Why are private sector banks rapidly gaining market share over public banks?

Private sector banks have been steadily gaining market share over their public sector bank counterparts. An ET analysis of the RBI data shows that private sector banks gained more than 5% market share in loans and more than doubled their loan book in the last five years.

At the end of March 2025, private sector banks had a total market share of 40% and an absolute loan size of Rs 75.22 lakh crore. While PSBs still dominate credit distribution in absolute terms with a loan size of Rs 98.21 lakh crore, their market share declined to 52.3% at the end of March 2025 from 57.7% at the end of March 2020.

Private banks’ faster credit deployment and potentially greater operational agility indicate increasing customer preference for them. The overall banking system has expanded significantly between 2020 and 2025, with total loans rising from Rs 105.18 lakh crore to Rs 187.76 lakh crore—more than 78% increase in just 5 years. Smaller players like small finance banks are also expanding their role, indicating a shift toward broader credit access and inclusion.