Private Banks Stretch Lead Over PSUs on Profit, Deposits in Q1

Indian private-sector lenders widened their edge over state-run peers in the June quarter, delivering higher aggregate profits, faster deposit mobilisation, and a cleaner loan book, according to a comparison of 18 private and 12 public-sector banks by Bloomberg.

The 18 private banks posted net profit of ₹55,019 crore, up 15.6% from a year ago. The 12 state-owned banks earned ₹50,173 crore, a 13.5% gain. Private lenders also grew deposits 14.0% to ₹96.59 trillion, against 10.1% for the state-run group, which still holds a larger base of ₹157.25 trillion.

Credit growth, however, ran almost parallel. Private-bank advances rose 17% to ₹87.72 trillion; PSU loans climbed 17.4% to ₹129.65 trillion.

Asset quality showed the widest divergence in pace. Gross non-performing assets for state-run banks fell 13.1% from the same period a year ago to ₹2.41 trillion, outpacing the 8.9% decline at private lenders to ₹1.29 trillion. Private banks retain the cleaner absolute ledger, but the gap has narrowed as public-sector lenders clean up after years of restructured corporate debt.

“June quarter for the banking system has been a challenge on the deposit side, but banks had good leeway on loan growth because of weak conditions in the capital market and the overseas swap rates,” said Sanjay Agarwal, senior director at CARE Ratings. “They had good traction on loan growth, and that also protected the net interest margins.”

PSU banks had a structural advantage. Their aggregate net interest income rose 13% to ₹1.20 trillion, against ₹1.12 trillion for private banks. The bigger NII reflects the larger balance sheets of state-run lenders and benefits from excess statutory liquidity ratio.

“PSUs had some leeway due to excess SLR, and their credit-to-deposit ratios are pretty optimal right now,” Sanjay Agarwal said. “They were able to focus on loan growth, whereas private-sector banks were slightly negative. So they were constrained in their asset growth, and they had to focus on deposit growth.”

Margin compression moderated this quarter. ICICI Bank stock page recorded the widest margin among large lenders, with its net interest margin expanding to 4.36% from 4.32% three months earlier. State Bank of India’s NIM ticked up to 2.86%. HDFC Bank stock page saw its margin shrink to 3.26% from 3.4% a quarter ago and from a year earlier.

Motilal Oswal Financial Services, in an August 7 report, expects near-term margins to stay muted with a modest recovery from the second half of FY27. The brokerage has penciled in 16% on-year loan growth for private banks in FY27 and 13.5% for PSU lenders. It expects private banks to regain market share after two years of loss to state-run rivals, helped by higher credit-to-deposit ratios and normalising loan-to-coverage ratios.

Provision costs have shrunk for several large banks. HDFC Bank’s provisions as a share of advances stood at 2.36% in June, down from 2.42% in the previous quarter and 2.71% a year ago. The decline added to profit, said Prakash Agarwal, partner at Gefion Capital.

“On the NPA side, PSU banks are heavy on the corporate segment, and the corporate sector has been doing phenomenally well for the last four-five years post-Covid,” he said. “That cycle is playing pretty well, so that is also partly reflecting the same.”

Among the biggest lenders, HDFC Bank, ICICI Bank, Axis Bank and State Bank of India all reported gross NPA ratios at or below 1.5%. Bank of Baroda remained closer to 2%.

The banking system’s total credit, excluding food credit, stood at ₹217 trillion at end-June, up 2% from March. Deposits grew just over 1% to ₹265 trillion, Reserve Bank of India data shows.