Banking: the CA fortress has been breached...
Private sector banks have gradually taken away market share from Public sector banks over the last several years. It is one of those trends that started since private banks were allowed to be set up and has continued uninterrupted ever since. As of September-2021, Private banks (including the Small Finance Banks) had a share of 31% in Bank deposits and 37% in Bank loans. In the last 5 years, Private banks have gained ~10ppt share in both deposits and advances.
While in aggregate Private banks have a lower share in deposits than loans, Private banks seem to have focused disproportionately on current deposits. Thus private banks have a far higher share of current deposits than other deposits. And this is true not just today but was true even a decade back. This is not surprising given that current deposits are the cheapest deposits and in addition open other sources of revenue for banks – notably fee income.
And Private banks have now effectively broken the current deposit franchise of PSU banks. Private sector banks now have a bigger market share in Current deposits than Public sector banks. As of September-2021, Private banks (including Small Finance Banks) had 42% of the total Current deposits with Scheduled Commercial Banks. This is 150bps higher than the share of PSU banks. The gap in market share for current deposits had been gradually narrowing – from over 20ppt in 2015 to just over 5ppt in 2018 to less than 1ppt in 2020 before being higher than PSU banks this year.
The analyst community routinely focuses on CASA deposits as a homogenous deposit base. But the difference between the two is stark. While in current deposits Private banks now have a higher market share than PSU banks, in Savings deposits the market share of Private banks is just 29% as of September-2021. This is even lower than their market share in total deposits which is 31%. And this 29% market share is despite several private banks offering a far higher interest rate than PSU banks.
The PSU Banks seem to have a far stronger savings account franchise than either current account franchise or even term deposit franchise. At the pace at which savings deposits have grown for private and public banks in the last 3 years, it will take almost a decade for private banks to have a higher share in it. This is not surprising given that Savings deposits would largely be from the households while current deposits from the corporate sector. The corporate sector would have the least inertia in terms of their banking relationships while households would have the highest inertia.