A Decade of Quiet Gains: How Private Banks Are Reshaping India’s Financial System

The shift in India’s banking system has not come through disruption. It has come through accumulation. Over the past decade, private sector banks have increased their share of system deposits from roughly 21% to about 38%, reflecting a steady reallocation of financial intermediation toward institutions that have expanded with consistency rather than speed.

This change is visible in balance sheet growth. Between FY21 and FY25, deposits with private banks rose from about ₹48 lakh crore to over ₹85 lakh crore, an increase of roughly 76%. Over the same period, advances grew from approximately ₹41 lakh crore to ₹75 lakh crore, or about 85%. Credit growth marginally outpacing deposit growth indicates sustained demand alongside an expanding lending base, rather than a temporary cycle.

The nature of this growth has also shifted. Gross non-performing assets have declined from around 3.5–3.6% to nearly 1.2% over recent years, while net NPAs have reduced from approximately 1.3% to close to 0.3%. Lower stress levels have coincided with rising profitability, with return on equity moving from low single digits around FY20 to the mid-teens, and return on assets increasing from roughly 0.5% to nearly 1.8–1.9%. Higher returns alongside lower NPAs suggest that expansion has been supported by improvements in capital efficiency rather than balance sheet leverage alone.

At a system level, financial intermediation in India remains underpenetrated. Credit-to-GDP stands at around 53% and deposit-to-GDP at about 66%, both lower than levels seen in several global markets. As the economy continues to formalise and financial participation expands, this gap provides room for sustained growth in banking activity, within which private banks have steadily increased their share through faster credit deployment and stronger customer acquisition.

Over time, this has also been reflected in market performance. The Nifty Private Bank Index has outperformed broader indices in six of the last ten calendar years, and over a longer horizon the divergence is more pronounced. Over the past two decades, the index has delivered roughly 31x growth compared to about 14x for the Nifty 50, translating ₹100 into approximately ₹3,172 versus ₹1,519. Despite this, the index currently trades at around 17.5 times earnings, below its five-year average of about 19 times and its ten-year average of roughly 25 times, indicating that earnings growth has outpaced valuation expansion.

The structure of the segment is captured through indices such as the Nifty Private Bank Index, which comprises ten banks, largely large-cap, selected based on liquidity and market capitalisation, with individual stock weights capped and periodic rebalancing built into the methodology. Investment products tracking such indices seek to replicate this exposure in a systematic manner.

Against this backdrop, Groww Mutual Fund has announced the launch of the Groww Nifty Private Bank ETF, an exchange-traded fund designed to track the Nifty Private Bank Index. The new fund offer remains open till May 20, with a minimum investment of ₹500. The ETF is structured to provide passive exposure to the private banking segment in line with the index composition.

What emerges across these metrics is not a cyclical surge but a cumulative shift. Market share has increased, balance sheets have expanded, asset quality has improved, and returns have strengthened. The change has been gradual, but consistent, and is rooted in structural factors that continue to shape the evolution of India’s financial system.

Sources:

1. The Mirrority, April 2026
2. FinancialServices.gov, February 25, 2026
3. Reserve Bank of India (RBI), April 2026
4. CEIC Data, April 28, 2026
5. NSE, April 28, 2026

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