Private banks racing ahead of PSUs

New Delhi: Public sector banks are fast losing the dominant position they had in the fee income space.

CNBC-TV18 reports on how the private sector banks have not only snatched business from Public Sector Units but have also surpassed foreign banks in terms of market share.

Private sector banks are fast cornering business where it matters most in the lucrative fee based income space, which nearly accounts 25 per cent of bank's profits.

Data shows that private sector banks have clearly stolen market share from public sector banks, in the fee income space.

In fact, the private banks have even beaten foreign banks in this space, primarily because foreign banks are unwilling to compete in the intensive volume game, where margins are wafer thin.

"Fee based income is a challenge for foreign banks as the margins are short," said Arun Panicker, Head - Financial Sector, CRISIL.

Fee based business include services like providing LCS, cash management and forex management, where banks earn commissions.

In 2001, PSU banks dominated the fee income space with 75 per cent market share, while the private sector banks only had a small 10 per cent share of the market.

By 2003, private banks started realising the potential of the fee-based space and became aggressive, and mustered a 17.5 per cent market share. PSU bank share came down from highs of 75 per cent to just 67.5 per cent.

While in 2005, PSU banks are left with only 60 per cent market share while private banks have grown their share to 21.5 per cent of the market. Foreign banks trail behind at 18 per cent.

Experts say that private banks have been successful so far because of their innovative use of technology and have offered corporate and small businesses specialised products. Private banks also say that generating fee-based income will be one of their focus areas.