
In a first in 14 years, PSU banks beat private ones in loan growth
MUMBAI: For the first time since 2011, public sector banks (PSBs) have surpassed private banks (PVBs) in loan growth. At the end of FY25, PSBs outpaced PVBs by 4 percentage points, with PSBs recording a 13.1% year-on-year loan growth compared to 9% for PVBs. The strong performance was across multiple segments, including traditional areas like mortgages and corporate loans, as well as various non-mortgage retail segments such as auto loans.
"Private banks have historically commanded premium valuations due to their steady market share gains, growing 6-7% faster than the system growth rates," said Pranav Gundlapalle, India head for financials at Bernstein. "If the growth advantage continues to narrow in the medium-term, the case for premium valuations weakens. While private banks still offer above average profitability and trade at reasonable valuations, the current risk of a relative growth slowdown may not be fully priced in."
'Capable competitors'
ICICI Bank
's price-to-book (P/B) ratio is currently around 3.5. In contrast,
State Bank of India
P/B is around 1.5, reflecting differing market perceptions of the two banks' growth prospects, profitability, and risk profiles.
Private sector banks have been flagging this increased aggression from public sector banks and the resultant increase in growth and profitability pressures. "There are very large, capable competitors who are also priced meaningfully below us,"
Anindya Banerjee
, group CFO, ICICI Bank, said in its post earnings analyst call on April 19. "It does create some challenges in terms of growth, but I guess that's part of life. So, we will have to keep dealing with it as we go along and look at how we can drive other levers to continue to maintain profitable growth."
HDFC Bank
has also been flagging the same issue for several quarters.
"We have seen over last 12 months, 18 months, the larger ticket corporate loans and the larger ticket SME loans, have been competitive, particularly coming from certain public sector institutions where the growth is an objective and not necessarily margin or returns, we have seen that pricing is very, very low on those,"
Srinivasan Vaidyanathan
, chief financial officer, HDFC Bank had said in April.
Substantial Loan Base
RBI
data and Bernstein analysis showed that the difference between loan growth of PSU and PVB banks was around 4% at the start of 2011. This reached a high of 20% in 2016. The growth differential started to reduce with the onset of Covid when it fell again to 4%.
The impressive loan growth of public sector banks becomes even more remarkable when considering their substantial existing loan base. As of the end of FY25, PSBs held a total loan portfolio of ?98.2 lakh crore, representing 52.3% of the market share. In comparison, private sector banks (PVBs) had a loan base of ?75.2 lakh crore, accounting for 40% of the total loans.
While on average the top 5
PSU banks
grew their corporate loans by 10%, private banks saw less than 4% growth. The numbers were skewed because of negative growth for HDFC Bank and
IndusInd Bank
. On retail loans, while the top five PSU banks grew their book by over 22% at the end of FY25, private banks saw less than 12% growth.
Analysts suggest that PSBs also have an upper hand due to higher levels of marginal cost lending rate (MCLR) loans, as they reprice with a two-quarter lag.
"PSU banks are also relatively better placed to handle margin pressures due to the high share of MCLR, which ranges between 52-60%," Yes Securities said in a note. "Private sector banks have gained from savings account rate cuts, but they now stand largely equalized with PSU banks."

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
&w=3840&q=100)

Business Standard
7 hours ago
- Business Standard
FTA negotiations: European Union relents on raw material supply clause
Bloc earlier wanted India to commit to uninterrupted supply Major geopolitical events like the Covid-19 pandemic and the Russia-Ukraine war have heightened global interest in securing energy and raw material supplies Asit Ranjan Mishra New Delhi Listen to This Article India has prevailed upon the European Union (EU) to set aside negotiations on the chapter on 'energy and raw material' under the proposed free-trade agreement (FTA) being discussed by the two sides. The EU had unilaterally included the chapter, which would have required India to commit to an uninterrupted supply of raw materials — such as petroleum products, chemicals, cotton, iron and steel, copper, and other critical metals — without imposing export restrictions. 'It had been agreed ahead of the round that discussions would be put aside for the time being (on the energy and raw material chapter),' said the


Indian Express
8 hours ago
- Indian Express
CII to expand Vocational Education and Training diploma programme to over 250 schools
The Confederation of Indian Industry (CII), in collaboration with ITC Hotels and EHL (founded in 1893 as École hôtelière de Lausanne) plans to expand its 18-month Vocational Education and Training diploma programme to over 250 schools in the coming months. The programme is currently operational across 10 ITC Hotels, where it has trained over 800 students who have been placed in relevant roles, said Praveen Roy, Advisor, CII. 'After the Covid pandemic, especially after 2022, there has been a surge in demand in the hospitality industry. This has also resulted in huge investment in this sector which was not witnessed till a few years back,' Praveen Roy told this paper. Nilesh Mitra, Vice-President, Talent Management at ITC Hotels Limited, during an industry-academia connect held in Ahmedabad on Tuesday said, 'Such inititaives (industry-academia connect) are crucial as these serve as a bridge between aspiration and opportunity, aligning educational outcomes with industry needs. The distinguished speakers in the event also included Sidhant Bedi, Education Consultant, EHL; Sanjay R Deora, Chief Executive Officer, Nandan Terry Ltd; Shyam Kadakia, Managing Director, Pinnacle Therapeutics; and Mr Vinod Agarwal, Managing Director, Arunaya Organics Limited. As it expands nationally, the industry-academia connect initiative is expected to engage more than 600 educators and industry representatives across nine cities, with the broader goal of addressing the disconnect between academic training and workforce requirements.
&w=3840&q=100)

Business Standard
8 hours ago
- Business Standard
Railway passenger traffic rises 6% in FY25, crosses 7 billion mark
Passenger volume on the Indian Railways increased by 6 per cent in 2024-25 (FY25), riding on a 5 per cent rise in the reserved ticket category and 6.2 per cent growth in unreserved passenger volume. The Railways has been seeing a resurgence in passenger travel since its halt due to the Covid lockdown. For the first time in five years, the total passenger count crossed 7 billion. However, it is still below pre-Covid volumes. Historical data (since 2011) show that the Railways was carrying over 8 billion passengers for a decade before the lockdown, with peak volume in FY13 (8.49 billion passengers). Passengers travelling in sleeper class have also seen a reduction over the past two years. With the introduction of premium trains such as the Vande Bharat, railway revenue from chair car services has risen nearly four times in four years to ₹₹4,400 crore. According to officials, long-distance sleeper Vande Bharats, once introduced, will spur even higher revenue generation in the long-distance segments.