Pricing Power Of Banks May Diminish Further: Ind-Ra

Once credit cost stabilises, operating cost will be the major differentiator between the PSBs and private players, says the rating agency

With limited differentiation on the product side, the pricing power of banks, especially large ones, could continue to diminish, according to India Ratings and Research (Ind-Ra). Similar pressure can be witnessed on the liability side, it added.

The credit rating agency observed that with deposit yields being largely comparable, the key differences lie in the rates offered for different tenors.

“Once the economy settles, the credit costs are also likely to stabilise. In that environment, operating costs could play a major differentiator among public sector banks (PSBs) and private sector banks and, to some extent, within those groups,” said Jindal Haria, Director, Ind-Ra.

Indian banks spent ₹2.76-lakh crore in FY19 on running their operations, of which about 50 per cent was non-employee related. Ind-Ra, in a study, observed that both PSBs and private banks generally show divergent trends on many expense items under the head non-employee operating costs.

However, some banks in both groups stand out for exhibiting lower linearity between these costs and business growth.

Rise in operating expenses