The insistence of the Reserve Bank of India (RBI) on companies to open current accounts with banks is among the factors that have helped large lenders such as HDFC Bank, ICICI Bank and SBI to increase their share of the competitive market for business banking services in 2020, according to a report.
In addition to the RBI rules, the government’s mega-merger aimed at reducing the number of state-owned banks also contributed to the trend, rating agency Crisil said in the report on Wednesday.
In mid-2020, the RBI had drawn up the circular which specified which bank can open a current account for a borrower, in order to verify any abuse via several current accounts.
A quarter of large and medium-sized enterprises said they had done banking with at least one bank among ICICI Bank, Axis Bank and HDFC Bank, up from 17% in 2016, adding that private sector banks had grown by more than 25% per year. year. .
For most of the four-year period, SBI defended its market-leading penetration levels, but in 2020 the lender has extended its footprint. Today, almost a third of businesses do business with the largest lender, and 30% identify them as their cash management provider.
“Several trends have contributed to the acceleration of market penetration among major banks, including the ‘mega-merger’ of the country’s public sector banks and the Reserve Bank of India’s ‘current accounts circular’, which governs essentially that banks can only open current accounts for companies for which they are also major credit providers, ”the report says.
He said pressures from the pandemic would accelerate consolidation in India’s banking sector, as the largest banks in the market prove to be best placed to help large and medium-sized businesses weather the turmoil of the crisis.
“When the pandemic quarantined the country last year, businesses needed immediate help from banks, first to ensure financial stability, and then to keep businesses running,” said Gaurav Arora, responsible for Asia at Coalition Greenwich, which is part of Crisil. .
The 2021 “Coalition Greenwich” research study cited the State Bank of India, along with major private sector banks Axis Bank and HDFC Bank, and foreign banks Citi and HSBC, as the main sources of business support for the period. crisis.
The report says that even before the onset of the global pandemic, India’s business banking market was on a consolidation path, driven by decisive action by regulators to strengthen the country’s banking sector, as well as by the rapid evolution and growth of major private banks.