Public sector banks projected to demonstrate stronger earnings resilience in Q1

Mumbai, July 10 (IANS) Public sector banks (PSBs) are likely to demonstrate stronger earnings resilience in Q1 FY26, supported by relatively milder margin compression and higher treasury gains, according to a report on Thursday.

Emkay Global Financial Services highlighted a muted Q1 earnings season for private sector banks (PVBs), largely due to sluggish credit growth and a sharp contraction in margins following aggressive repo rate cuts.

In contrast, PSBs are likely to demonstrate stronger earnings resilience, the report mentioned.

“While most private banks are likely to report muted profitability — with Axis Bank and IndusInd Bank impacted by weak margins and elevated credit costs — Emkay identifies ICICI Bank, Indian Bank, SBI, and KVB as positive outliers,” it mentioned.

Meanwhile, SBI Cards is expected to report margin expansion on the back of annual percentage rate (APR) hikes and lower funding costs.

“Corporate asset quality remains stable, so we do not foresee significant NPA formation for PSBs,” the report stated.

Over the past three months, Bank Nifty has largely mirrored the broader market performance, supported by expectations of improved credit growth driven by monetary and regulatory easing, a peak in unsecured loan stress, and attractive relative valuations.

Credit card growth (CIF) slowed to 9 per cent YoY, primarily due to a decline in new card issuances amid rising asset quality concerns, particularly in the sub-Rs 50,000 segment.

However, spend growth picked up slightly to 15 per cent YoY in May 2025, aided by seasonal tailwinds.

The newly appointed RBI Governor Sanjay Malhotra has taken an aggressive stance on monetary easing, slashing the repo rate by 100 bps to 5.5 per cent and announcing an additional 100bps cut in the CRR to a historic low of 3 per cent, effective from September to November, in an effort to stimulate growth.

Despite these measures, Emkay believes credit growth will take time to gain momentum. Meanwhile, bank margins are expected to compress significantly in H1, driven by the impact of lower repo rates on floating-rate loans. This will be partially offset by banks reducing savings account rates.

The benefits of the CRR cut — and the resulting liquidity infusion — are likely to materialize more meaningfully in H2, offering some relief to margins.

--IANS

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