New Delhi, Apr 18: After consistently losing market share to private sector banks and non-banking finance companies (NBFCs) for nearly a decade now, top public sector banks (PSBs) are expected turn the corner and report a year-on-year (y-o-y) improvement in their share of overall lending market.
PSBs’ combined share of the total net interest income (NII) of the banking sector is estimated to increase by nearly 300 basis points (bps) to a three-year high of 39.3 per cent in
FY18 from a record low of 36.4 per cent a year ago, brokerage estimates said.
This would be the first y-o-y increase in PSBs’ market share in the last six years. PSBs in our sample accounted for 62.3 per cent of the system NII during 2006-07 and it has been on the decline since then as private lenders and NBFCs grew faster during the period.
In all, the eight leading PSBs in our sample are expected to report an NII of Rs 1,567 billion during FY18, up from Rs 1,286 billion in FY17.
The gains to PSBs are expected to have come at the expense of retail non-banking finance firms and government-owned institutional lenders such as Power Finance Corporation and
Rural Electrification Corporation. In comparison, private sector banks are also likely to see a small rise in their share of industry NII.
The analysis is based on PSBs’ earnings estimates by brokerages for the March 2018 quarter and their actual earnings during the first nine months of FY18. PSBs in the sample include State Bank of India, Bank of Baroda, Canara Bank, Punjab National Bank, Union Bank of India and Bank of India. Their numbers have been compared with the earnings estimates for leading private sector banks and NBFCs such as HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, Housing Development Finance Corporation (HDFC), Indiabulls Housing Finance, Bajaj Finance and Shriram Transport Finance.
Growth in PSBs is expected to be led by Bank of Baroda, Canara Bank and Indian Bank, while Bank of India and Punjab National Bank are likely to be laggards.
“Our discussions with PSBs in our coverage universe suggest that retail loan momentum would continue to push headline loan growth to stay closer to systemic loan growth for Bank of Baroda and Punjab National Bank. We expect other PSBs’ loan growth to lag systemic loan growth,” said Dhananjay Sinha, head of research, Emkay Global Financial Services. He expects systemic loan growth to be north of 12 per cent y-o-y in FY18.
The eight government-owned banks in the Business Standard sample accounted for 39 per cent of the total NII of the banking sector during the first nine months of FY18. According to brokerage estimates, the combined NII of PSBs is expected to grow 21.8 per cent in FY18 against industry growth of 12.6 per cent. Brokerages expect PSBs to raise their market share even as most of them are likely to suffer net losses on account of bad loans. Together PSBs in our sample are expected to suffer net loss of Rs 42 billion during FY18.
Kotak Institutional Equity also sees gains from the recent volatility in bond yields. “Banks will also benefit from some shift in credit back to the banking system from commercial paper and non-convertible debenture market due to volatility in bond yields,” wrote Sanjeev Prasad in earnings estimates for Q4.