Report: Public Sector Banks increase market share amid slower credit growth in FY25; regain lending dominance
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Public Sector Banks (PSBs) gained significant market share across lending segments and geographies in FY25 despite overall moderation in bank credit growth, a report by Union Bank of India has revealed.
The shift was especially evident in working capital and demand loans, traditionally used by businesses for operational needs, as per news agency ANI.
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Credit growth slowed in FY25 yet PSBs gained market share vis-à-vis PVBs (Private Banks),' the report noted, adding that public sector lenders leveraged their balance sheets more effectively and cautiously, especially as private lenders saw reduced momentum.
The Credit-Deposit (CD) ratio of private banks, though elevated due to an earlier credit push, sharply corrected in FY25, indicating a deceleration in fresh disbursements.
In contrast, PSBs capitalised on regulatory tightening in the unsecured lending space, particularly targeting retail credit like housing loans, where they emerged as incremental leaders.
The report also pointed out a shift in the sectoral distribution of credit.
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Private banks, once dominant in retail disbursements, lost ground due to tighter regulations, allowing PSBs to step in.
Remarkably, state-owned banks also posted stronger growth in industrial credit, a segment previously dominated by private lenders.
On the geographic front, PSBs saw strong performance in rural and semi-urban areas. Over 60 per cent of incremental credit in semi-urban regions and a significant share in rural belts were secured by public banks.
Even in urban and metro areas, where private banks traditionally dominated, PSBs reclaimed some ground lost in FY24.
In terms of borrower segmentation, credit to individuals continued its upward trajectory, signalling robust retail banking strength, the report said.
The report aligns with broader findings released earlier this month by Boston Consulting Group, which noted that the BFSI sector was undergoing a period of moderate credit growth and profitability pressure.
The sector's Net Interest Margins are under pressure amid repo rate cuts and elevated CD ratios, which have intensified the race for low-cost deposits.
Despite this, PSU banks posted a 26 per cent year-on-year growth in profit after tax (PAT), outperforming private banks' 8 per cent growth. Deposit growth remained healthy at 11 per cent year-on-year, reaching Rs 229.3 lakh crore, although CASA growth stayed muted.
The overall banking sector reported a 12 per cent rise in total net advances and a 13 per cent increase in aggregate credit in FY25, signalling that PSBs' tactical shift and rural resurgence helped them outperform amid macroeconomic headwinds.
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