Private banks to outperform PSUs in earnings growth during FY26-28
What's the story
Private sector banks are likely to outperform their public sector counterparts in terms of earnings growth over the next two years, a report by Antique Stock Broking has said. The report says that despite similar loan growth trends, private banks in India will have better earnings performance due to stable margins and lower risks. It predicts an earnings growth of around 17% for private banks during FY26-28, while PSU banks are expected to see nearly 6% growth during this period.
Growth projection
Loan growth for both bank categories to converge at 14%
The report projects that loan growth for both private and PSU banks will converge at around 14% year-on-year during FY26-28. However, it expects private banks to have a better earnings performance during this period due to stable margins and lower risks.
Challenges ahead
PSU banks may face profitability pressure from several factors
The report highlights that PSU banks are likely to face profitability pressure from several factors. These include weaker other income, wage revision provisions, and expected credit loss provisioning. It also notes that PSU banks may see weaker treasury and other income in FY27 due to rising bond yields, which have already risen in the first quarter of this fiscal year.
Additional pressures
Wage revision provisions and ECL provisioning
Antique Stock Broking points out that PSU banks could face additional pressure from wage revision provisions in FY28. This is along with front-loaded Expected Credit Loss (ECL) provisioning in FY27. On the other hand, private banks are tipped to maintain their Net Interest Margins (NIMs) broadly in line with or higher than FY26 exit levels due to favorable asset mix changes.