PSU Banks Strengthen Position In MSME, Retail Lending In Q4: Motilal Oswal

(MENAFN- KNN India) New Delhi, Mar 19 (KNN) Credit demand in the banking system remained steady in the March quarter, with public sector banks (PSU banks) strengthening their position in key segments such as Micro, Small and Medium Enterprises (MSME) and home loans, according to a report by Motilal Oswal Financial Services.

Based on channel checks across western India, the brokerage noted that MSME credit demand stayed healthy in Q4 FY26, supported by competitive pricing, improved underwriting standards, and government-backed guarantee schemes, reported Business Standard.

PSU Banks Gain Ground In MSME And Retail Lending

PSU banks are gaining traction in MSME lending, aided by repo-linked pricing and schemes such as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which offers guarantees of up to Rs 5 crore, encouraging collateral-light lending.

Among lenders, State Bank of India was seen leading execution with strong demand pipelines, while private players like ICICI Bank and HDFC Bank remained competitive due to lower funding costs and robust underwriting. Both banks are increasingly adopting hybrid lending models combining collateral with CGTMSE guarantees.

The report highlighted a gradual recovery in unsecured lending, with banks cautiously re-entering the segment after earlier stress driven by personal loans and market-linked borrowings.

Unsecured Lending Recovers

In retail lending, ICICI Bank and HDFC Bank continue to lead, while PSU banks are becoming more competitive in home loans by offering interest rates 30-40 basis points lower than private peers, along with faster processing and improved digital capabilities.

Alongside SBI, other PSU lenders such as Canara Bank, Bank of Baroda, and Indian Bank are also expanding their housing loan portfolios.

However, real estate activity remains subdued due to weak investor participation and rising inventory levels, leading banks to remain cautious on project finance, particularly for smaller developers.

Asset Quality Stable

Asset quality across the sector remains stable, with improved underwriting reducing rejection rates. However, lenders continue to monitor export-oriented and commodity-linked sectors amid global uncertainties.

Motilal Oswal concluded that the banking cycle is transitioning from stress normalisation to a more selective, execution-driven recovery, favouring institutions with strong balance sheets and disciplined lending practices.

(KNN Bureau)

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