PSBs share in loans rises sharply in FY25: Monetary Policy Report

State-owned lenders use SLR surplus for disbursements

The pace of loan growth among public sector banks (PSBs) has seen a surge in the financial year 2024-25, and this is an exception to the overall moderation in bank credit during FY25.

 

PSU banks’ share in incremental credit rose to 57.3 per cent in March from 51.7 per cent a year ago, according to the Reserve Bank of India’s (RBI’s) Monetary Policy Report (April 2025).

 

In contrast, the share of private lenders declined to 39.1 per cent in March from 46.6 per cent in March 2024.

 

Foreign banks saw their share in incremental credit at 3.6 per cent from 1.8 per cent.

 

Bankers said PSBs with lower credit-to-deposit ratio (C/D ratio) were able to ramp up loan disbursements when private lender's grappled with higher ratios.

 

“PSBs continued to be the major drivers of incremental credit extended by all scheduled commercial banks (SCBs) in 2024-25,” the report said.

 

According to CARE Ratings’ preliminary assessment, private sector bank credit grew by around 7.5-8 per cent, and for PSBs, it is around 12-13 per cent.

 

The C/D ratio of PSBs was 77-78 per cent while that of private counterparts was above 90 per cent.

 

In mid-FY25, RBI had flagged concerns over rapid growth in loan books of some banks, especially private banks, and asked them to revisit business models, leading to some of them moderating lending activity.

 

PSU banks have significant surplus bonds in their statutory liquidity ratio (SLR) books as their C/D ratio is low.

 

Now, with the reduction in lending rate, and the market rate being slightly favourable, they have opted for increasing advances in the balance sheet compared to the security that they were holding. 

 

PSU banks were aggressive in lending, especially on better-rated clients, said Sanjay Agarwal, senior director-BFSI ratings, CARE Ratings.