The Indian banking sector delivered a mixed performance in the first quarter of FY26 (April-June 2025), with most major banks reporting profits despite facing challenges from margin pressures and asset quality concerns. The earnings season revealed a tale of resilience among public sector banks and selective strength in private sector lenders.
Overall Sector Performance
Profit Leaders:
The banking sector showed strong aggregate performance, with State Bank of India leading the pack with the highest standalone net profit of ₹19,160 crores, representing a robust 12% year-on-year growth. HDFC Bank followed closely with ₹18,155 crores (12.2% YoY growth), while ICICI Bank reported ₹12,768 crores (15% YoY growth).
Notable Winners:
Several banks demonstrated exceptional growth rates, with Yes Bank leading the growth trajectory at 59% YoY increase to ₹801 crores. Central Bank of India achieved a strong 33% YoY growth to ₹1,169 crores, while Bank of India posted impressive 32.2% growth to ₹2,252 crores.
Challenges and Losses:
Not all banks fared well, with some reporting losses or significant declines. Axis Bank, despite being a major private sector player, reported a decline in net profit to ₹5,806 crores (4% YoY decline). Among smaller banks, ESAF Small Finance Bank reported a loss of ₹81.22 crores compared to a profit of ₹62.77 crores in Q1 FY25, while Equitas Small Finance Bank posted a loss of ₹223.76 crores.
Key Sectoral Trends
Asset Quality Concerns:
While most banks reported stable asset quality, there were pockets of concern. Axis Bank saw its Gross NPA ratio increase to 1.57% from 1.28% in the previous quarter, while ESAF Small Finance Bank witnessed deterioration in asset quality with Gross NPA ratio rising to 7.48% from 6.87%.
Margin Pressures:
Net Interest Margins (NIMs) came under pressure across the sector due to the falling interest rate environment. SBI’s NIM declined to 3.02% from 3.35% in Q1 FY25, while Union Bank of India experienced margin moderation of around 11 basis points during the quarter.
Digital Transformation:
Banks continued to invest heavily in digital capabilities. Indian Bank reported that digital transactions improved by 3% to achieve 93% in Q1 FY26, with UPI transactions reaching 2.28 crores per day.
Public Sector Bank Revival:
PSU banks demonstrated strong performance, with most reporting healthy profit growth and improved asset quality metrics. Central Bank of India’s Return on Assets improved to 1.02% from 0.82% YoY, while Canara Bank’s Provision Coverage Ratio improved significantly to 93.17%.
The Q1 FY26 results underscore the banking sector’s resilience amid economic uncertainties, though challenges related to margin pressures and selective asset quality issues remain key areas to monitor in subsequent quarters.