Private banks may lose ground again in FY26 as credit growth lags

India’s private-sector banks are likely to lose market share for a second consecutive year in 2025-26, as their loan books continue to expand much slower than overall bank credit.

 

The combined loan book, or advances, of listed private-sector lenders such as HDFC Bank, ICICI Bank and Axis Bank grew 8.9 per cent year-on-year in FY25 and 9.9 per cent year-on-year in the first half of FY26. This lags behind the 11.4 per cent and 11.7 per cent year-on-year expansion in the combined loan book of all listed banks over the same periods. It could be the first time in more than 15 years that private-sector banks would trail overall bank credit growth for two consecutive years.

 

Private-sector banks’ combined advances rose to ₹77.14 trillion at the end of September 2025, up from ₹73.56 trillion at the close of FY25 and ₹67.53 trillion at FY24-end. By contrast, listed banks’ combined advances rose to ₹193.6 trillion at end-September this year from ₹184.66 trillion at end-March and ₹165.56 trillion at the end of FY24. 

 

The analysis is based on the reported annual results and H1FY26 financials of 42 listed banks -- including private-sector banks, public-sector banks and small finance banks -- which together reported advances of ₹193.6 trillion at the end of September. For comparison, overall bank credit reached ₹192.7 trillion as of October 3, 2025.

 

This divergence has led to a loss of market share for private-sector banks in the overall credit landscape. Their share of bank advances slipped to around 39.8 per cent at end-September this year from around 40.8 per cent at end-March 2024. The shift marks a reversal after a decade-long rise in market share, which had climbed sharply from 23.5 per cent at end-March 2014 to 38.1 per cent at end-March 2020. In recent years, however, private-sector lenders have struggled to outperform the wider industry. 

 

Listed private-sector banks’ combined advances grew at a compound annual rate (CAGR) of 15.8 per cent between FY20 and FY25, slightly lower than the 16 per cent CAGR recorded between FY15 and FY20. In contrast, overall bank advances saw a sharp acceleration, rising from 6.4 per cent CAGR during FY15-20 to 14.7 per cent during FY20-25.

 

This surge in overall credit was propelled by public-sector banks, whose combined advances expanded at a CAGR of 13.9 per cent over FY20-25, a steep increase from the 2 per cent CAGR seen during FY15-20.

 

This trend is also reflected in revenues and profitability. Private banks’ share in banks’ gross interest income fell to 41.5 per cent in H1FY26 from 41.8 per cent in FY25 and a record 42.4 per cent in FY20. Likewise, listed private-sector banks’ share in total banking profits declined to 49.8 per cent in H1FY26 from 50.4 per cent in FY25 and 80.2 per cent in FY20. Meanwhile, public-sector banks’ share in overall profits rose to 49.9 per cent in H1FY26 from 46.8 per cent in FY25 and 28 per cent in FY21.

 

Analysts attribute the relative slowdown among private-sector banks partly to specific events, notably the merger between HDFC Bank and HDFC. “After its merger with HDFC Ltd in 2023, HDFC Bank is focused on integration and growing its deposit base rather than expanding its loan book. This has a cascading effect on overall growth in the private-sector banking space, given its large market share,” says Dhananjay Sinha, co-head of research and equity strategy at Systematix Institutional Equity.

 

HDFC Bank accounted for 35.6 per cent of all listed private-sector banks’ combined advances at the end of March this year. Its advances rose just 5.4 per cent year-on-year in FY25, less than half the pace of growth in advances across the 42 listed banks in the sample.

 

However, beyond HDFC Bank, several peers -- including IndusInd Bank, Axis Bank, Yes Bank, Karnataka Bank and Bandhan Bank -- also expanded their loan books at a pace below the industry average in FY25.

 

Analysts expect HDFC Bank’s loan growth to accelerate once integration is completed, lifting the overall growth trajectory for private-sector banks. Senior management at HDFC Bank has already told investors that the lender would expand its loan book at a pace faster than the system in FY27.

 

A similar improvement is anticipated at Axis Bank, which acquired Citibank’s India retail business in March 2023. Together, these developments are expected to bolster private-sector lenders’ expansion and intensify competition with public-sector and small finance banks.