New Delhi— Indian households are increasingly channeling their savings into equities, reflecting a broader trend in the financialization of household assets, according to a report released Monday by SBI Research. Equity investments as a percentage of household savings rose from 2.5% in FY20 to 5.1% in FY24, signaling a notable shift in investor behavior.
The report notes that this trend coincides with structural changes in India’s credit market. While headline bank credit growth remains strong, the aggregate numbers may obscure underlying dynamics, the report cautions. Future credit growth, especially the role of household deposits as a key funding source for banks, will require close monitoring.
Public sector banks (PSBs), once struggling, are now showing stable growth. Credit expansion by PSBs stood at 12.2% in FY25, slightly down from 13.6% in FY24. However, their share of incremental credit has seen a significant rise—from 20% in FY18 to 56.9% in FY25.
This resurgence is attributed to the government’s 4R strategy: recognition, resolution, recapitalization, and reform. As a result, banking sector asset quality has improved dramatically, with gross non-performing assets (NPAs) dropping to a record low of 2.6% in the first half of FY25, compared to 11.5% in FY18.
For the first time in 14 years, PSBs have reversed their declining market share in outstanding credit, climbing to 52.3% in FY25 from 51.8% in FY24. This comes after a prolonged drop from 75.1% in FY10.
Sectoral credit growth, however, has moderated, particularly in the services and agriculture sectors. The share of personal loans in incremental credit declined to 37% in FY25 from 43% in FY24, while credit to industry rose to 17%, up from 11% the previous year.
One of the key drivers in the current credit cycle is the MSME sector, which saw year-on-year growth of 17.8%. “MSMEs are intricately linked to large corporates through backward and sometimes forward integration. Their credit activity can serve as a broader indicator of corporate sector health,” said Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India.
Private credit markets are also playing a growing role in financing. Private credit deals in FY24 totaled ₹774 billion, marking a 7% increase over the previous year. These deals, often structured through Alternative Investment Funds (AIFs), are offering customized financing solutions across a wide spectrum of Indian businesses. Issuances of non-convertible debentures (NCDs) continue to remain a common source of capital. (Source: IANS)
