For the first time since March 2010, Public Sector Banks (PSBs) recorded double-digit growth in advances at 12.2 per cent year-on-year in FY25, surpassing Private Sector Banks’ (PVBs) 9.5 per cent growth, according to a report by Systematix Group.

The report highlighted that PSBs, which had seen their market share in advances drop from 74.9 per cent in March 2011 to 51.8 per cent by March 2024, have reversed the trend with strong credit growth in FY25. While deposits have lagged advances for three consecutive years, PSBs remain better positioned than private banks in terms of liquidity.

Citing CRISIL, the report noted that banking sector advances are expected to grow 11–12 per cent in FY26, supported by RBI liquidity measures and government initiatives to boost economic growth. Despite competitive pressure from major private banks like HDFC Bank, PSBs retained their deposit market share, aided by branch expansion and a higher proportion of household deposits (67.6 per cent vs. 52.1 per cent for private banks).

The gap in asset quality between PSBs and PVBs has narrowed, with technology-driven underwriting and aggressive provisioning keeping gross slippage ratios under control. Recoveries from technically written-off accounts contributed 18–22.8 per cent to PSBs’ return on assets in FY25, providing a sustainable boost to profitability.

PSBs are increasingly focusing on non-interest income through insurance, mutual funds, and third-party product sales, supported by staff training and technology upgrades. Net Interest Margins (NIMs) faced pressure from repo rate cuts, but PSBs limited the decline better than private banks due to lower exposure to external benchmark-linked loans. With expected CRR relief, margins are projected to stabilise in FY26.

News source: ANI