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Private Banks Gain Edge with Lower Funding Costs
19 Nov
Summary
- Private banks possess a funding cost advantage over public sector banks.
- Improving credit quality is noted in unsecured lending portfolios.
- Rising appetite for high-yield retail loans like credit cards is observed.
Private banks are strategically positioned to expand their market share in retail lending, benefiting from a notable funding cost advantage. With incremental funding costs estimated to be 20-30 basis points lower than public sector banks, institutions like Axis Bank, HDFC Bank, and ICICI Bank are expected to capitalize on this edge.
This competitive advantage stems from their strong liability franchises and sophisticated, tech-enabled distribution networks. As liquidity conditions stabilize, this cost efficiency is anticipated to drive growth across a spectrum of retail loan categories, including home loans, auto loans, and unsecured credit.
Further bolstering this positive outlook is the observed improvement in credit quality within unsecured portfolios. Alongside this, there is a discernible rise in consumer appetite for high-yield retail loan products, such as credit cards and personal loans, indicating a dynamic and potentially lucrative market.
