The year 2002 saw a drastic change in the prevalent trends. With the pandemic around, the financial firms were hit very badly. The private banks’ credit towards government-owned entities saw a rapid increase in 2020 while the public sector banks kept going down. Contrary to the previous trends, the private saw a good amount of growth in the previous year. The data was revealed by the Financial stability report issued by the Reserve Bank of India for December 2020. Some financial executives believe that it is due to the excessive liquidity prevalent in the system and the deficiency of valid opportunities in the system that led to this change in the credit of banks.
The private banks’ visibility to the public-sector units (PSUs) grew by double the margin. The growth was witnessed on a sequential basis in March, June, and September 2020. The public- sector banks in this category experienced a decline in the growth rate wherein the number of borrowers for them shrank considerably in the June and September Quarters. Apart from the PSUs, both the banks saw a decline in the growth on a quarter-on-quarter (q-o-q) basis throughout the year 2020. It was only during March that the situation turned a little hopeful for the banks. The Public Sector Banks saw a rise in the rate of credit to private firms. With the announcement of the lockdown in March 2020, the rush was witnessed, wherein a lot of credit accounts were issued. This led to better numbers for the banks.
Throughout history, the public sector banks have had the upper hand in the government and PSU lending market. When lending to the government and state-owned entities, it is done at lower pricing and the risk weights given to these segments is much finer. In this condition, the Private banks do not find it in their favor to do the lending at a lower rate of interest. Since the financial conditions deteriorated in 2020, the private banks had to lend to the PSUs. The public sector banks had limited funds at the time and Private took on the opportunity and grew their books.