Results of Public Sector Banks in India: What to Expect?

This blog is derived from Zerodha Video and verbalized for ease of reading and conveying the information succinctly.

A Record-Breaking Year for PSU Banks

The latest financial results for Public Sector Undertaking (PSU) banks reveal a landmark year of profitability and structural transformation. Leading the pack, State Bank of India (SBI) reported a staggering annual profit of ₹80,032 crore, marking a 13% year-on-year increase [01:35]. Similarly, Bank of Baroda (BOB) crossed the ₹20,000 crore profit milestone for the first time, while PNB and Union Bank posted their highest-ever quarterly profits [01:43].

Credit Growth and Asset Quality

Credit disbursement has shown immense strength, with SBI and BOB recording growth rates of 16.9% and 16.2%, respectively [01:50]. A significant shift is noted in the quality of these loans; for instance, PNB reported that since July 2020, cumulative NPAs account for only 0.40% of disbursements [02:49]. Across the board, Gross NPAs have remained under 3%, with Net NPAs dropping below 0.5% [02:27]. This reflects a strategic move toward secured retail lending, such as mortgages and gold loans [03:05].

The Challenge of Compressing Margins

Despite the record profits, banks are facing “margin compression.” As the RBI cut repo rates by 125 basis points between February and December 2025, lending rates (which are often linked to external benchmarks) dropped almost immediately [03:29]. However, deposit costs have remained “sticky” because fixed deposits lock in higher rates for longer durations [03:55]. Consequently, SBI’s domestic Net Interest Margin (NIM) slipped to 3.03%, while PNB saw a sharper decline to 2.47% [04:33].

Strategic Shifts in Deposits and Provisioning

To combat falling margins, PSU banks are aggressively replacing expensive bulk deposits with retail funding and CASA (Current Account Savings Account) bases [07:05]. Union Bank successfully shed ₹70,000 crore in bulk deposits to improve its funding mix [07:18]. Furthermore, banks are building “floating provisions” to prepare for the upcoming Expected Credit Loss (ECL) framework starting April 2027 [07:55]. PNB and BOB lead with high provision coverage ratios of 97% and 94%, respectively, ensuring they are well-cushioned against future economic shifts [09:26].

Personal Take: What Should Investors Expect?

The Indian Economy is facing shocks from events happening beyond India’s borders. With Inflation possibly set to rise going ahead, interest rates will see a rise, reducing margin compression, but consumption is set to take a hit owing to disruption owing to AI, commodity costs, and caution by the government of India. As an investor, it would be better to stick to existing investments or wait for a correction to make a fresh entry via Stocks or Mutual Funds.

About the Author:

The author is an AMFI-registered MFD with ARN-262589. For personalised queries or professional investment assistance, you can reach out via email at edteficonsult@gmail.com.