While Cleaning NPAs from Balance Sheet, Public Sector Lenders Are Losing Banking Relations: Report

Moneylife Digital Team 10 July 2019

Economy & Nation

India's public sector banks (PSBs) are losing valuable lead banking relationships with the country's largest companies while attempting to rid their balance sheets of huge volumes of non-performing assets (NPAs), says a report.

In its 2019 study, Greenwich Associates, a market intelligence and advisory services provider, says, "...even when public sector banks do retain their status as a company's No. 1 or No. 2 credit provider, they are being cited less often as leading providers in non-credit products such as foreign exchange and cash management-roles that are being filled most often by private sector banks. The one outlier to this trend is State Bank of India (SBI), which has moved faster and made more progress than other PSU banks to address the NPA issue, actually increased its share of lead corporate banking relationships to 6% of large companies in 2018 from 4% in 2016. SBI has also posted dramatic gains in cross-selling foreign currencies and trade finance to companies for which it is a top credit provider."

"Even after recent mergers, it's apparent that the PSU banks need to consolidate in order to achieve the scale needed to compete as well as ensure that banks are investing in people, platforms and technology to effectively compete in the future," says Gaurav Arora, Greenwich Associates' head of Asia.

As of 2016, 20% of large Indian corporates participating in the Greenwich Associates annual Corporate Banking Study said they used at least one PSU bank as a lead corporate bank. By 2018, that share had fallen to just 15%. The bulk of those relationships went to private sector banks, Greenwich Associates says.

The market intelligence and advisory services-provider estimates that 92% of Indian companies will make a change to their corporate banking rosters in 2019. Ït says, "That shift is having a major impact on the competitive landscape for India's leading corporate banks. The 2019 Greenwich leaders in Indian large corporate banking are navigating a stressful and volatile period of transition, as the consequences of long-needed reform ripple through the marketplace. HDFC Bank and SBI top the list of local banks. Each is used for corporate banking services by roughly three-quarters of large Indian companies. Close behind is ICICI Bank, with a market penetration score of 71%. These three banks also secure the top spots among middle market banking companies, with HDFC in first place and ICICI and SBI statistically tied in the No. 2 spot."

"In terms of quality, HDFC has differentiated itself from all competitors to claim the title of 2019 Greenwich quality leader in both large corporate and middle market banking. Among foreign banks, Standard Chartered Bank and Citi are tied statistically with a market penetration of 51%-54% among large Indian corporates, followed by HSBC at 50%. In the middle market space, among foreign banks, HSBC ranks first and Standard Chartered in second and Citi a close third."

Given the current dynamics of the industry and the priorities of the new government, Greenwich Associates says it is becoming increasingly clear that restoring India's banking system to health is a priority. "The potential implications could range from privatization/consolidation, to setting stronger corporate governance structures, to guidance on technology infrastructure upgrades. But weak balance sheets and other immediate challenges are preventing PSU banks from making the long-term IT investments needed to compete for wholesale banking business in the future," it concluded.

Comments