Mumbai: Government-controlled banks, excluding State Bank of India (SBI), lost a significant amount of market share in fiscal 2016 as their thinly capitalized and bad loan-laden balance sheets prevented them from lending.

Their share of overall credit fell to the lowest in over 12 years at the end of the March quarter.

Data released by the Reserve Bank of India (RBI) on Tuesday evening showed that the market share of state-run banks in outstanding credit fell by around 4 percentage points from 50.06% in March 2015 to 46.43% in March 2016. The share of SBI and its associates, which are better placed that many other state-owned banks, rose marginally to 21.78% from 21.63%.

Private sector banks saw their market share rise to 24.04%—a four percentage point jump over the fiscal year.

Still, this is not the lowest level to which the market share of state-run banks has dropped. At the end of the September 2004 quarter, state-run banks had a 46.29% share.

State-owned banks saw the biggest jump in bad loans during fiscal 2016, a result of an asset-quality review conducted by RBI. For the 25 listed public sector banks, gross non-performing assets jumped 95% between March 2015 and March 2016, provisions more than doubled and net profits were converted into net losses.

This led to a deterioration of already weak capitalization levels across most banks, giving them little scope to expand their loan books even if they had the bandwidth to focus on it. The result was that credit of state-banks rose a mere 1.37% in the March 2016 quarter—the lowest quarterly growth on record based on data available since 2003.

The performance of state-run banks in terms of their ability to garner deposits was also poor. Deposit growth of state-run banks fell to just over 3% in the March 2016 quarter, having declined steadily over the fiscal. As a result, the share of state-run banks in total deposits fell to 48.32% as of March 2016 from 50.95% as of March 2015.

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