State-owned banks have performed better in terms of loan growth than its private sector peers in the third quarter of the current financial year, reflecting a benefit after Goods and Services Tax (GST) rationalisation leading to uptick in demand during festive season.
Usually, the second half of every financial year sees a higher demand for credit amid festivals such as Ganesh Utsav, Diwali, and others. Additionally, the last quarter sees aggressive loan offers from banks to close books on a stronger note.
Data compiled by Moneycontrol showed that advances growth of PSU banks stood in the range of 7-20 percent in Q3FY26 as per provisional numbers, as compared to 4-17 percent for private banks.
Bank credit growth stayed firmly in double digits in the October-December quarter of FY26, remaining in the range of 10.21-11.87 percent, extending a run that began after the government announced GST rate cuts in early September.
Weekly prints since September have consistently remained above 10 percent, according to the Reserve Bank of India’s (RBI) data.
On September 3, 2025, the GST Council approved a new two-tier structure of 5 percent and 18 percent. Finance Minister Nirmala Sitharaman, who chairs the Council, said the reductions were aimed at “the common man and the middle class.” Items shifted to the 5 percent slab included hair oil, toilet soap, soap bars, shampoos, toothbrushes, toothpaste, bicycles, tableware, kitchenware and other household articles.
The stronger credit growth suggests a pickup in demand, particularly consumption-linked borrowing, following the GST cuts.
Peer-to-peer comparison
In term of advances, Bank of Maharashtra and Central Bank of India, in the PSU space, have registered a loan growth of 19.61 percent and 19.57 percent, respectively.
Similarly, the best performing in private space are HDFC Bank, Jammu & Kashmir Bank, and South Indian Bank, with loan growth of 11.90 percent, 17.26 percent, and 11.27 percent, respectively.
Majority of the PSU banks have reported a double-digit loan growth in the Q3FY26, except few banks reporting single digit growth such as Union Bank of India (7.13 percent), and Punjab National Bank (8.54 percent).
In the private banking space, banks such as Kotak Mahindra Bank and YES Bank reported a loan growth in single digit of 4 percent and 5.2 percent, respectively.
IndusInd Bank remains under pressure, with advances declining 2.2 percent quarter-on-quarter.
Deposit mobilization
Even though the deposit mobilization remained a challenge for the entire banking system after the start of the rate cut cycle by the RBI, but PSU banks flared well in terms of deposit growth.
Data showed that PSU banks have deposit growth in the range of 3-15 percent, as compared to 3-12 percent for the private banks.
In 2025, banks have seen mobilizing deposits through certificates of deposit (CD) due to sustained pressure on low-cost deposits. Banks have been struggling with deposit mobilisation over the last few quarters, especially on the CASA front, due to unattractive interest rates relative to other financial products.
Nonetheless, banks, especially PSBs, have been able to manage the CASA deposit ratio as per the guided level or slightly lower, thanks to the introduction of innovative products. Stress on CASA deposits increased after the central bank slashed the repo by a full 1.25 percent, leading to banks also lowering rates on these deposits. The RBI cut the policy rate to support growth.
