PSU banks are quietly eating private banks’ lunch? Motilal Oswal says HDFC Bank, ICICI Bank, SBI and AU Bank matter most

Core Insights - Public sector banks (PSUs) are actively gaining market share in MSME and home loans, reshaping competitive dynamics in India's financial system [1][14] - The credit cycle is transitioning into a more sustainable, execution-led phase, with systemic loan growth projected to hold at about 12% or more year-on-year in FY26 [11][15] MSME Lending - PSU banks are sanctioning MSME and working-capital loans with turnaround times of two to four days, with the State Bank of India often completing approvals within 48 hours [1][2] - The use of CGTMSE-backed structures allows loans of up to ₹500 million to be sanctioned without collateral, narrowing the rate differential with private banks [2] - A strong central push to scale MSME credit has accelerated PSU bank execution, enabling them to gain market share over the past six to nine months [2] Unsecured Business Lending - Growth in unsecured business lending has moderated to about 10–20%, down from 30–40% in previous years, despite a pricing correction to around 12–12.5% [4] - Stress is evident in agri-linked commodity businesses and FMCG distributors, with payment cycles stretching from about 10 days to nearly 40 days [5] Housing and Real Estate - Housing and real estate momentum remains strong, supported by improved disbursement rates and activity among large developers [7] - PSU banks are regaining relevance in home loans due to lower rates and faster turnaround times, particularly in Tier-2 and Tier-3 cities [8] Credit Cards and Personal Loans - Credit card growth remains subdued, with selective issuances and elevated delinquency levels compared to historical norms [9] - Personal loans are showing early signs of stabilization, with incremental disbursements skewed towards existing customers and higher-quality repeat borrowers [10] Investment Preferences - The brokerage favors lenders with execution strength and stable asset quality, specifically ICICI Bank, HDFC Bank, State Bank of India, and AU Bank for their growth potential [13][15]