India’s banking sector, dominated by state players since late 60s, might be on the verge of a “fundamental transformation”. The next generation of private sector lenders are rearing up to compete with state-backed banks, eying to takeover more than half of the market, claims Rajiv Lall, head of IDFC Bank, country’s leading financial player.
Presently, India’s private domestic and foreign banks control less than 25 percent of the market. State-owned public lenders on the other hand dominate the sector holding more than 75 percent of the share. The dominance of state-owned banks has however gradually been chipped away ever since the banking sector was deregulated nearly two decades ago.
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Lall attribute this predicted shift to efficient customer service and technology-edge that lenders like IDFC Bank would bring to the table.
“This is the fundamental transformation that we are seeing unfold, ” Lall told Financial Times. According to him, “over the next decade their [state-owned banks] market share will be really whittled down (…) dramatically lower than it is today.”
Rajiv Lall is expected to launch his banking operation in October 2015. Last year, Indian government had granted IDFC a licence to form a new universal bank. A move that is expected to boost competition in domestic banking sector. Raghuram Rajan, head of India’s central bank, Reserve Bank of India, describes this as a “dramatic remaking” of India’s banking sector.
Lall further sees a consolidation of the banking sector in India on the horizon, leading to the formation of some of the biggest financial institutions in the world. By 2025, India’s banking system is expected to be the third largest in the world, trailing behind only US and China.
