Who is Benefiting from India’s State Bank Troubles?

Who is Benefiting from India’s State Bank Troubles?

Private banks in India may benefit from the struggles that state banks are confronting as the former may be able to eat up as much as 60 percent of market shares over the next decade, financial analysts said in a report.

As of now, state banks in India are in control of about 70 percent of its entire banking assets. However, a report stated that with the bad loans, fraud investigations, and restricted growth opportunities, the prinvate banks may be “set to emerge as winners.”

“If you take a 10-year view, currently the private sector banks’ market share is 30 percent. Probably it will become 60 percent,” Sukumar Rajah, senior managing director at Franklin Templeton Emerging Markets Equity, told CNBC in a report.

The same report further added that state banks used to fund steel, power, and infrastructure, which now are apparently non-performing assets.

There has also been widespread reports on fraud.

Just last month, a controversial $2 billion fraud in Punjab National Bank broke in the news. According to reports, the staff of a Mumbai branch “issued fake bank guarantees over several years to help two jewelry groups – controlled by Indian diamond magnate Nirav Modi and his uncle Mehul Choksi – raise billions of dollars in foreign credit and commit India’s biggest-ever bank fraud.”

Unfortunately, those behind the said controversial scam were not held accountable.

In a separate CNBC report, the State Bank of India has allegedly had a “net loss of 24.16 billion rupees ($361.8 million) for the December quarter, compared with a profit of 18.20 billion rupees ($272.5 million) a year earlier.”

“The government will have to think through some of the issues,” said Sanjeev Prasad, co-head at Kotak Institutional Equities.

Prasad added that while private banks have chances of benefiting from the struggles confronting state banks, questions remain on their capability to have “enough deposits to do the heavy lifting to meet the funding requirements of one of the world’s fastest growing major economies.”

Still, experts believe that the stronger balance sheets of the private sector will see private banks through this.

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