Public sector banks delivered exceptional financial results for FY26, achieving a record net profit of ₹1.98 lakh crore. According to reports from Upstox Securities, the aggregate operating profit of PSBs stood at ₹3.21 lakh crore during the fiscal year, while net profit rose 11.1% year-on-year. This performance represents a significant milestone for the public banking sector and demonstrates the sector's strong operational efficiency and growth trajectory.
The banking sector's expansion was evident in the aggregate business growth, which increased to ₹283.3 lakh crore as on March 31, 2026, marking a 12.8% increase from the previous year. As reported by Upstox Securities, this substantial growth in business volumes indicates the sector's robust lending and deposit mobilization capabilities, supporting the overall financial performance improvements across public sector banks.
System-level bank credit grew 16.1% to ₹214 trillion in FY26, significantly outpacing deposit growth which rose 13.5% to ₹262 trillion. According to Mint, the country's largest lender State Bank of India saw gross advances rise 16.9% to ₹49.3 trillion while deposits increased 11% to ₹59.7 trillion. SBI chairman C.S. Setty noted that while the bank would like to grow more on the deposit side, it has sufficient balance sheet liquidity to fund future loan growth, including excess statutory liquidity ratio of about ₹3 trillion.
Banks are increasingly relying on surplus funds and short-term borrowing from the RBI to support loan demand as deposit growth lags. As reported by Mint, SBI has been using the central bank's repo window to raise short-term funds at 4-5% rates to manage day-to-day liquidity. The bank maintains a 125% Liquidity Coverage Ratio as of March 31, above the 100% regulatory requirement, with plans to maintain it around 115-120% going forward. However, analysts caution that without stronger deposit mobilization, credit growth may face constraints.
The record financial performance of public sector banks reflects the sector's resilience and operational excellence, though market reactions have been mixed. According to Mint, SBI shares fell over 10% after the bank declared Q4 and FY26 results on May 8, reflecting investor concerns about liquidity management. Macquarie Research noted that PSU banks have been continuously running down LCR buffers through FY26 to sustain credit growth, warning that without structural improvement in deposit growth, public sector banks will struggle to maintain above-system loan growth without a recovery in deposit momentum.
