PSU Banks Make A Comeback In Home Loan Market

The market share of the public sector banks in home loans jumped to 46.4 per cent in 2024-25 from 45.1 per cent in 2023-24. Meanwhile, the home loan market share of the private banks dropped to 53.6 per cent in 2024-25 from 54.9 per cent in the previous financial year.

In a dramatic turn of events, growth in the state-owned banks’ home loan portfolio outpaced the home loan growth of the private banks. The PSU banks added around Rs 2.1 trillion to their home loan portfolio, which amounts to 56.5 per cent of total home loans distributed in 2024-25.

On the other hand, non-PSU banks added around Rs 1.6 trillion worth of home loans, which amounts to 43.6 per cent of total home loans disbursed.

The Surge Is Not In Just One Segment

This comeback of a sort in credit disbursal by the PSU banks is not limited to the home loans segment. In the calendar year 2024, the state-owned banks provided a whopping 53.5 per cent of all loans disbursed in the country.

Though the rise was marginal from the previous calendar year’s 53.2 per cent, private banks’ share slipped to 41.5 per cent in 2024 from 41.8 per cent in the previous year.

In June 2017, the state-owned banks provided a dominant 66.7 per cent of the total loans, but subsequently the share eroded to 53.1 per cent by June 2024. The main factors in play were bad asset quality and capital constraints.

Now, it looks like the tide is turning back.

Reasons Behind State-Owned Banks’ Revival

Improvements in some of the fundamentals in the balance sheets of the public sector banks are driving this revival. Finance Ministry officials informed that the net NPA (non-performing asset) ratio of all the PSU banks taken together has dropped to 0.59 per cent in February this year.

In the period between April and December 2024, the public sector banks altogether had a net profit of Rs 1.29 lakh crore. This was a stupendous 31.3 per cent rise over the previous year.

The officials of the Finance Ministry told The Secretariat, “Public sector banks have gone through an adequate capitalisation process. There is no dearth of funds, and early results are quite encouraging.”

Rate cuts and the digitisation of the credit process have positively influenced loan offtake. Conscious push by the government to make the PSU banks more financially inclusive also played its role, it seems.

Are Private Banks Playing It Safe?

Private banks once spearheaded India’s mortgage boom. However, the natural cycle of contraction may be catching up with them. Stricter prudential norms set by the RBI, asset quality concerns, and rising interest rates also contributed to the slowdown in their loan portfolio growth.

With uncertainties looming large in the domestic and global arena of the economy, the private players may be playing it safe. However, the laws of the market will compel them at some point in time to once again fight for the shrinking slice of the mortgage pie.

It is, however, good news for the potential borrowers, as they will get more viable options. It is also a validation of years of regulatory hard work on part of the government and the RBI.

To sustain the momentum, the PSU banks have to keep their asset quality in check, clean up their balance sheets, and carry on with digital transformation.