Public Sector Banks Stage Comeback in Secured Lending Segments
In a significant shift within India's banking landscape, public sector banks (PSBs) have successfully reclaimed market share in crucial secured lending areas over the past year. This resurgence comes even as private banks and non-banking finance companies (NBFCs) maintain their stronghold over unsecured consumer credit. These insights are drawn from the comprehensive February 2026 Experian Industry Insights report on lending trends, which highlights evolving dynamics in the financial sector.
PSBs Expand Presence in Auto and Home Loans
The most prominent trend in the current credit cycle is the aggressive expansion of PSBs into segments that were previously dominated by private lenders and NBFCs. According to the report, PSBs increased their share in auto loans to 36% in the third quarter of fiscal year 2026, up from 32% a year earlier. This represents a substantial gain of four percentage points, signaling a robust recovery.
Similarly, in the home loan market, PSBs saw their share rise to 35% from 33% over the same period. This growth underscores a strategic pivot by public sector banks toward more secure lending avenues, which are typically backed by collateral.
Private Banks and NBFCs Maintain Dominance in Unsecured Credit
While PSBs are making inroads in secured lending, private banks experienced a marginal decline in auto loans, with their share slipping to 34% in Q3 FY26 from 35% a year earlier. However, private banks retained the largest share in home loans at 42%, a figure that remained unchanged from the previous year, indicating their continued strength in this segment.
In the realm of unsecured lending, private banks continue to dominate the credit card market with an impressive 72% share. Nevertheless, they are facing increasing competition from NBFCs in the personal loan sector. Private banks accounted for 46% of the personal loan market in Q3 FY26, down from 48% a year earlier. Concurrently, NBFCs increased their share in personal loans to 36% from 33%, highlighting their growing influence.
Overall Market Growth and Asset Quality Improvements
NBFCs remain the dominant players in various consumer credit segments, leveraging their agility and customer-centric approaches. The total loan sourcing in the latest quarter reached approximately Rs 20,00,000 crore, marking a 36% increase from a year earlier. This expansion has created ample room for PSBs to grow their balance sheets without necessarily reducing the absolute volumes of competing lenders.
The strategic move by public sector banks toward secured lending is further bolstered by improving asset quality across the industry. Enhanced risk management practices and a focus on stable returns have enabled PSBs to capitalize on market opportunities while mitigating potential defaults.
In summary, the lending landscape in India is witnessing a notable realignment, with PSBs regaining ground in secured loans like auto and home financing. Meanwhile, private banks and NBFCs continue to lead in unsecured credit, driven by innovation and competitive offerings. This dynamic shift reflects the evolving strategies of financial institutions in response to market demands and regulatory environments.
