Summary:
Private banks led PSBs in Q1FY27 with stronger profit and deposit growth, while credit growth remained broadly similar. PSBs, however, made faster progress in reducing gross NPAs and continued to strengthen their credit market share. PSU banks also recorded higher NII growth, supported by their larger asset base. NIMs remained under pressure across the sector, though margins are expected to improve from Q2FY27.
Private sector banks outperformed their public sector counterparts during the June quarter of FY27 as they recorded better profit growth, faster deposit mobilisation and relatively healthier asset quality than the PSBs. A comparative study of 18 private and 12 PSU banks revealed that while the former reported aggregate net profit of ₹ 155,019 crore, the latter made ₹ 150,173 crore in the same quarter.
Net profit of private banks grew 15.6% YoY to ₹ 155,019 crore in Q1FY27, compared to 13.5% for PSUs. The private sector lenders also posted better deposit growth of 14% YoY to ₹ 196.59 trillion, against 10.1% for PSUs which clocked in advances of ₹ 157.25 trillion.
Meanwhile, the credit growth of both private and PSU banks remained almost on par with each other at 17.04% and 17.38% respectively. Advances of private banks surged to ₹ 187.72 trillion, while that of PSUs stood at ₹ 129.65 trillion.
PSUs Outpace Private Lenders in Cleaning of Balance Sheets
The most significant variance between private and PSU banks, however, was visible in the former’s relatively better asset quality. Gross NPAs of PSU banks dropped 13.13% YoY to ₹ 2.41 trillion, compared to 8.92% dip for private lenders to ₹ 1.29 trillion. As a result, while the asset quality of private banks continues to outperform PSUs, the gap is gradually narrowing as the latter post better recovery rates.
Further, as per the report, PSUs are also gaining ground over private lenders in terms of credit market share. As on March 2026, the banks recorded 52.9% share in the credit mix, overtaking private partners for the second consecutive fiscal.
PSU Banks Maintain Edge Over Peers in NII Growth
The NII (net interest income) growth was also higher for PSU banks despite the narrowing of net interest margins. The total NII recorded by PSUs (at ₹ 1.20 trillion) grew 13.03% YoY, compared to 11.68% growth for private peers (at ₹ 1.12 trillion). The better growth for PSU banks, however, was on account of significantly larger asset base.
Excluding food credit, the credit growth of the banking system (including all sectors) crossed ₹ 121.7 trillion at end June 2026, registering a growth of over 2% QoQ. Similarly, deposits too witnessed a QoQ jump of over 1%.
“Due to the availability of surplus liquidity via higher statutory liquidity ratio, PSUs were able to channel the same into credit growth, while private banks were under pressure in deposit mobilisation,” added the report.
Take a look at Nifty PSU Bank Index
NIMs Pressured, But Expect Recovery in FY27
The trend of declining NIMs persisted during the quarter with only marginal improvement. ICICI Bank recorded the best NIM of 4.36% during the quarter, compared to 4.32% in previous quarter. SBI’s NIM improved 5 bps year-on-year to 2.86%, while that of HDFC Bank dropped to 3.26% from 3.40%.
“Near-term outlook for margins remains gloomy but is expected to improve from Q2FY27 aided by better asset mix and lower wholesale funding costs on account of healthy inflows in FCNR(B).”
