PUBLIC sector banks (PSBs) have seen their market share drop by over two percentage points due to competition from new private banks and foreign banks. However, the Reserve Bank of India (RBI) has cautioned the private sector against expanding their balance sheet using borrowings rather than deposits. According to the data in the latest Trends and Progress in Banking in FY07, balance sheets of new private sector banks and foreign banks expanded by 38.7% and 39.5%, respectively, against 43.2% and 29.8%, respectively, in the previous year. Together they now corner almost 25% of the total bank assets, up from 22.3% last year. While the combined balance sheet of public sector banks, on the other hand, rose by 21.1% against 13.6% in the previous year. As a result, market share of PSBs dipped from 72.3% to 70.5%. Both the State Bank group as well as the nationalised banks have lost the share in total assets during the year. Of all the components of the balance sheets — deposits, loans and investments — while public sector banks have lost their share in investments, including investments in government bonds, corporate bonds, mutual funds and equity investments. Though the new private banks and foreign banks may not be all that aggressive in the government bond market in a scenario of hardening interest rates, there have been opportunities in other areas, particularly mutual funds and equity. As bank balance sheets grow, there are challenges to face. The report highlights that the major challenge for Indian banks is to mobilise enough resources to meet demands of a growing economy. One of the indicators of banks not relying on deposits for meeting their loan demand is credit-deposit ratio. Banks have had credit-deposit ratio varying from 60% to almost 100%. The Reserve Bank governor on Tuesday said that high incremental creditdeposit ratio is indicative of banks relying on borrowed funds to fund loan demand and has taken up the matter with the banks individually