Wednesday, June 7, 2017 Stamford, CT USA — The rapid advance of India’s private banks will continue and possibly even accelerate as these providers impress middle-market companies with high-quality platforms and service, and public sector competitors wrestle with the consequences of non-performing loans. 

The results of the 2017 Greenwich Associates Indian Middle Market Banking Study show that private sector banks outperform their public sector counterparts by a wide margin in the quality of service delivered to middle market clients—an advantage that is helping them win business relationships. 

A targeted approach and high levels of client satisfaction have helped fuel the rise of HDFC Bank, which ranks first among all Indian banks in terms of number of relationships with middle market companies. Among private banks, Axis Bank and ICICI Bank follow HDFC Bank in terms of penetration among Indian middle-market companies. Next on that list are Kotak Mahindra Bank and Yes Bank, both of which have experienced explosive rates of growth, albeit from smaller initial client bases. These five banks are the 2017 Greenwich Share Leaders in Indian Middle-Market Banking Market Penetration.

The list of 2017 Greenwich Quality Leaders in Indian Middle-Market Banking is dominated by private banks, foreign and domestic. In Overall Relationship Quality, the 2017 Leaders are Citi and Standard Chartered Bank, along with Axis Bank, HDFC Bank and IndusInd Bank. In Relationship Manager Quality, this year’s leaders are Standard Chartered and IndusInd. 

“State Bank of India actually scores quite highly for the quality of its RMs and overall institutional platform,” says Greenwich Associates principal Gaurav Arora. “Outside of SBI, however, public sector quality ratings lag those of private banks by a large margin, and private banks are trying to exploit that weakness by directly targeting less-than-satisfied public bank clients.”

The NPL Challenge
Competition among Indian banks is playing out against the backdrop of a non-performing loan (NPL) issue bordering on crisis proportion. The country has given the Reserve Bank of India new powers to force banks to take action on bad loans. This action has forced banks to recognize huge amounts of previously undisclosed non-performing loans. State Bank of India alone has recognized $17.2 billion in bad loans, resulting in a non-performing loan ratio of 6.9% as of March 2017.

Although private banks still have work to do in cleaning up their balance sheets, going forward the NPL issue could actually act as a tailwind for private bank growth. The reason: The burden of bad loans could fuel further consolidation in the public sector, potentially freeing-up middle market corporate banking relationships and creating new opportunities for private banks. “Non-performing loans are just one driver, and we expect to see much additional consolidation among public banks in coming years,” says Greenwich Associates Managing Director Paul Tan.