Loan growth, profitability seen improving for public sector banks

Public sector banks are poised for improved credit growth, lower stress costs and stronger profitability as margins stabilise and policy support boosts lending momentum

The Indian banking sector could be due for a rise in profitability after several quarters of net interest margin (NIM) compression. The Q2FY26 results suggest NIMs have bottomed out. Credit costs could also fall given moderating stress in unsecured retail and microfinance institutions (MFIs).

 

System credit growth may lift to 13-14 per cent Y-o-Y (it was 11 per cent as of October 31) due to favourable fiscal policies (GST 2.0) and monetary policies such as cuts in cash reserve ratio and repo rate. This could lead to mid-teens earnings growth over FY26-28 (7 per cent over FY24-26).

 

A broad-based pick-up