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India Private Sector Banks Gain Market / Profit Share

November 9, 2014

Indian Private Sector Banks - ReviewThe H1-2015 earnings from Indian Banks confirm acceleration in market share gains for private banks given the rising capital constraints and stressed financials of PSU banks. Private banks have taken a 30% share of incremental loans in past 12 months and 50% share of loans in last six months, as compared to their market share of 20% of the total banking system loans.

While, private banks have even historically had a big share of the consumer loans (40% share), in past six months their corporate share has also risen. Private banks have dominated the retail loan market, with ~40% share of the retail loans, compared to a 15% share of the non-retail loan book. Corporate loans of private banks are up 10% YTD, while overall corporate loan growth has been flat. CASA growth for these banks is running ~2x the pace for PSUs. Even on term deposits, its notable that as yet private banks have not followed the recent rate cuts by the larger PSU Banks

Much Ahead of the closure of H1-2015, we recommended our readers to BUY into Indian Private Sector Banks

PSU Bank Woes Continue
Most of the PSU banks have been reducing their growth guidance, on account of shortage of capital and continued asset quality stress. Share of system loans with PSU banks with tier I <8% is now at 44%. Even the larger PSU banks such as BOI, Union, Canara are now operating at CET<7.5% and would need large equity dilution to sustain growth and meet Basel III migration requirements.

Even on term deposits, it is notable that private banks have not followed the recent rate cuts made by the larger PSU banks such as SBI and PNB, as yet. Therefore, while on nominal P/B multiples private banks are at a large premium to PSUs, we continue to prefer the private banks as we still do not know how the previous Corrupt Congress Government has misused its power directly through the finance ministry. WE recommend to Accumulate Private Sector Banks such as – HDFC Bank, Axis Bank, Yes Bank, Kotak, IndusInd, etc on every correction in the market for handsome returns over the next 5 years.

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