Public Sector Banks Regain Lost Ground in Credit Growth
India’s public sector banks (PSBs) have surpassed private lenders in loan growth, marking a shift in market dynamics after years of declining dominance.
- PSU banks’ loan book grew by 12.4% YoY in December 2024, compared to 10.5% growth for private banks.
- PSBs accounted for 53.5% of total loans as of December 31, up from 53.2% in September 2024.
- Private banks’ market share declined from 41.8% in September to 41.5% in December.
This reversal in trend follows years of market share erosion for PSU banks, which fell from 66.7% in June 2017 to 53.1% in June 2024, largely due to rising bad loans and capital constraints.
Strong Financial Performance Fuels PSU Revival
The Ministry of Finance reported that PSU banks delivered strong financial performance in the first three quarters of FY25:
- Net profit surged 31.3% YoY, reaching ₹1.29 lakh crore for April-December 2024.
- Asset quality improved, with the net NPA ratio at 0.59%, reflecting better risk management.
- PSBs remain well-capitalized and poised for growth, focusing on agriculture, MSMEs, and infrastructure lending.
Policy Reforms Driving PSU Bank Recovery
The government attributes this turnaround to policy and process reforms, including:
- Better credit discipline and improved governance.
- Stronger asset recognition and resolution mechanisms.
- Enhanced financial inclusion and technology adoption.
- More responsible lending practices.
Outlook: PSU Banks to Sustain Growth Momentum
With improving asset quality, capital adequacy, and renewed credit demand, PSU banks are expected to sustain their growth trajectory. Their resurgence signals a more balanced banking landscape, where public sector lenders are regaining competitiveness against private banks.
