credit growth drop to a 13-quarter low in the March quarter of FY21. Year-on-year credit growth was a mere 3.6% for public sector lenders while their private sector peers saw a robust 9.1% loan growth.
It is clear that the sharp deceleration of loan growth in FY21 was led by public sector banks. To be sure, foreign banks reported a 3.3% contraction in their loan book, adding to the overall loan growth deceleration.In the past decade, public sector banks have lost market share hand over fist in loans to private sector peers.
Their share has dropped to 58% in FY20 from as high as 75% in FY10. This is likely to have gone down even further. What has led to this decline?The biggest constraint for public sector lenders has been capital.