PSBs overtake private banks in credit growth, gain market share amid structural shift: SBI report

Public Sector Banks (PSBs) have emerged as key drivers of credit expansion in FY25, cornering 56.9% of incremental credit, up sharply from 20% in FY18. In contrast, credit growth at private banks slowed to 9.5%, the weakest since FY21, said a research report by the State Bank of India (SBI).

The report further highlighted a structural transformation in India’s credit landscape, cautioning that headline banking sector credit growth figures—currently at a three-year low of 9.6%—may mask deeper underlying shifts.

Advertisement

A major revelation of the report is the “silent credit revolution” underway in the MSME sector, where credit grew 17.8% year-on-year. This surge is attributed to improved asset quality, expanded guarantee schemes, the formalization push via Udyam registration, and redefined MSME criteria. The drop in MSME delinquencies to a five-year low of 1.8% is also seen as a positive sign.

Further, some of the other key trends noted include the broadening of the credit market with alternative funding sources like commercial papers, ECBs, and private credit (which totaled ₹774 billion in FY24).

Corporate deleveraging and liquidity build-up with cash and bank balances of India Inc (excluding BFSI) touching ₹13.5 lakh crore in FY25, it said.

The report further indicated a shift in sectoral credit allocation, with the industry’s share in incremental credit rising to 17%, while personal loans’ share declined to 37% from 43% in FY24.

It said there has been a surge in working capital loans, which grew 17% year-on-year, cushioning the slowdown in term loan disbursements.

SBI research also emphasized the narrowing of India’s credit-to-GDP gap and the rise of financialization of household savings, as equity investment share grew from 2.5% in FY20 to 5.1% in FY24.

The report suggests that while headline figures may signal moderation, India’s credit ecosystem is undergoing a diversified and resilient evolution—driven by PSBs, MSMEs, and new funding channels.