Public sector banks (PSBs) have seen a sharp drop in household deposits from 70.6 per cent to 63 per cent in contrast with private banks, which witnessed a surge from 27.1 per cent to 34.1 per cent, data sourced by Business Standard showed.
Even the household deposit base for PSBs has been eroding.
PSBs accounted for only 50.3 per cent of incremental household deposits in FY25 — a loss in market share of around 706 basis points (bps).
This shows a trend of savers diversifying towards private banks and other alternative channels.
“As private banks continue expanding their branch networks into smaller towns and cities, they are likely to capture more market share from these new markets.
"Their increasing presence, supported by mergers such as that of a large Indian bank, and a growing loan book, will further strengthen their position.
"Whether through deeper penetration in existing markets or entry into new ones, private banks are poised to grow their market share,” said Sanjay Agarwal, senior director of CARE Ratings.
Agarwal further said that private banks, which were once relatively small players, are now becoming larger and more competitive.
The rise of small finance banks has also added to the competitive intensity, suggesting that private sector players will likely continue to expand their share in the market.
At the same time, non-resident deposits, which account for around 6 per cent of total deposits, are an important source of foreign exchange income for banks and tend to be relatively stickier compared to other deposits.
Over the last five years, PSBs have recorded only modest growth in this segment, reflecting a compound annual growth rate (CAGR) of just 3.4 per cent.
In contrast, private banks saw a strong expansion in non-resident deposits, registering an impressive CAGR of 11.4 per cent.
A source said that market share loss in non-resident deposits was steeper, resulting in PSBs becoming minority shareholders in the segment.
They had only 37.8 per cent market share — also leading to loss of stable deposits as well as forex income.
“PSBs were able to capture only 18.6 per cent incremental share in non-resident deposits in the last five years,” added the source.
In June 2025, Union Finance Minister Nirmala Sitharaman urged PSBs to enhance deposit mobilisation to sustain credit growth and reinforce corporate lending, while maintaining sound underwriting and risk standards.
“PSBs were advised to undertake special drives, make effective use of their branch networks, and deepen outreach in semi-urban and rural areas,” the finance ministry stated.
They have also seen a gradual decline in their share of government deposits — from 77.5 per cent in March 2020 to 73.6 per cent in March 2025.
For private banks, deposits rose from 22.1 per cent to 25.6 per cent.
PSBs have suffered a steep decline in deposits from pension funds over the last five years — even as overall banking-sector deposits from this segment rose significantly.
Pension fund deposits with PSBs tumbled by nearly 87 per cent (86.81 per cent), falling from Rs 22,516 crore in March 2020 to just Rs 2,969 crore in March 2025.
In contrast, aggregate pension fund deposits with all scheduled commercial banks (SCBs) more than doubled during this period, reaching Rs 66,883 crore.
“This indicates that private banks have cornered a larger share of this long-term, stable deposit pool, at the expense of state-owned lenders,” said a senior bank official.
Another senior banker said that these pension fund flows predominantly originate from the National Pension System (NPS), managed under the Pension Fund Regulatory and Development Authority (PFRDA).
They are operated via fund managers such as the State Bank of India and others.
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