The Finance Ministry wants public sector banks (PSBs) to regain market share in credit they lost to private sector banks (PVBs) amid a pick-up in credit in the banking system.

The state-owned banks have been losing market share to Nifty PVBs over the last decade or so.

At a recent meeting, the ministry asked PSB chiefs to focus on increasing the share of retail and MSME (Micro, Small and Medium Enterprise) advances. It also wants them to leverage co-lending to drive growth in advances in these segments.

Basic Statistical Return

As per RBI’s latest Basic Statistical Return on Credit by Scheduled Commercial Banks in India for March 2021, private sector banks recorded higher loan growth when compared to other bank groups.

PVBs share in total credit has steadily increased to 35.4 per cent in March 2021 from 20.8 per cent in March 2015 at the cost of public sector banks, whose share has come down from 71.6 per cent to 56.5 per cent over the same period, RBI said.

According to the central bank’s latest statement on Sectoral Deployment of Bank Credit, bank credit continued to expand, registering 15.1 per cent growth in July 2022 as compared with 5.1 per cent a year ago.

The ministry is of the view that while retail loans have emerged as the main driver of PSBs credit, their growth can be steeper. It recommended that PSBs get into integrated digital partnerships to acquire business such as retail and MSME loans, credit cards, deposits, and leads and referrals.

Retail and MSME

“Public sector banks have been upping their game on retail and MSME advances and also leveraging digitisation to grow these advances. With the ministry asking PSBs to regain market share, they will crank up their advances growth drive,” said a banking analyst.

Within retail advances, PSBs will be focussing on pre-approved product offerings for retail customers and cash-flow based underwritten offers to MSME customers.

To boost RAM (retail, agriculture, MSME) advances, PSBs will be strengthening sourcing partnerships with home loan counsellors, Original Equipment Manufacturers, MSME clusters, Farmer Producer Organisation, among others.