
Private sector banks (PVBs) have significantly increased their market share in deposits and advances over the past two decades, according to data from the Reserve Bank of India (RBI). While PVBs’ share has doubled, public sector banks (PSBs) have seen a decline, with their share in these key business areas falling below 60%.
The rise of PVBs comes as four new private banks – Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and Bandhan Bank – were established over the last 20 years. These banks have aggressively pursued business, contributing to their market share growth. Meanwhile, PSBs have faced a series of mergers, beginning with the 2008 merger of State Bank of Saurashtra with State Bank of India, and culminating in the consolidation of 10 PSBs into four in 2020.
Despite losing market share to private sector rivals, experts say PSBs have managed to perform well. Their lending operations were affected by the 2015 RBI-mandated asset quality review, which required PSBs to address hidden stress in their books, reclassify restructured loans as bad loans, and increase provisions. This led to the imposition of prompt corrective action (PCA) on 11 PSBs, further hindering their growth.
As of March 2024, PSBs’ market share in scheduled commercial bank deposits and advances dropped to 59.3% (down from 77.9% in March 2004) and 55.5% (from 73.2%), respectively. In contrast, PVBs’ market share has doubled, reaching 34.8% in deposits (up from 17% in 2004) and 40% in advances (up from 19.8%).
In March 2018, Uday Kotak, the then Executive Vice-Chairman and Managing Director of Kotak Mahindra Bank, predicted that PVBs would continue to grow and could match PSBs in market share within five years. He noted that nearly all growth in loans was happening in the private sector, and he expected the market share ratio to shift from 70:30 in favor of PSBs to 50:50.
However, PSBs have shown signs of recovery in recent years. They have managed to reduce bad loans, exit PCA restrictions, and experience strong growth in retail and MSME loans. Additionally, PSBs have embraced digital lending, contributing to their recovery and growth in the competitive banking landscape.