More Stories

Informist, Thursday, Jul. 10, 2025

MUMBAI – Public sector banks are seen outperforming their private sector counterparts in corporate earnings for the Apr-Jun quarter due to a milder reduction in net interest margins and higher profits from treasury, according to a report by Emkay Global Financial Services. 

On the contrary, private sector banks are expected to report subdued earnings due to moderation in credit growth and a sharp fall in net interest margins, following a 100-basis-point cut in the Reserve Bank of India's repo rate since February, the report said. Emkay sees growth in profitability for private sector banks at around 4% on year, and those of state-owned banks 10%. The higher increase for state-owned banks is expected from treasury income, uptick in recoveries, and lower loan-loss provisions. Public sector banks are seen reporting lesser contraction in net interest margins due to lower exposure to external benchmark-linked loans, compared with private sector banks.  

"For Emkay's coverage universe, the company anticipates on-quarter margin compression in the range of approximately 5–20bps, with larger private banks at the higher end of the range and public sector banks at the lower end," the report said. "Banks such as IDFC FIRST Bank, City Union Bank, SBI (State Bank of India), and those with high MFI (microfinance institutions) exposure are expected to see relatively limited margin pressure while SBI Cards is likely to report margin expansion." Private sector lenders HDFC Bank and ICICI Bank are likely to report relatively better results than other private sector lenders, according to the report. 

Emkay expects banks with exposure to the microfinance sector to perform better on quarter in Apr-Jun due to a moderation in provisions for the segment. IndusInd Bank, which has recently been in the limelight due to discrepancies in accounting, may turn profitable in the reporting quarter "in the absence of any lumpy stress recognition," the report said. In the Jan-Mar quarter, IndusInd Bank reported a net loss of INR 22.36 billion, against a profit of INR 23.47 billion a year ago. 

The overall loan-deposit ratio is expected to improve as deposit growth is seen rising on year due to a lower base. Demand for credit remains weak and the unsecured book continues to see stress, as per the report. Banks' loans to non-banking financial companies slowed down, and banks are unlikely to increase unsecured lending in the retail loan segment, the report said. Banks need to protect net interest margins from falling sharply is also likely to keep credit growth subdued in Apr-Sept, though credit growth is seen picking up in the second half of FY26 due to a rise in secured lending, the report said. 

According to Emkay, provisioning for non-performing assets will remain elevated in Apr-Sept, even as "the peak stress in unsecured loans is behind". Deposit growth remained subdued after cuts in savings account rates, it is expected to see some improvement after the RBI's 100-bps staggered cut in the cash reserve ratio takes effect September.    

The report notes that Ujjivan Small Finance Bank and AU Small Finance Bank have chances of securing a universal banking licence while the former is likely to see asset quality recovery during Oct-Mar. 

"Thus, we recommend banks/non-banking financial companies that exhibit better growth/margins and asset quality resiliency while being ready to participate in the growth phase," the report said.  The Nifty Bank index closed 0.5% at 56956.00, with 10 of the 12 constituents ending in the red.  End

Reported by Cassandra Carvalho

Edited by Subhojit Sarkar

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.