Monday, May 11, 2015

'India's private banks will have half the share of the market in 10 years'

That's the forecast made by Rajiv Lall, chairman of IDFC which will soon become a bank.

It appears that, by private, Lall means both domestic and foreign banks. Today, their combined share is less than a quarter. One can't expect much of an increase in foreign banks' share. So, for Lall's forecast to be come true, the domestic banks must increase their share from 15% to 40%. That's a tall order considering that domestic banks managed a share of just 15% in twenty years' time. I think it's more likely that total private share would be around 40% leaving public banks still dominant but much depends on how much the government is willing to support the public sector.

There's one more thing that's worth noting. The private sector is extremely profitable precisely because it's so small- it has stayed out of financing the infrastructure sector, by and large. If private banks are to grow, they will have to lend more to key sectors such as infrastructure. Such growth will come at a price- profitability won't be as high. Shareholders must hope that private banks don't chase growth as much as Lall thinks they will.

No comments: