Corporates Moving To Large Banks In Search Of Safety

The corporate sector in India are following consumers to large banks at a time when the Covid-19 outbreak has re-opened the legacy problems in our banking system, a report by rating agency Crisil and data analytics provider Greenwich Associates said. The banks that stand to benefit most from the trend are State Bank of India (SBI), Private Bank and HDFC Bank, the report added.

“Amid a national lockdown and fears of a liquidity crisis, corporate in India is joining consumers in shifting business to the largest and presumably safest banks,” the report stated. On top of the list, according to the report, is SBI, which may be in the strongest position to weather the crisis and even gain ground during this period of disruption.

“SBI is viewed as a haven amid heightened bank risks triggered by the Yes Bank collapse and the resulting crisis of confidence in smaller private sector banks,” the report said. Even more, than before, the bank is now well-positioned to leverage its stronger balance sheet and lower costs of funding to woo companies hungry for liquidity.

This, however, is not true for other state-owned banks. Excluding SBI, public-sector banks have been gradually losing share of core corporate banking relationships, declining from 14% in 2017 to 12% in 2019, the report said. “In terms of quality ratings from Indian companies, these banks lag private sector players by a wide margin and have been virtually left behind since 2017, as SBI steadily improved,” Crisil wrote.

The challenges for them could intensify further as the process of integration between larger and smaller banks proceeds. Together, these factors suggest that public sector banks other than SBI could be at risk of losing additional corporate relationships and market share during the crisis — even as the government’s restructuring of the sector sets them on a trajectory to emerge as stronger organizations and more capable competitors in the longer term.

Within the private sector too, the larger players have been consolidating their share of the market, the report said.

Even before the COVID crisis, India’s biggest private banks were winning business from their smaller private-sector counterparts, due in large part to the fallout from the Yes Bank restructuring. In 2018, private banks accounted for 49% of core corporate banking relationships. This was further split between the three largest private players — Private Bank, HDFC Bank and Axis Bank — which held 28%, and other, smaller competitors which held the remaining 21%. From 2018-2019, this group of smaller private banks lost a percentage point of penetration, while the three largest ones added four percentage points, climbing to 32% of the total.

“Weakness for smaller private banks was also visible in their ability to hold on to domestic cash management relationships. The proportion of smaller private banks’ clients using them for domestic cash management needs dropped to 46% in 2019 from 49% in 2018,” the report said.

Read Other Related News