Public Sector Banks Picking Pace with Double-Digit Credit Growth in Q1 FY26

India's public sector banks (PSBs) from Bank of Baroda to Indian Bank have posted strong double-digit credit growth in Q1 FY26, outpacing their private sector counterparts and cementing their resurgence in lending business.

According to latest statistics and industry reports, PSBs as a group recorded 12.2% year-on-year credit growth representing nearly 57% of FY25 incremental credit. This is a comparison to some years ago when private sector banks dominated the credit growth. The growth is led by working capital loans, MSME loans, and a thrust so far in rural and semi-urban areas.

Key Highlights

Credit Growth: PSBs posted 12.2% YoY growth in Q1 FY26.
Market Share: Captured 56.9% of incremental credit in FY25, up from 20% in FY18.
Growth Drivers: Strong pace in MSME loans (17.8% up), working capital loans, and housing loans.
Geographic Reach: PSBs led credit growth in rural and semi-urban markets, making gains in metros lost.
Asset Quality: Gross NPAs for the entire set of PSBs dipped to an all-time low of 2.6% in H1 FY25.

Strategic Context

Credit expansion is the outcome of the 4R strategy of the government—Recognition, Resolution, Recapitalisation, and Reforms—combined with improved asset quality and cautious yet aggressive lending approach. While private sector banks saw credit expansion slow to 9.5%, PSBs leveraged regulatory crackdown on unsecured borrowing to expand their retail and industrial loan portfolios.

Sources: ET BFSI, The Hindu Business Line, The Statesman, Times of India