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PSU Banks Losing Foothold Fast As Private Players Ride The New Wave

Turn back the hands of time and see what happened to state-run BSNL and MTNLBSE -0.60 % when ruthless private operators with intense competitive spirit conquered the telecom space.
With India’s growth expanding and the government taking steps for more private sector participation, state-run companies are increasingly ceding market share to their private competitors.
Some experts believe the banking sector is going the same way, which would eventually lead to the ‘ultimate demise’ of most PSU banks.

Harsha Upadhyaya, CIO-Equity, Kotak AMC, said credit growth has been lacklustre on the corporate side, and private sector banks have already taken over the retail banking space.

“Hence, incremental market share gains have been very strong for private sector banks. At the same time, PSU banks are burdened with heavy NPA loads and are not seeing credit growth on the corporate side,” Upadhyaya said.

Analysts believe it is better to hold top private lenders in your stick portfolio for long-term value creation.

“The logical choice is that you would own at least the top performing private banks, say HDFC BankBSE -0.81 % or Yes BankBSE 0.07 %. In five years, most of the nationalised banks would look like MTNL, BSNL. AirtelBSE 0.48 % made maximum money and ate up market shares of BSNL and MTNL. But the moment it had to compete with Vodafone or Reliance or Idea, the money-making whittled down. Banks are in that phase now with most nationalised banks facing ultimate demise. In five years, the market share of private bank would be 60%-70%”, Ajay Srivastava, CEO, Dimensions Consulting.

“Nationalised banks will be left with 20-30 per cent market share even after SBI consolidation. Maybe only Canara BankBSE 1.81 % will survive, but you will see a dramatic shift in market shares. This is one sector which depends on the existence of PSUs for growth, which is why you must own and should own private banks,” Srivastava said.

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