India’s public sector banks (PSBs) have surpassed their private sector counterparts in credit growth, marking a significant shift in the banking landscape after years of decline in market share. According to a report by Mint, PSBs have regained some of the ground lost to private banks over the past several years.
Public Sector Banks Lead in Credit Growth
As per data from the Reserve Bank of India (RBI) cited in the report, public sector banks witnessed a 12.4% year-on-year growth in their loan book for December 2024. In comparison, private banks recorded a 10.5% increase in their loan portfolios during the same period.
The data further revealed that as of December 31, 2024, state-run banks collectively disbursed 53.5% of all loans, slightly higher than their 53.2% market share at the end of the September quarter. This increase, though marginal, indicates a reversal of the declining trend that public sector banks had been experiencing for several years.
On the other hand, the market share of private sector lenders saw a decline. Their share in total credit fell to 41.5% in December, down from 41.8% in September, according to the report.
A Gradual Shift After Years of Decline
While the increase in PSB market share is not dramatic, it is notable because it comes after a consistent decline over the past decade. In June 2017, PSBs accounted for 66.7% of the total credit market, but this figure steadily declined to 53.1% by June 2024. The decline was largely attributed to rising non-performing assets (NPAs), capital constraints, and governance challenges. Many PSBs struggled with deteriorating asset quality, forcing them to limit lending, which in turn allowed private banks to expand aggressively.
However, the recent resurgence suggests that PSBs are regaining their competitive position, possibly due to improved financial health, policy support, and a stronger focus on credit expansion in key sectors.
Finance Ministry Highlights Strong Performance of PSBs
On February 6, 2025, the Finance Ministry highlighted the strong financial performance of public sector banks during the first three quarters of the current financial year.
- PSBs reported a net profit of ₹1.29 lakh crore for the April-December 2024 period, reflecting an impressive 31.3% growth compared to the same period in the previous year.
- The ministry also pointed out that the net NPA (Non-Performing Assets) ratio had improved to 0.59%, indicating better asset quality and risk management.
Government’s Focus on Strengthening Public Sector Banks
The Finance Ministry emphasized that PSBs are now well-capitalized and equipped to meet the credit demands of all sectors of the economy. Special attention is being given to key sectors such as agriculture, micro, small and medium enterprises (MSMEs), and infrastructure, which are critical for economic growth.
The ministry credited the turnaround in PSB performance to a series of policy and process reforms implemented in recent years. These reforms have focused on:
- Enhancing credit discipline: Stricter lending norms and improved monitoring mechanisms to prevent defaults.
- Recognizing and resolving stressed assets: Better resolution frameworks for bad loans, ensuring timely recovery and minimal losses.
- Promoting responsible lending: Encouraging banks to lend prudently, reducing the risk of future NPAs.
- Strengthening governance structures: Improving transparency, accountability, and efficiency in banking operations.
- Boosting financial inclusion: Expanding banking services to underserved regions and populations.
- Adopting advanced technology: Implementing digital banking solutions to enhance customer experience and operational efficiency.
Impact on the Banking Sector
These measures have contributed to the overall stability and resilience of the banking sector, ensuring that PSBs remain competitive against private banks. The improved financial health of PSBs is reflected in their higher credit growth, reduced NPAs, and improved profitability, positioning them as strong players in India’s banking industry.
The resurgence of PSBs is significant because it could lead to a more balanced banking sector, where both public and private banks play complementary roles in supporting economic growth. While private banks have been dominant in retail and digital banking, PSBs continue to play a crucial role in funding infrastructure, rural development, and priority sectors.
Conclusion
The recent uptick in public sector banks’ market share and credit growth signals a positive shift in their financial standing, following years of challenges. With stronger balance sheets, better governance, and government-backed reforms, PSBs are now in a better position to support India’s economic expansion. If this trend continues, public sector banks may further consolidate their position, ensuring sustainable credit growth and financial stability in the coming years.
