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Changing contours

It may not look like an irreversible long term trend, yet the steady loss of the dominant market share held by State Bank of India and other government-owned banks merits attention. No doubt the financial sector liberalisation since the 1990s was meant to usher in greater competition and give a wider choice to customers. One significant reform measure was the licensing of a few “new generation” private banks. These banks, with adequate capital and access to the latest technology, were expected to carve out a significant space for themselves. Unlike insurance, banking in India was never wholly a government monopoly. Even after the two-stage nationalisation process that began in 1969, there were a number of private banks and foreign banks competing among themselves and with the public sector banks, which retained their individual identities. Even as recently as 2002, the government-owned banks had a 78 per cent share. However, as the new private banks went through a process of consolidation, a few of them led by the ICICI Bank gained at the expense of both the public sector banks and the older private banks. While a drop in the market share of government banks as a class was expected, that the country’s oldest bank, SBI, would suffer the most came as a surprise.

According to a recent RBI report, the share of SBI and its associates fell from 28 to 24 per cent over a five-year period beginning 2001-02. The new private banks added 7 percentage points to garner a market share of 16 per cent last year. Independent studies however point out that it is the SBI that has seen the maximum erosion. For instance, its share of total banking deposits has fallen from 22 to 16 per cent over a seven-year period beginning 2000. The other government-owned banks — including even SBI’s associates — have more or less managed to stay where they were. Apparently the significant advantages that SBI traditionally enjoyed in terms of capital, branch network, and human resources have not helped, at least so far. SBI is still the largest bank and how it moves to face its latest challenge will determine the contours of the financial sector in India.

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