Indian PSBs are losing their market share by nearly one percent annually to private banks due to lack of advanced infrastructure and customer indifference.
According to a report by Moody, a credit rating agency, the Indian Public Sector Banks (PSBs) have been losing nearly one percent market share to private banks for last 15 years (1993-2007), as reported by Business Standard.
The report revealed that PSBs’ total asset size fell from 75.6% in 2003 to 70.5% in 2007, while the total assets of private banks increased from 17.5% to 21.5% during the same period.
The fall in the market share of PSBs is largely due to intense competition in the market in the last decade (1997-2007). During the period, PSBs were badly hit as they fail to keep pace with the private and foreign banks as these banks offer better, profitable and competitive business than PSBs.
Moreover, though private and foreign banks are struggling with the problem of low penetration (limited branches), they are giving strong competition to PSBs by providing quality services and distinct products such as hedging instruments to sophisticated clients. Flexible nature and advanced infrastructure are the biggest assets of private banks giving them a competitive edge against PSBs.
Besides these, the Indian banking industry is immune against the current global credit and liquidity crisis in the financial markets because the Indian banks do not take much risk. As a result, the private banking industry earned more profits than their counterpart PSBs. Few large banks having branches in the international market are mildly affected due to adjustment in their asset price and have taken minimum write down.
However, the Indian PSBs show profitability marginally lower than private banks, with foreign banks emerging as the most profitable banks in the country. Moreover, PSBs’ revenue could shrink further with heating competition and disintermediation for quality credits.
According to a Research Analyst at RNCOS, “Indian PSBs should focus on fee-based income to improve quality of earning and to gain more profits. Hence, PSBs should pay attention towards the improvement of technology and facilities to provide quality services to modern customers in order to compete with private banks and to grow.”
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