Public sector banks (PSBs) have recorded stronger loan growth compared to private banks (PVBs) for the first time in over a decade, according to a report by The Economic Times. By the end of the financial year 2024–25 (FY25), PSBs posted a year-on-year loan growth of 13.1 per cent, outpacing PVBs, which grew at 9 per cent.
Shift in loan growth trends over time
According to data from the Reserve Bank of India and analysis by Bernstein, PSBs last had a four per cent growth lead over PVBs in 2011. This gap widened significantly, peaking at 20 per cent in 2016, before narrowing again during the Covid-19 period, returning to four per cent by FY25.
Growth across multiple loan segments
The growth in PSBs was not limited to one area. They performed well in traditional segments such as mortgages and corporate lending, as well as non-mortgage retail categories like auto loans.
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Pranav Gundlapalle, India head for financials at Bernstein, was quoted by The Economic Times saying private banks had historically enjoyed premium valuations because of their consistent market share gains, growing 6–7 per cent faster than the overall system growth rates.
Gundlapalle said if this growth advantage continued to shrink in the medium term, the justification for premium valuations would become weaker. He added that although private banks still delivered above-average profitability and traded at reasonable valuations, the current risk of a relative slowdown in growth might not be fully factored into market prices.
The market continues to value private and public banks differently. ICICI Bank’s price-to-book (P/B) ratio stands at around 3.5, while the State Bank of India (SBI) trades at a P/B ratio of about 1.5. This reflects differing investor views on growth potential, profitability, and risk levels between the two types of banks.
Increasing competition for private banks
Private banks have taken note of the increasing competition. Anindya Banerjee, group CFO of ICICI Bank, acknowledged the challenge during a post-earnings call on 19 April: “There are very large, capable competitors who are also priced meaningfully below us. It does create some challenges in terms of growth, but I guess that’s part of life. So, we will have to keep dealing with it as we go along and look at how we can drive other levers to continue to maintain profitable growth.”
HDFC Bank has also raised similar concerns over the past few quarters.
Loan base highlights PSBs’ strong position
The recent growth is even more striking given the already large loan base of PSBs. As of the end of FY25, public sector banks held ₹98.2 trillion in loans, making up 52.3 per cent of the total market. In comparison, private banks accounted for ₹75.2 trillion, or 40 per cent of the loan book.