The most notable shift is in SME lending, where public sector banks have regained their dominance over the past six to nine months. Faster turnaround times of two to four days, wider use of credit guarantee-backed structures and repo-linked pricing have significantly reduced the cost gap with private lenders.This execution-oriented push, backed by a strong policy focus on SME financing, will enable PSU banks to gain market share, especially in working capital and smaller corporate loans.
In contrast, private banks remain selective and prefer hybrid structures that combine partial guarantees with collateral, reflecting a sharper focus on risk-adjusted returns.
Unsecured business loans are undergoing a clear reset. Growth has fallen to 10-20% from levels of 30-40% in previous years, despite a sharp price correction.
Tensions remain visible, especially in agriculture-related commodity companies and among FMCG distributors facing extended working capital cycles.
Collection intensity has increased, collection costs have risen and borrower behavior has become more tactical, prompting lenders to tighten underwriting standards and recalibrate terms.
Home and real estate loans continue to show resilience. While growth has cooled from peak levels, payout momentum has improved, led by major developers and redevelopment projects.The stress among smaller developers is visible, but remains limited and non-systemic. PSU banks are regaining relevance in the home lending space, aided by competitive pricing, faster processing and normalized distribution commissions, gaining traction in the Tier-2 and Tier-3 markets. Private lenders, meanwhile, continue to dominate the premium and high credit score borrower segments.
The first signs of stabilization are visible in the field of uncovered retail products. The personal loan and credit card segments are past peak stress, with delinquencies stabilizing, although overall delinquencies remain elevated relative to historical norms.
Growth remains quality-driven, focusing primarily on existing customers, paid profiles and secured or pre-approved offers, with lenders prioritizing activation and spend quality over overall volumes.
Looking ahead, the credit cycle appears to be in a more sustainable, execution-driven phase. Systemically important credit growth is expected to remain stable, supported by secured retail and PSU-led SME lending, while unsecured corporate lending remains under scrutiny.
The medium-term odds favor lenders with strong execution capabilities, diversified growth assets and consistent asset quality, as the sector balances growth ambitions with profitability and risk discipline.
ICICI Bank: Buy| Target Rs 1700
ICICI Bank continues to demonstrate structural strength through disciplined risk management, prudent underwriting and a well-diversified loan portfolio, which supports sustainable balance sheet resilience and margin stability amid a changing interest rate environment.
The focus on scalable growth in business banking and granular retail, supported by deep distribution and continued investments in technology, drives operational efficiencies and productivity gains, while controlled costs and conservative balance sheet management provide financial flexibility.
Recent developments further strengthen the franchise, with the successful market debut of ICICI Prudential Asset Management highlighting the value and scalability of the group’s subsidiaries, and revisions to credit card fee structures reflecting a calibrated drive to strengthen fee revenues and align pricing with evolving digital usage.
Together, these updates underscore ICICI Bank’s ability to increase franchise value, diversify revenue streams and maintain strong competitive relevance.
AU Small Financial Bank: Buy| Target Rs 1100
AU Small Finance Bank remains well positioned for sustainable growth, supported by margin expansion, controlled credit costs and improved operational efficiency.
The bank continues to deliver strong balance sheet momentum, with healthy traction in the retail and commercial segments and an improving CASA mix.
For FY25-28, we expect a robust PAT CAGR of ~30%, aided by margin improvement and credit cost normalization. In Q2FY26, performance remained strong with NIMs up 5bp qoq to 5.5% and PAT at ₹5.6b, underscoring resilient profitability and stable asset quality.
Management expects NIMs to improve further as the benefits of deposit repricing increase. We also project a FY27E RoA/RoE of 1.7%/16.7%, reflecting a healthy return ratio.
(The author is Head of Research, Asset Management, Motilal Oswal Financial Services Ltd)
(Disclaimer: Recommendations, suggestions, views and opinions expressed by experts are their own. These do not represent the views of the Economic Times)
#ICICI #Bank #SFB #positioned #credit #cycle #disciplined #Siddhartha #Khemka