Mumbai : RBI’s move to make new bank licences available on tap will encourage non-bank lenders to apply for access to cheaper public deposits, and the increased competition may dent state-run lenders’ market share, ratings agency Icra has said.

 Coupled with the capital constraints of public sector banks (PSBs) owing to non-performing assets, their market share can go down by up to 10%in the next five years from the present 70%, it warned.

“The expected rise in the number of private sector banks over the medium term could result in a decline in the share of public sector banks, which held more than 70% of the market. “Given the significant capital constraints and the weak asset quality profile of PSBs currently, their market share could drop by 5-10% by March 2021,” it added.  Indian banking system’s NPAs touched 7.6% as of March 2016, with a bulk of it being contributed by the state-run lenders, reports PTI.

It said medium to large-sized NBFCs would be interested in converting themselves into universal banks because managing large liabilities or resources is easier within the banking structure. One of the biggest factors which will push such companies towards applying for a bank licence will be the limited reach of the Indian bond market, which has led them to rely on the banking system for their funding needs, it said.

The agency estimated that 42% of the funding for Indian NBFCs was from the banking system as of March 31, 2016.

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