India's Household Savings Shift Gears as PSBs Regain Credit Dominance: SBI
- Equity share in household savings doubled from 2.5% in FY20 to 5.1% in FY24.
- Public Sector Banks' incremental credit share rose to 56.9% in FY25, aided by improved asset quality.
- Credit to MSMEs grew 17.8% YoY, reflecting their growing role in supporting corporate supply chain
The financialization of household savings in India is accelerating, with equities now accounting for 5.1% of household savings in FY24 up from 2.5% in FY20 according to the latest SBI Research report. This trend underscores the growing investor appetite for market-linked instruments and signals a transformation in household saving behaviour.
The report highlights that India's credit landscape is undergoing structural changes. While overall bank credit growth remains robust, the traditional method of evaluating credit trends through arithmetic averages may not capture the underlying dynamics. In this evolving scenario, monitoring the sources of credit origination particularly household bank deposits becomes increasingly crucial, the report advises.
Public Sector Banks (PSBs) have shown a stable credit growth of 12.2% in FY25, marginally lower than the 13.6% growth in FY24. Notably, PSBs’ share in incremental credit has surged to 56.9% in FY25, a significant jump from just 20% in FY18. Their share in outstanding credit also improved to 52.3% in FY25, reversing a 14-year downward trend from 75.1% in FY10 to 51.8% in FY24.
SBI attributes this turnaround to the government’s effective implementation of the 4R strategy recognition, resolution, recapitalisation, and reforms which has resulted in a remarkable improvement in asset quality. The gross non-performing assets (GNPA) ratio in the banking system has dropped to a record low of 2.6% in H1 FY25, down from 11.5% in FY18.
Sectoral analysis reveals a softening in credit growth across various segments, particularly in services and agriculture. The share of personal loans in incremental credit has declined from 43% in FY24 to 37% in FY25. Conversely, credit to industry has increased to 17% from 11% over the same period, reflecting a revival in industrial credit demand.
A notable highlight is the MSME sector, which recorded a robust 17.8% year-on-year growth. “MSMEs, being deeply linked with large corporates through integration models, serve as a barometer for broader corporate activity”, said Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI.
Meanwhile, private credit activity is also on the rise. In FY24, private credit deals reached Rs 774 billion, a 7% increase over CY23, driven by customised funding solutions through Alternative Investment Funds (AIFs) and sustained Non-Convertible Debenture (NCD) issuances.
