PSBs Outperformed Private Banks In March Quarter, Says Report

According to the latest report by CareEdge Ratings, PSBs outperformed private lenders in the fourth quarter of FY 25. In terms of profitability, treasury gains, controlled operating expenses, and business expansion, the public sector banks performed better than their private counterparts. A few private sector banks faced accounting discrepancies and stress in microfinance portfolios, thereby affecting their profitability.

Interestingly, the NIFTY PSU Bank Index is up almost 3.47% this week; however, the rise can be attributed to various expected fiscal and monetary policy announcements.

Net Profit Performance: PSBs Lead the Way

Scheduled Commercial Banks posted a 4.3% rise in profits (year on year), which reached ₹0.93 lakh crore in the quarter. Some key reasons for this growth include an increase in loans, lower provisioning requirements, and increased non-interest income.

Among the SCBs (Scheduled Commercial Banks), PSBs led the way with a phenomenal 13.1% increase in net profits (year on year) amounting to ₹0.51 lakh crore. The reasons for the rise can be attributed to:

• A low base in the previous year
• Gains from treasury operations
• Improved asset quality
• Controlled operating expenses

Private Banks Under Pressure

In contrast, private sector banks (PVBs) saw a 4.7% decline in net profit, totaling ₹0.42 lakh crore. The dip was primarily due to one major private bank facing:

• Accounting mismatches
• Higher provisioning needs
• Challenges in the microfinance segment

The above factors have reduced profit margins during the quarter. However, excluding this outlier, private banks would have posted a healthy 5.4% YoY profit growth, reaching ₹0.46 lakh crore.

Key Financial Metrics: Margins and Income

SCBs reported an increase of 3.6% (year on year) for net interest income, reaching ₹2.09 lakh crore, as the sector has seen a steady credit growth. The increased deposit costs reduced the margin as it dropped by 21 basis points (year on year) to 2.99%. The reasons for the fall include:

• Slower growth in high-yield loans
• Increased deposit rates
• Diminished growth in low-cost CASA deposits

Asset Quality at Record High

The asset quality across SCBs improved, with the Net Non-Performing Asset (NNPA) ratio hitting an all-time low of 0.5%, compared to 0.6% a year ago. This highlights the overall stability in the banking sector’s credit portfolio.

Conclusion

The fourth quarter data underlines the resilience demonstrated by PSBs, which have worked on critical areas such as asset management and operational cost control to outclass private lenders. On the other hand, the private sector’s underperformance can be considered an isolated incident and does not indicate a sector-wide downturn.

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