Much of the last decade saw PSBs lose market share to Pvt Banks and NBFCs. The structural change involved cleansing asset books off NPAs, several rounds of capitalisation, and consolidation leaving PSBs readier to compete effectively.
This has meant that the credit growth differential between PSBs and Pvt Banks has narrowed. Competition will continue to be intense and market share shifts will be slow, especially as PSBs have a favourable C/D ratio enabling lending.
Retailisation of credit is a continual process and is helping drive up personal loan demand. With increasing financialisation formalisation, per capita income, and favourable demographics, the trend is unabated in the future.
Services sector growth in FY 23 was led by NBFCs, which added over 50 of the incremental o/s credit. In early FY 24 NBFCs have started switching as borrowing rates in the bond markets are more favourable than MCLR linked loans.This would reduce incremental bank credit to NBFCs, for which a major source were PSBs.
Industrial credit growth is subdued and the end of ECLGS schemes would mean MSME credit growth would calm down. Further, inflation driven working capital requirements will also slow in FY 24. Large industry is now only 20 of overall borrowing vs 37 in FY 14 due to moderate private capex spend, and more funding avenues available.
Industry credit share is expected to stagnate at current level in the medium term until PLI schemes give it a long term boost. Alternative funding sources like capital markets and NBFCs would keep bank credit multiplier around 1 compared to 1 7 x during FY 02 FY 11 decade.
IF BANKS EXERCISE NECESSARY PRUDENCE IN LENDING AND RISK PRICING, THE BANKING SECTOR IS EXPECTED TO WITNESS NOT ONLY A PROFITABLE FY 24 BUT A GOLDEN PHASE THAT WOULD CONTINUE FOR SOME TIME.
