this period. Why hasn’t the entry of new private players dented public sector banks? One reason could be their nationwide reach. Most new banks set up in the last decade or so are yet to establish a national presence. Axis Bank, the third largest private lender, has 2,321 branches. This is still lower than many small state-owned banks; Allahabad Bank and UCO Bank, for instance, have around 2,700 branches.

While private players may offer swanky offices and anywhere-banking, what clients seem to value is a branch in their neighbourhood. Public banks account for 82 per cent of the total number of bank branches in the country. “Branch banking still remains a preferred mode of banking for customers in India. Public sector banks have a vast branch network and, hence, their share of business in the banking sector is still over 70 per cent,” says Ananda Bhoumik, Senior Director and Head, Financial Institutions, India Ratings & Research. Regulations require private banks to set up one-fourth of their new branches in un-banked areas. Private lenders, keen to protect their profitability, have gone slow on opening new branches.

Published on March 2, 2014 16:55