In a first in 14 years, Public Sector Unit (PSU) banks beat private ones in loan growth
- IBEF
- June 11, 2025
Public sector banks (PSBs) have outperformed private banks (PVBs) in loan growth for the first time since 2011. At the end of FY25, PSBs achieved a 13.1% YoY loan growth, outpacing PVBs by four percentage points, which recorded a 9% growth. This strong performance was evident across multiple segments, including mortgages, corporate loans, and 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. However, if the growth advantage continues to narrow in the medium term, the case for premium valuations may weaken. India head for financials at Bernstein, Mr. Pranav Gundlapalle, noted that 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. ICICI Bank's price-to-book (P/B) ratio is currently around 3.5, while State Bank of India's P/B is around 1.5, reflecting differing market perceptions of the two banks' growth prospects, profitability, and risk profiles.
Private sector banks have flagged the increased aggression from public sector banks, leading to growth and profitability pressures. Group Chief Financial Officer (CFO) of ICICI Bank, Mr. Anindya Banerjee, acknowledged the challenges posed by capable competitors priced meaningfully below them. HDFC Bank has also highlighted the issue of aggressive lending by public sector banks, particularly in larger-ticket corporate and Small and Medium Enterprises (SME) loans, where pricing is extremely low due to growth objectives rather than margin or returns. Reserve Bank of India (RBI) data and Bernstein analysis show that the loan growth differential between PSU and PVB banks was around 4% at the start of 2011, peaked at 20% in 2016, and reduced to 4% again with the onset of Covid. As of the end of FY25, PSBs held a total loan portfolio of Rs. 98,20,000 crore (US$ 1.14 trillion), representing 52.3% of the market share, compared to PVBs' loan base of Rs. 75,20,000 crore (US$ 878.91 billion), accounting for 40% of total loans. Analysts suggest that PSBs have the upper hand due to higher levels of marginal cost lending rate (MCLR) loans, which reprice with a two-quarter lag. PSU banks are better placed to manage margin pressures due to their high share of MCLR loans, ranging between 52–60%.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
Partners
