Why Private Sector Banks Could Deliver Stronger Profits Than PSU Banks in FY26-28
Private sector banks are expected to post stronger earnings growth than public sector banks over the next two years despite similar loan growth trends, according to a report by Antique Stock Broking.
The brokerage said both private and PSU banks are likely to witness loan growth convergence at nearly 14 per cent year-on-year during FY26-28. However, private lenders are expected to maintain stronger profitability because of stable margins and relatively lower earnings risks.
Private Banks Seen Delivering Stronger Earnings
The report stated, “FY26-28E earnings growth to be higher for private banks as compared to PSUs despite loan growth convergence”.
According to Antique Stock Broking, private banks are expected to deliver nearly 17 per cent earnings growth during FY26-28, while PSU banks may record only around 6 per cent growth during the same period.
The brokerage attributed the stronger outlook for private lenders to better margin stability and lower balance sheet risks.
PSU Banks May Face Multiple Profitability Challenges
The report highlighted several factors that could weigh on PSU bank profitability in the coming years.
It noted that PSU lenders may witness weaker treasury and other income in FY27 due to rising bond yields, which have already increased during the first quarter so far.
In addition, public sector banks could face pressure from wage revision provisions in FY28 along with front-loaded Expected Credit Loss (ECL) provisioning in FY27.
These factors are expected to impact overall earnings growth despite healthy credit expansion.
Survival Instinct
22 May 2026 - Vol 04 | Issue 72
India navigates global economic turmoil with austerity and smart diplomacy
Stable Margins Could Support Private Banks
On the other hand, private banks are expected to maintain healthier margins over the coming years.
The report stated that private lenders are likely to keep FY27 Net Interest Margins (NIMs) broadly in line with or even higher than FY26 exit levels because of favourable changes in asset mix.
It added that margin performance and deposit mobilisation remained key focus areas during the latest earnings season for the banking sector.
Valuations and Interest Rates in Focus
According to the brokerage, current market valuations already reflect concerns over rising bond yields and intense competition for deposits.
The report also said future outperformance in the banking sector may depend on central bank rate actions and their impact on margins as well as loan growth.
Antique Stock Broking noted that valuations of large private banks are currently at decadal lows and could witness an upward re-rating if expectations of earnings upgrades improve in the event of interest rate hikes.
The report concluded that while loan growth trends between private and PSU banks are likely to become similar over the next two years, private lenders are still expected to maintain stronger profitability and earnings momentum because of better margin stability and lower balance sheet risks.
(With inputs from ANI)