Public sector banks may gain market share from state-owners peers: Fitch Ratings

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Fitch Ratings on Thursday said private sector banks, with more potent loss-absorption buffers, are likely to benefit market share from their state-owned peers in the medium term. Fitch stated that private banks’ loss-absorption buffers, specifically enhanced capital bases, toughen their potential to understand losses up-the front with less disruption of their efforts to boost up market-share gains. 

But, it does not expect immediate gains as the sector’s credit score growth is possible to remain subdued, and could only resume meaningfully once a sustained recovery from the pandemic gets underway. 

Fitch scores said that Indian private banks, that have more potent loss-absorption buffers than the general public area banks, are probably to benefit marketplace percentage from their state-owned friends in the medium term. 

Indian private banks have had a decade of strong growth, backed by better capitalization and fewer asset quality troubles. It said private banks multiplied their market shares by 14.4 pp (percentage points) and 18.5 pp by assets and loans, respectively, at the expense of state-owned counterparts during this time. Most of the gains took place in the five years preceding the coronavirus pandemic as state banks have been hamstrung by ballooning impaired loans, larger losses, and weaker capitalization. 

Fitch said the government-led merger of state-owned banks helped them to consolidate their market positions in the last few years, but the state-owned banks’ market stocks will retain to erode if they do not enhance adequate capital to soak up future stress and support boom. 

It stated that a few Indian banks have raised capital after the Reserve Bank of India implored them to raise fresh equity. But, the capital raising has been limited thus far to private banks, which together raised USD 6.3 billion in the past 3 months. 

Further, Fitch noted that while state banks have announced their intentions to raise fresh equity, they have not long gone further than recurring board approvals nor given clear indications at the timelines, except for a few banks. That is regardless of the need to expedite improvement in the state banks’ capital positions, which they believe continue to be vulnerable to varying levels to future stress and sudden losses. 

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