PSU banks gain lead in home, auto loans as retail credit demand rebounds

The Turning Tide in Retail Credit: A Resurgence

In the second quarter of FY26 (ending September 2025), India’s retail credit grew by a robust 18 % year-on-year and 4.5 % sequentially,signaling a clear rebound in consumer demand.
This growth has been led by secured and large-ticket segments: gold loans surged, auto loans saw a sharp rise, and home loans — long a stable pillar of bank credit,registered a notable uptick in demand.

Notably, auto loans in Q2 FY26 expanded 16.3 % yoy,supported by rising average ticket size and a growing share of PSU banks in disbursals.
Meanwhile, home loan originations rebounded sharply by 25 % quarter-on-quarter to ₹3.02 lakh crore, buoyed by an 18 % increase in volume.
What stands out is the shift toward high-value home loans: nearly 40 % of new home loans originated in this period were for amounts above ₹75 lakh.

PSU Banks: Seizing the Opportunity

This resurgence in retail lending has coincided with a sharp gain in market share by public-sector banks (PSBs), reshaping the dynamics in both home and auto loan segments.

• In the home loan segment, PSBs have overtaken private lenders: share of new mortgages by value rose to ~43 % in FY25 from ~34 % in FY22.
• More recent data suggests an even stronger take,some industry sources estimate that PSBs accounted for 50 % of home-loan originations by value in September 2025.
• Observers attribute this rise to a combination of competitive interest rates, government-driven affordability schemes, and PSBs’ growing focus on retail lending over corporate exposure.
• In the auto loan segment too, PSBs are emerging as major players. The 16.3 % YoY growth in auto loans during Q2 FY26 was “supported by rising average ticket sizes and a growing share of PSU banks.”

In short: as demand for home and auto financing has picked up, PSBs appear to have positioned themselves well to absorb a large share of that demand,regaining footing, and then some, in segments long dominated by private banks and NBFCs.

What’s Fueling the Surge: Why Now for PSBs?

Several factors seem to be working in tandem to enable PSU banks’ resurgence:

1. Competitive pricing & lower interest rates — PSBs have offered attractive home- and auto-loan rates compared to private lenders, making them a go-to for borrowers seeking value.
2. Focus on retail over corporate lending — With macroeconomic uncertainty and slower corporate loan demand, many PSBs have shifted emphasis to relatively safer retail segments (mortgages, auto financing) that offer stable, long-term income.
3. Rise in large-ticket demand — The growing share of high-value home loans (₹75 lakh+) suggests borrowers are increasingly opting for bigger housing investments, which PSBs are well placed to fund.
4. Overall rebound in consumer demand — With improving economic confidence, demand for autos and homes has surged,aiding banks across the board, but especially PSBs due to their aggressive push in these segments.

Implications: What This Means for Borrowers, Banks & the Economy

For Borrowers

• ✳️ Access to potentially lower interest rates and competitive financing from PSBs may translate into cheaper home and auto loans.
• 🏡 Greater availability of high-value home loans could support housing purchases,including for middle- and upper-income groups eyeing larger homes.

For PSU Banks & Financial Sector

• 📈 PSBs’ retail-credit focus is helping revive their loan-book growth after years of lag behind private banks; this may improve their asset-quality metrics and deposit-to-loan ratios.
• 🔄 A tilt back to retail may also reduce concentration risk,fewer corporate/infra loans, more diversified retail exposures.

For the Broader Economy

• 🏠 Revival in home loans suggests housing demand,a key engine for economic and construction activity,is picking up again.
• 🚗 Auto loan growth could spur vehicle sales, manufacturing demand and related economic activity.
• 💳 A thriving retail credit market reflects rising consumer confidence and could support overall domestic consumption.

Why This Shift Matters — And What to Watch

The current rebound underscores a structural realignment: PSBs are no longer laggards in retail credit,they are back in the game, and possibly winning. For decades, private banks and NBFCs cornered the bulk of home, auto and personal loans. Now, competitive rates, disciplined credit practices and a resurgent demand wave give public-sector lenders a second wind.

But sustainability depends on a few variables: stable interest-rate environment (or at least manageable for borrowers), continued demand for high-value homes and autos, and prudent risk-management by banks. Rising property prices, inflation or macro-economic shocks might dampen demand.

Further, as PSBs expand home-loan books, there’s a need to ensure that underwriting standards remain high — to avoid NPA build-up down the line.

Conclusion

The recent data from Q2 FY26 reveals a robust rebound in retail credit demand in India,led by gold, auto, and, importantly, home loans. Among lenders, public sector banks have emerged as key beneficiaries, reclaiming and expanding their market share, especially in the home-loan and auto-loan segments.

This shift represents more than just numbers: it’s a recalibration of the Indian banking landscape. For borrowers, it could mean better access to finance; for banks, a path to renewed growth; and for the economy, a reflection of recovering confidence in housing and consumer markets.