Pvt lenders in a spot as public sector banks gobble up dwelling mortgage market share

As of the tip of FY25, the market share of PSU banks in dwelling loans rose to 46.4% from 45.1% a yr in the past, whereas that of personal banks fell to 53.6% from 54.9%, as per information compiled by Mint. The progress in PSU banks’ dwelling loans portfolio outpaced that of personal banks in FY24 as properly.

State-owned lenders added dwelling loans price ₹2.1 trillion to their stability sheets, amounting to a market share of 56.5% when it comes to loans distributed in FY25. In comparability, non-public sector banks added dwelling loans price round ₹1.6 trillion, or 43.6% of the loans for the yr.

Ankit Jain, affiliate director, India Ratings & Research, mentioned the expansion in dwelling loans for PSU banks was as a result of deal with retail loans.

“Because of subdued financial exercise over FY25, PSU banks had been largely centered on the retail section, primarily mortgage and automobile segments, which have traditionally displayed managed delinquencies,” Jain mentioned.

What additionally helps is that dwelling loans are safer and extra worthwhile than lower-yielding company loans. Further, the non-public sector banks confronted important challenges in FY25 resulting from extra stress in unsecured loans, much less liquidity, and stricter Reserve Bank of India (RBI) monitoring of small loans, he added.

Tough instances

“Till 3-6 months again, RBI had a hawkish view on financial coverage and in consequence, the price of funds had been comparatively larger and margins had been beneath a little bit of squeeze. As a consequence, banks, particularly non-public ones, had challenges in lending very aggressively provided that it’s a low-margin enterprise,” mentioned Amit Diwan, chief distribution officer, India Mortgage Guarantee Corp. (IMGC). Compared to PSU banks, non-public ones even have extra choices and product strains to lend in, he added.

In a 31 March report, CareEdge Ratings had mentioned that it expects the housing mortgage market, together with banks and housing finance corporations (HFCs), to develop at a CAGR of 15-16% over FY24-30. 

Industry specialists consider elevated competitors from PSU banks will persist on this section as they appear to develop their retail portfolios owing to the secured nature of dwelling loans.

“If they’re completely satisfied being a low-margin enterprise and wish the share of retail belongings to develop, one of the simplest ways to do this is dwelling loans. For most PSU banks, apart from SBI, the retail belongings are nonetheless a comparatively smaller a part of the stability sheet and so there’s a aware try to develop this e book,” mentioned a senior official at a non-public sector financial institution, including that dwelling loans have the best choice as they’re thought of the most secure asset class.

On the opposite hand, non-public sector banks have been seeking to defend their margins by slowing down progress in lower-yielding retail segments and lending extra to unsecured and higher-yielding segments corresponding to private loans, bank cards and MSME loans.

The starkest slowdown in progress was for Axis Bank, which noticed its dwelling mortgage portfolio develop just one% on yr in FY25. In the financial institution’s This autumn FY25 earnings name, managing director and chief government officer Amitabh Chaudhry mentioned that, given the constraints on deposit mobilisation and progress in FY25, the financial institution selected to prioritise progress in sure asset courses and management progress in others.

PSUs working onerous

“Assuming liquidity stays (and) flows maintain into the deposit aspect, we do consider that the platform is there for each progress and profitability. And as that deposit progress opens up, you will note progress begin coming again throughout numerous asset courses,” mentioned Axis Bank’s Chaudhry.

IMGC’s Diwan believes that what has helped PSU banks is that these lenders have put loads of work into changing into aggressive in distribution, digitisation and bettering the mortgage turnaround time (TAT)—all of which is now bearing fruit.

“PSU banks are making a proactive effort to achieve out to channel companions and builders, and broaden their very own gross sales workforce. Further, there may be buoyancy and demand in tier 2 and tier 3 and past cities, the place PSU banks are higher positioned to cater to funding necessities given larger buyer belief and their expansive department community,” he mentioned.

Key takeaways 

1. PSU banks’ mortgage mortgage market share rose to 47.7% in FY25, whereas non-public sector banks noticed a decline.
2. Private sector banks struggled with larger stress in unsecured loans, tighter liquidity, and stricter RBI rules.
3. State-owned banks centered on mortgage and automobile loans resulting from decrease delinquency charges.
4. To defend margins, non-public lenders shifted focus to higher-yielding segments like private loans and bank cards.
5. PSU banks improved distribution, digitization, and mortgage processing velocity, boosting their presence in tier 2 and three cities.