Share of state banks in the credit pie at an all-time low


The share of government bank lending in total commercial bank lending in India fell to a record low as of March 31.

All banks had outstanding loans as of March 110.35 trillion. Of these, the state banks lent 62.29 trillion or 56.5% of the total lending of all banks. The share of state banks in the credit pie has been falling for more than a decade.

In March 2010 it peaked at 75.1%. Since then, the share of state banks has largely declined. That decline accelerated after March 2015 when it stood at 71.6%.

Basically, this means that while the government has not gotten around to privatizing state banks, privatization of the banking sector, like telecommunications and airlines before it, has begun. The market worked.

Ruchir Sharma writes in his book The Rise and Fall of Nations: “Whether full or partial, not all privatizations lead to good results. India, for example, has embarked on a de facto policy that I can only describe as privatization through malicious neglect: the political class cannot bring itself to sell or reform old state-owned companies. Instead, it simply watches private corporations slowly driving the state giants into insignificance. “

Privatization through malicious neglect increased after March 2015, largely because the Reserve Bank of India rightly forced state banks to acknowledge that massive lending has gone bad. Until then, the banks had used various options to get the bad loans on the road. Bad loans from state banks peaked at 8.96 trillion as of March 2018. Non-performing loans are loans that have not been paid back for 90 days or more.

The recognition of bad loans led to a slowdown in lending by state banks. Over the years, reluctance to lend remained, leading to state banks losing stakes. Interestingly, the share of private banks in total lending rose to an all-time high of 35.5% as of March 2021. In March 2010 it was 17.4%. It is obvious that the market shares lost by the state banks were captured by private competitors.

In fact, the last financial year is very interesting read. The outstanding loans from state banks rose over the course of the year 2.16 trillion. In the meantime, the outstanding loans from private banks have switched 3.11 trillion or nearly 44% more. This happened in the last six fiscal periods from April 2015 to March 2016. In terms of deposits, the share of state banks in the deposit portfolio also fell to an all-time low of 61.3% of the outstanding deposits of all commercial banks as of March 2021. The share of state banks Banks peaked in March 2012 at 74.8%.

The share of private banks in deposits is 30% as of March 2021, an all-time high. In March 2012 it was 17.9%. Much of the market share of state banks lost in deposits picked up by private banks.

Privatization through malicious neglect is in full swing.

Vivek Kaul is the author of Bad Money.

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