As per RBI's latest report, PSBs didn't perform as good as foreign & new private banks in terms of asset growth because of enforced liquidation of govt. securities to fulfill high demand of credit.
The report states that new private banks witnessed highest asset growth in 2005-06 (43.2 %). Foreign banks witnessed a growth rate of 31.2 % in this period. PSBs fared quite poorly and reported just 13.6 % growth whereas old private banks had the lowest asset growth rate of 12.2 %.
Therefore, the comparative significance of public sector banks declined significantly, as their total assets share dropped to 72.3 % in last financial year from 75.3 % in 2004-05. New private banks increased their share from 12.5 % to 15.1 % in same period.
Banks improved their quality of assets in 2005-06, after the debt was sold or restructured by them & the firms discharged their debts from significant profits, thus, cutting down the total bad loans to 1.2 % in 2005-06, from 2 % in 2004-05, as per the report.
"Private & foreign banks are tapping short term depositors, as the credit demand is rising in market. Majority of such banks possesses a low CASA (current account & savings account) level, which brings in less low-cost funds compared to PSBs & old private banks," as per a banking expert at RNCOS.
New private banks such as UTI & HDFC, established in 1990s, are taking the market share of state-owned PSBs by lending aggressively in retail & services sector. These & other foreign banks have highest exposure in sensitive sectors, primarily due to exposure to real estate sector, according to RBI report.
Retail loans increased by 40.9 % to around US$ 83 Billion with a significant rise in home loans, a key factor attributing the growth.
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