Public sector banks (PSBs) emerged as stronger performers on loan growth in 2025, outpacing private lenders in advances expansion across most quarters of the year, even as system-wide credit growth remained sluggish for a prolonged period.
A Moneycontrol analysis of quarterly advances data for the September quarter of 2025 compared with March 2025 shows that state-owned banks largely recorded advances growth in the range of 5-12 percent, while private banks posted a wider and more uneven spread of around 3-11 percent. The data indicates that PSU banks were able to sustain steadier credit momentum despite challenging demand conditions and intense competition for deposits.
Among public sector lenders, Indian Overseas Bank reported the strongest growth at 11.3 percent, followed by Canara Bank (7.7 percent), Bank of India (7.1 percent), Punjab & Sind Bank (6.3 percent) and Indian Bank (6 percent). The country’s largest lender, State Bank of India, posted advances growth of about 4.8 percent, while Punjab National Bank and Bank of Maharashtra reported mid-single-digit expansion.
In contrast, private banks showed sharper divergence. While lenders such as IDFC First Bank (over 10 percent), Karur Vysya Bank (nearly 10 percent), CSB Bank, RBL Bank and City Union Bank delivered strong high single-digit growth, others struggled to expand their loan books. IndusInd Bank and The Karnataka Bank reported a contraction in advances, while large private lenders such as HDFC Bank and ICICI Bank saw more modest growth of around 4-5 percent, reflecting a cautious lending approach.
Bankers and analysts attribute the relatively weaker performance of private lenders to subdued credit demand for much of 2025, especially from corporates, alongside higher funding costs and intense competition for deposits. Private banks also remained selective in loan origination amid margin pressures and asset-quality considerations.
Signs of revival emerging in FY26
Encouragingly, signs of a turnaround in credit momentum have begun to emerge. According to a recent report by ICRA, bank credit growth picked up pace in the second quarter of FY26, aided by borrowers shifting away from the corporate bond market back towards bank financing.
The rating agency, however, cautioned that the trend remains monitorable in the second half of FY26, given evolving liquidity conditions and external uncertainties.
The revival in credit demand is being supported by policy measures, improving liquidity conditions and expectations of GST rationalisation, which could reduce compliance costs and improve cash flows for businesses.
Bankers expect these factors to translate into stronger loan demand in the coming quarters, particularly in retail, MSME and working-capital loans.
Bank credit in last few months
As per the latest data released by the Reserve Bank of India (RBI), total bank credit stood at Rs 195.3 lakh crore as of November 28, 2025, registering a year-on-year growth of 11.5 percent.
Credit growth has consistently remained above 10 percent in recent months, indicating stable demand conditions and continued flow of credit to productive sectors of the economy.
According to the Ministry of Finance release dated December 16, the expansion in bank credit has been driven primarily by robust demand from the retail and MSME segments, supported by improving consumption trends, rural economic activity and the positive impact of recent GST rate rationalisation on demand conditions.
“Healthy signs of revival in industrial credit and corporate borrowing have also contributed to the overall credit offtake, reflecting strengthening economic activity and business confidence in Indian growth trajectory,” release added.
Outlook: momentum likely to improve
Looking ahead, experts believe advances growth could pick up meaningfully in Q3FY26, as economic activity gains traction and corporate borrowing revives. While private banks are expected to regain momentum as funding pressures ease, PSU banks may continue to benefit from their scale and diversification.
ICRA maintains its credit growth projections for the banking sector at Rs. 19.0–20.5 lakh crore for FY2026, reflecting a YoY growth of 10.4–11.3 percent.
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