According to a report by Antique Stock Broking, private sector banks are expected to deliver significantly stronger earnings performance over the next two years compared to public sector banks. The report projects private banks' profit after tax (PAT) to grow at around 17% during FY26-28, while PSU banks are expected to grow at nearly 6% during the same period. This substantial earnings differential is anticipated despite both sectors showing similar loan growth trends, with the brokerage noting that the worst of net interest margin compression appears to be over and FY27 net interest income growth could outpace loan growth. The superior performance is attributed to margin recovery and improved operational efficiency for private banks.
As reported by Antique Stock Broking, loan growth for both private and PSU banks is expected to converge at around 14% year-on-year during FY26-28, marking a significant shift from previous quarters. This convergence in loan growth patterns was aided largely by wholesale lending and improving corporate loan economics, with systemic credit growth accelerating to 15-16% year-on-year during the quarter. The report emphasized that while loan growth trends between private and PSU banks are expected to become similar over the next two years, profitability and earnings growth are likely to remain stronger for private sector lenders due to better margin stability and operational leverage. Private banks have started closing the growth gap with public sector banks after several quarters of lagging performance.
According to Antique Stock Broking, private banks are expected to maintain FY27 Net Interest Margins (NIMs) broadly in line with or higher than FY26 exit levels due to favourable asset mix changes. The brokerage noted that operating leverage, liquidity consumption and lower slippages are cushioning the impact of margin pressures from elevated deposit costs and wholesale-led growth. Additionally, risk-based pricing for DICGC premiums from April 2026 could help large banks reduce operating cost pressures in FY27. The report stated that private banks are expected to deliver over 15% PAT CAGR during FY26-28 as margin pressures ease and NII growth improves.
As reported by Antique Stock Broking, PSU banks are likely to face pressure on profitability from multiple factors, including weaker other income, wage revision provisions and expected credit loss provisioning. The report noted that PSU banks may witness weaker treasury and other income in FY27 because of rising bond yields, which have already increased during the first quarter so far. Additionally, PSU banks could face additional pressure from wage revision provisions in FY28 along with front-loaded Expected Credit Loss (ECL) provisioning in FY27. This contrasts with private banks' expected margin stability and operational efficiency improvements.
According to Antique Stock Broking, market valuations are currently factoring in concerns related to higher bond yields and intense competition for deposits. The report stated that future outperformance in the banking sector could depend on possible central bank rate actions and their impact on margins and loan growth. Additionally, valuations of larger private banks are currently at decadal lows and may see an upward re-rating if expectations of earnings upgrades increase in the event of interest rate hikes. The brokerage emphasized that while loan growth trends between private and PSU banks are expected to become similar over the next two years, profitability and earnings growth are likely to remain stronger for private sector lenders due to better margin stability and lower balance sheet risks.
