Worried about the stability of financial sector following outbreak of coronavirus, many Indian companies are shifting their accounts to larger and more stable banks, said a report.
The outbreak of COVID-19 has created unprecedented crisis around the globe impacting hard the economy as well as the financial sector.
For an Indian banking system already in turmoil before the outbreak of the global pandemic, the COVID-19 crisis represents an especially stern test. In response to the perceived threat, India's companies are "fleeing to the safety" of the country's largest banks, aid the report of New Greenwich Associates released by rating agency Crisil.
"Even before COVID-19, Indian companies were worried about the stability of some banks and their own access to funding and liquidity," says Gaurav Arora, Head of Asia at Greenwich Associates.
"Now faced with an unprecedented economic shutdown, many large and middle market companies are joining consumers in moving business to India's biggest and presumably safest banks," Arora said.
Greenwich Associates, part of Crisil Limited (an S&P Global Company), is a global provider of data, analytics and insights to the financial services industry.
The report further said that at the top of the list of India's biggest and presumably most stable bank is State Bank of India (SBI), which was benefiting from companies' worries about the stability of other public- and private-sector banks before the COVID-19 crisis.
SBI's lower cost of funding gives it a distinctive advantage, and Greenwich Associates data show that the bank has been steadily improving in service and relationship quality.
"That improvement makes it an increasingly viable alternative for companies dissatisfied with the service or credit policies of their current banks during the crisis," says Winston Jin, Greenwich Associates consultant and report co-author.
As per the report, even before the COVID-19 crisis, India's biggest private sector banks were winning business from their smaller private-sector counterparts, due to fallout from the Yes Bank restructuring.
Importantly, the spike in demand for digital banking solutions caused by the COVID-19 lockdown plays to the strength of these banks and could actually create opportunities to capture new relationships, as long as their balance sheets remain relatively strong and they are able to continue lending to hard-pressed companies, it said.
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