The latest data released by the Reserve Bank of India reflects that government owned banks increased their market share in the credit business by 220 basis points between June 2008 and June 2009 while the share of private and foreign banks dropped by 119 bps and 114 bps respectively.

For the April-June quarter, State Bank of India, the largest public lender in India, constituted 73.9 percent of bank credit as against 70.7 percent the previous year.

Even in the bank deposits' category, public sector banks accounted for 73.9 percent of the deposits for the quarter ended June 2009 as against 71.2 percent a year ago. Bankers attribute this increase to the depositors' view that public banks were safer avenues. These banks also offered higher interest rates.

According to the data, despite RBI's repeated suggestions to enhance lending, foreign banks registered a drop of 7.6 percent in the outstanding credit during the first quarter of this year as compared a rise of 34.4 percent in the corresponding period the last year. This was mainly due to the credit crisis that followed the collapse of Lehman Brothers in September 2008. This, in turn, compelled foreign and private banks to go slow due to higher delinquency levels.

A senior executive with a foreign bank said that foreign banks were careful while lending in the first quarter, demand for credit was low as companies used internal resources to fund whatever they needed.

Some private banks' executives said that the reason for this drop in credit growth was lack of demand in the system. Parthasarathi Mukherji, president, corporate banking, Axis Bank said "The real demand in the system was missing. The impact of revival will be felt gradually and we expect the credit growth to improve from December."

In case of deposits, however, foreign banks recorded a higher growth of 18.6 per cent during the first quarter of FY 2009 compared to 12.7 per cent in the preceding quarter. During April-June 2008, deposits had grown by 19.3 per cent.