As of FY10, SBI (standalone) had 17.1% market share of total deposits and 23.2% market share of savings deposits, a difference of 6%. The equivalent figure at

other banks we cover varied from -0.5% to 1.8%. In the current environment, SBI appears best placed to withstand pressure on NIMs and it remains our top pick.

FY01-10: total deposits – market share analysis
Over FY01-10, most public-sector banks (PSBs) under our coverage appear largely to have maintained market share, except SBI which has lost 7.6% (see chart 1). Over the same period, the three largest private-sector banks – Axis Bank, HDFC Bank and ICICI Bank – have gained 2.1-2.7% market share (see chart 2).

FY01-10: savings account deposits – market share analysis
SBI is the only public-sector bank in our universe to have gained market share in total savings account deposits – 1.3% over FY01-10 (see chart 3). All the others appear to have lost market share at rates ranging from 0.5-1.4%. The three largest private-sector banks have gained 3-4% savings account market share (see chart 4). All this has translated into a 13-18% higher proportion of savings bank deposits to total deposits at SBI, Axis Bank, HDFC Bank and ICICI Bank over FY01-10. Further, over the same period, most public-sector banks under our coverage have seen a 0.5-2.0% decline in the proportion of savings accounts to total deposits (see chart 7 and 8).

FY01-10: market share in savings deposits vs total deposits – analysis
What is relevant in terms of competitive dynamics is the market share in savings deposits compared to market share in total deposits. On this parameter, as of March 2010, SBI had a market share in savings deposits that was 6% above its overall share. At PNB, the difference was 1.8% (see chart 5). Axis Bank, HDFC Bank and ICICI Bank had relative excesses of 0.1%, 0.9% and 0.5% respectively (see chart 6). On the same measure, other PSBs we cover had savings deposit market shares that were 0.2-0.5% below their total deposits share.

It's a liquidity problem; focus on banks with superior liability mix
Indian banking is facing a liquidity crunch that we expect to lead to an increase in overall cost of funds (see our report The final countdown, dated 3 February 2011). Underlying GDP momentum appears to be strong and lead indicators suggest that asset quality remains largely stable. In such an environment, banks with a lower cost of funds (generally due to better mix of low-cost deposits) should be able to withstand the pressure on net interest margins and, thus, maintain core profitability. Given this and our analysis above, SBI remains our top pick in the Indian banking universe.