New Delhi: The pricing power of large banks could diminish further as the lenders continue to offer similar products, a report said on Tuesday.
According to a report by India Ratings and Research, similar pressure can be witnessed on liability side, as deposits yields remain largely comparable.
“The key differences lie in the rates offered for different tenors,” the report said. “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.”
As per the report, operating cost depends on the staffing structure, pension benefits, sourcing and servicing channels and digital adoption by the banks as well as their customers. Indian banks had spent Rs 2.76 trillion in FY19 on running their operations.
“This accounted for almost 2 per cent of the banking system’s average assets in FY19. Of this, about 50 per cent was spent on employees and the balance on physical infrastructure, marketing, communication and other expenses,” the report said.
“Through this report, Ind-Ra has evaluated the structure of the non-employee operating costs for various banks and linked the same to the bank’s operational strategies.”
According to the report, banks’ operating expenses increased to 1.88 per cent of average assets in FY19 from 1.73 per cent in FY15. “This seems counter-intuitive as the pace of technological adoption would have driven one to think that the cost would have declined over the years,” the report said.
“PSBs have seen a decline in their branches and ATMs over FY18-FY19 with over 5 per cent annual ATM count decline and 2 per cent annual decline in branches. However, private banks have seen around 5 per cent annual increase in branches, ATMs have reduced in FY19 by 1 per cent.” (IANS)