Rural credit development gathered steam in FY20 and surpassed development in other categories soon after a gap of 4 years. Private banks have begun to acquire share in this segment even as public sector banks’ (PSB) footprint reduces, the Reserve Bank of India (RBI) mentioned in its report on the trend and progress for the year.
Although the share of rural credit in aggregate credit has been hovering involving 8-9%, it nonetheless did superior than other categories in 2019-20. “While the share of PSBs in rural credit has gradually fallen, PVBs have been making inroads,” the report mentioned.
The central bank mentioned that the new branch authorisation policy of 2017 —which recognises enterprise correspondents (BCs) that provide banking services for a minimum of 4 hours per day and for at least 5 days a week as banking outlets — coupled with emphasis on digitisation and modernisation of technological infrastructure has progressively obviated the require to set up brick and mortar branches. As has been observed for the final handful of years, such as through FY20 also, branch expansion in rural places remained subdued as the BC model created additional inroads in villages with population more than 2,000.
Private banks are also taking away share from PSBs in other segments. While PSBs dominate bank lending to non-banking monetary organizations (NBFCs), their share has declined because March 2020, with the space vacated becoming taken up by the private banks.
“In line with the increasing share of PVBs in banking assets, their share in operating profits also increased to 43.4% in 2019-20 at the cost of PSBs,” the RBI mentioned, adding that the gap involving net interest margins (NIMs) of PVBs and PSBs enlarged as the former managed to lend at comparatively greater prices though decreasing their deposit prices.
At the exact same time, the development slowdown has not spared the private banking pack. Describing them as “the engine of credit growth during the last few years”, the report stated that in a reversal through FY20, on the other hand, their loan development decelerated across sectors. “Lending to industry and agriculture sector by PVBs and PSBs also slowed down or declined,” it mentioned.
The aggressive credit development of private banks in the services and retail segments in the final handful of years — which surpassed the 30% mark in FY19 — came down sharply, even as PSBs managed to hold on to market place shares in the retail segment.