ST A TE - OWNED B A NKS VERSUS P RIV A TE B A NKS IN SOUT H A SI A
Given their large branch network, PSBs can mobilize large amounts of retail deposits, which comprise the largest component of PSB funding (figure 2.4). Loan-to-deposit ratios are higher in other banks compared with PSBs, further reflecting their ability to mobilize greater amounts of deposits. Other banks must rely more on costlier modes of raising funds. For instance, SFBs rely largely on lines of credit to fund their lending activities (figure 2.4). Unlike other PSBs, SBI, as India’s largest bank and a government corporation statutory body, can readily raise funds outside of India by borrowing from international global markets. Thus, total SBI borrowings (10 percent of total liabilities) are higher than the borrowings of other PSBs (7 percent of total liabilities). Meanwhile, leverage, as measured by the tier 1 capital-to-total-assets ratio, is above the prudential minimum of 4 percent for systemically important banks and 3.5 percent for other banks—stricter limits than the Basel minimum of 3 percent. Leverage is less than 6 percent for PSBs (at 5.6 percent for SBI and 5.1 for other PSBs) and above 10 percent for other banks, indicating that PSBs are more leveraged than other banks. As noted, SOCBs do not tend to have explicit mandates to address market failures
bank data are readily available for it, and bank characteristics can be linked to firmlevel investment data—a real outcome variable of interest for this chapter. The banking system assets of India’s scheduled commercial banks (SCBs) amounted to about 80 percent of GDP in 2018.6 SOCBs (called public sector banks, PSBs, in India) dominate the banking sector in terms of assets, credit, and branches. PSBs hold 66 percent of total SCB assets, while domestically owned private banks (PVTBs) have about 28 percent; foreign commercial banks (FBs) hold about 6 percent; and small finance banks (SFBs) control a minimal 0.3 percent.7 In terms of credit, PSBs control about 63 percent of total banking credit, PVTBs control about 29 percent, and other SCBs represent about 8 percent of total banking credit. By the end of 2018, PSBs operated 92,362 branches across India, three times more than the domestic and foreign private banks combined. The largest commercial bank by far is the State Bank of India (SBI), which controls 23 percent of total banking assets and 20 percent of total banking credit, and operates the largest branch network, with more than 23,382 branches and a dominant rural presence (figure 2.3).
FIGURE 2.3 India: Branch Networks and Total Credit, 2018 a. SOCBs have much more extensive branch networks Number of branches
b. SOCBs extend most of the credit volume Total credit outstanding in scheduled commercial banks SFBs 1% RRBs 3% FBs 3% SBI 20%
SBI 23,382 PVTBs 29%
PSBs 63%
Other PSBs 43%
Other PSBs 68,980 Source: Reserve Bank of India. Note: FBs = foreign commercial banks; PSBs = public sector banks; PVTBs = domestically owned private banks; RRBs = regional rural banks; SBI = State Bank of India; SFBs = small finance banks; SOCBs = state-owned commercial banks.
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