Why PSU Banks Are Outpacing Private Lenders in Home Loans?

Anjali is 32 years old and works as a software engineer in Pune. She wanted to buy a new flat but didn’t have enough money, so she went to a safe and trusted bank called SBI, a PSU bank run by the government.

She took a home loan of ₹50,00,000 from the bank and promised to pay it back every month. Because she chose SBI, the interest rate was lower than other banks.

This helped her save over ₹7,00,000 in the long run! She also got a special government discount for buying her first home.

Which Bank Is Better for a Home Loan? Let's Compare!

Before Anjali took a home loan, she wanted to be very sure she was picking the best bank. There are two types of banks in India:

• PSU banks (Public Sector Undertaking banks): These are run by the government and are known to be safe and honest.
  
  
• Private banks: These are run by private companies and sometimes offer faster services, but can cost a bit more.

Anjali looked at both types of banks to see which one was doing better — or, as grown-ups say, outpacing the other in giving good home loans.

Below is a simple table she made to help her decide:

Do PSU banks have a good track record in home loans?

Public Sector Undertaking (PSU) banks in India have a longstanding presence in the home loan sector. While they have faced challenges over the years, recent developments indicate a strong comeback in their performance and market share.

In the past, PSU banks held a significant share of the home loan market.

For instance, in June 2017, state-owned banks accounted for 66.7% of total loans disbursed in the country. However, this share declined over the years due to issues like asset quality concerns and capital constraints, dropping to 53.1% by June 2024.

What Population of India is Dependent on PSU Banks for Home Loans?

Arjun decided to first research the exact market share of PSU banks in home loans. He discovered that many people in India opt for home loans from Public-Sector Banks (PSU Banks). 

These are banks owned or controlled by the government, such as the State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda. They are known for their stability and trustworthiness.

He found a recent article stating:

“As of the end of FY25, the market share of PSU banks in home loans rose to 46.4% from 45.1% a year ago.” Read here.

This meant that nearly half of the home loans in India were provided by PSU Banks, indicating that a significant portion of the population trusted these institutions for their housing needs.

But Why?

Why are PSU Banks outpacing private lenders in home loans?

In 2024–25, government banks (PSU banks) gave out 46.4% of all home loans in India. This was higher than the previous year, when their share was 45.1%. Meanwhile, private banks' share fell to 53.6% from 54.9%.

Even more surprisingly, PSU banks gave out more total money in home loans this year than private banks. PSU banks added ₹2.1 trillion worth of home loans, while private banks added ₹1.6 trillion.

But It’s Not Just Home Loans – PSU Banks Are Leading in All Types of Lending

• In 2024, government banks gave 53.5% of all loans in the country. That’s slightly higher than the previous year’s 53.2%.
• Private banks' share slipped from 41.8% to 41.5%.

It’s a sign that government banks are slowly regaining the strong position they had years ago. In 2017, they had as much as 66.7% of the total lending market.

What About Private Banks?

Private banks were once the top lenders, especially for home loans. But now, they are slowing down. Why?

• They’re being more cautious due to stricter rules from the Reserve Bank of India (RBI).
• They’re worried about rising interest rates and possible loan defaults.
• With global and domestic uncertainties, they play it safe, lending less.
  
  

Conclusion

Public sector banks (PSU banks) are steadily regaining dominance in India’s home loan market, outpacing private lenders in both volume and growth. This shift is driven by multiple factors: improved financial health of PSU banks, lower non-performing assets, strong government support, and a push towards digital services. 

Rate cuts and inclusive lending policies have made PSU banks more attractive to borrowers. Private banks are being more cautious due to tighter regulations and economic uncertainty. As a result, more homebuyers are turning to PSU banks for affordable and reliable loan options.

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LoansJagat Team

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