Photo: Bloomberg
Photo: Bloomberg

Fork in the path

There are strong reasons to believe that the growth paths of private and public sector banks will diverge

HDFC Bank Ltd announced a plan to raise Rs24,000 crore in fresh equity on the same day the Reserve Bank of India added Bank of India to its growing list of weak banks needing prompt corrective action. These two developments on Wednesday suggest an important possibility. Private sector lenders could be in a better position to grow compared with their public sector peers during the next credit expansion.

HDFC Bank’s capital-raising programme comes soon after Axis Bank Ltd got a Rs11,626 crore infusion of confidence capital from private equity firm Bain. Other private sector lenders have also been busy raising capital this year. Meanwhile, Bank of India joins seven other public sector lenders identified by the central bank for prompt corrective action. IDBI Bank Ltd is the only private sector bank in this list.

There are public sector banks with growth potential, while a couple of private sector banks are struggling with growing bad debt. But there are strong reasons to believe that the growth paths of these two categories will diverge.