1. A Historic Upswing
In a remarkable first since 2011, public sector banks (PSBs) in India have overtaken private sector banks (PVBs) in loan growth for the fiscal year 2024–25 (FY25). PSBs clocked a 13.1 % YoY increase in lending, compared to 9 % for private banks—a striking 4-percentage-point lead.
2. Breadth Across Loan Categories
This growth wasn’t isolated to one niche—it was a across-the-board performance. PSBs showed strength in:
- Corporate lending (≈ 10 % growth vs. < 4 % at private banks),
- Mortgages and auto loans,
- Non-mortgage retail segments, with PSBs growing ~22 % in retail lending compared to ~12 % at private banks.
3. Massive Loan Base
PSBs already hold a more substantial market share, with ₹98.2 lakh crore in loans (52.3 % of the total), while private banks stand at ₹75.2 lakh crore (40 %).
4. Home Loan Resurgence
In FY25, PSBs made a significant comeback in mortgages—accounting for 56.5 % of fresh home loans, up from ~45 % the previous year. Private banks’ share dropped to 43.6 %.
5. Asset Quality & Profitability Boost
PSBs benefitted from better asset quality:
- Gross NPAs dropped as slippages declined and write‑offs increased.
- PSBs posted a 26 % profit growth in FY25, compared to 7 % for private banks—helping narrow the profitability divide.
6. Structural Advantages
PSBs leverage:
- A higher proportion of MCLR-linked loans, allowing repricing flexibility,
- A vast branch network and government-backed schemes,
- Improved capital buffers and digitized processes .
7. Implications for Borrowers & Investors
For borrowers: More attractive loan options and competitive pricing, especially in rural, semi-urban, and retail segments.
For investors: Private banks historically commanded premium multiples (e.g., ICICI P/B ~3.5 vs. SBI P/B ~1.5), but the narrowing growth gap may challenge that valuation premium .
8. Competitive Pushback
Private banks are aware of the PSBs’ renewed vigor:
- ICICI acknowledged PSBs’ aggressive pricing in corporate and SME loans.
- HDFC echoed similar concerns about rising competition.
- However, private banks may outperform in margin management and agile repricing in the current rate cut environment.
The Road Ahead
- FY26 Outlook: Analysts forecast credit growth around 12–13 %, driven by supportive RBI policies (repo rate cuts, liquidity measures)
- Private banks’ advantage: Faster deposit repricing, higher-margin loan mix, and tech-enabled efficiency may help them regain market share.
- PSB trajectory: Continued digital transformation, stronger governance, and further asset quality improvements could sustain their resurgence.
Conclusion
The FY25 surge in PSU bank lending marks a significant shift in India’s financial ecosystem. PSBs are rediscovering their historic strengths—leveraging network reach, backed by improved asset quality and capital support. This contest with private banks is evolving into a strategic, multi-dimensional battle spanning volumes, margins, service, and technology.
Borrowers are set to benefit from better choices and pricing. For investors, the narrative is now more nuanced—value vs. growth, efficiency vs. scale. Finally, the strength of India’s banking system will depend on both segments sustaining robust and prudent loan growth, backed by innovation and resilience.
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