NewsStocksPSU Banks Gain Market Share as Motilal Oswal Picks HDFC Bank, ICICI Bank, SBI & AU BankPSU Banks Gain Market Share as Motilal Oswal Picks HDFC Bank, ICICI Bank, SBI & AU Bank
Motilal Oswal highlights a major shift where PSU banks are capturing significant market share in MSME and home loans from private lenders through superior turnaround times and CGTMSE-backed structures. Despite this competitive pressure, the brokerage maintains strong conviction in HDFC Bank, ICICI Bank, State Bank of India and AU Bank as the credit cycle enters a more disciplined phase with systemic growth expected around 12% in FY26.
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Motilal Oswal Financial Services has identified a significant shift in India's banking landscape, where public sector banks are aggressively reclaiming market share in MSME and home loans from private lenders. Despite this competitive pressure, the brokerage maintains that HDFC Bank, ICICI Bank, State Bank of India and AU Bank remain the most critical investment picks as the credit cycle transitions into a more disciplined, execution-focused phase.
PSU Banks Dominate MSME Lending
Public sector banks have emerged as the dominant force in MSME lending over the past six to nine months, fundamentally altering competitive dynamics. Channel checks across direct loan selling agents reveal PSU banks are now sanctioning MSME and working-capital loans with remarkable speed.
| Bank Category | Key Advantages |
|---|---|
| PSU Banks | 2-4 day turnaround times |
| State Bank of India | 48-hour approvals including working capital |
| Private Banks | Hybrid MSME structures with partial collateral |
PSU banks are leveraging CGTMSE-backed structures for loans up to ₹50.00 crores without collateral requirements, while repo-linked pricing has significantly narrowed rate differentials versus private banks. This central government push to scale MSME credit has accelerated PSU bank execution capabilities.
Private Banks Adapt Strategy
Private banks are recalibrating their approach, with most now favouring hybrid MSME structures that combine partial CGTMSE cover with collateral to limit unsecured exposure. Among private lenders, ICICI Bank and HDFC Bank remain most competitive, supported by low funding costs and superior underwriting capabilities.
| Lending Segment | Growth Rate | Previous Rate | Status |
|---|---|---|---|
| Unsecured Business | 10-20% | 30-40% | Moderated |
| Interest Rates | 12-12.5% | Mid-teens | Corrected |
| Recovery Costs | Higher | Lower | Increased |
Housing Sector Resilience
The housing and real estate segment maintains momentum with improved disbursement rates and strong activity among large developers. PSU banks are regaining relevance in home loans through lower rates, faster processing, and normalised DSA commissions of 0.80-1.20%. This strategy is particularly effective in Tier-2 and Tier-3 cities, while private banks continue dominating premium borrower segments.
Credit Cards and Personal Loans Stabilise
Credit card growth remains subdued with selective issuances, though early stress indicators are stabilising despite elevated delinquency levels compared to historical norms. Personal loans show early stabilisation signs with completed pricing corrections and improved affordability, though lenders avoid aggressive volume chasing.
Investment Outlook
Motilal Oswal expects the credit cycle to settle into a sustainable, execution-led phase with systemic loan growth likely maintaining around 12.00% year-on-year in FY26. The brokerage favours lenders with strong execution capabilities, stable asset quality, and diversified growth drivers, specifically recommending ICICI Bank and HDFC Bank for growth compounding abilities, State Bank of India for steady execution and scale, and AU Bank for robust growth prospects.
Historical Stock Returns for Nuvama Wealth Management
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
|---|---|---|---|---|---|
| +2.75% | -0.30% | +0.28% | -0.62% | +19.63% | -43.56% |
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