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Key Points

Large private banks demonstrated resilience in Q1FY26, supported by stable margins and strong provisioning. Mid-sized banks like AU and RBL struggled with weaker NIMs and rising slippages in key segments. While treasury gains provided some relief, profit estimates were downgraded for several mid-sized lenders. The report highlights a clear divergence between large and mid-sized banks in the current economic climate.

Key Points: Large Private Banks Outperform Mid-Sized Peers on NIMs and Slippages

  • Large banks benefit from repo-linked loans and stable funding costs
  • Mid-sized banks like AU and RBL face higher interest reversals
  • AU Bank reports slippages in affordable housing loans
  • RBL Bank sees stress in business banking segment
2 min read

Large private banks hold firm while mid-sized banks struggle on NIMs and slippages: Report

Equirus report shows large banks like HDFC and ICICI resilient while mid-sized AU and RBL face margin pressure and rising slippages.

"Large banks held firm with better margin management, while mid-sized banks struggled with weak NIMs and asset quality challenges. – Equirus Securities"

New Delhi, July 21

Large private banks showed resilience in the first quarter of FY26, while mid-sized banks felt pressure on margins and rising slippages, according to a report by Equirus Securities.

The report highlighted mixed trends in net interest margins (NIMs). Large private banks, which have a higher share of repo-linked loans, performed better than expected.

This was supported by interest earned on investments and IT refunds, along with relatively stable cost of funds.

On the other hand, mid-sized banks such as AU Small Finance Bank (AUBANK) and RBL Bank (RBK) reported weak NIMs, mainly due to higher interest reversals and limited benefits from lower funding costs.

However, as per report these banks did manage to book significant treasury gains.

Asset quality trends were broadly stable across the banking sector, but some segments faced stress. AU Bank reported higher slippages in its affordable housing loan portfolio, particularly in southern India. RBL Bank faced asset quality pressure in its business banking segment.

While stress in already impacted sectors like microfinance (MFI) and credit cards moderated slightly, overall concerns remained.

The report also projected that AU Bank's profit estimates for FY26 and FY27 were reduced by 1.1 per cent and 1.0 per cent respectively, reflecting higher stress in MFI and mortgages. HDFC Bank's FY26 profit estimate was cut by 2.3 per cent, but its FY27 projection was raised by 2.1 per cent due to improving operating leverage.

ICICI Bank saw a small 0.4 per cent downgrade for FY26 earnings, but a 5 per cent upward revision for FY27, anticipating margin normalization. RBL Bank faced the steepest downgrade, with FY26 and FY27 profit estimates lowered by 6.1 per cent and 6.7 per cent respectively due to continued slippages.

Union Bank also saw its earnings forecast cut by 6.1 per cent for FY26 and 2.9 per cent for FY27, citing slow business growth and weak non-interest income

Overall, the Q1FY26 earnings season delivered a mixed picture. Large banks like HDFC and ICICI held firm, supported by better margin management and strong provisioning buffers.

In contrast, mid-sized banks like AU Bank and RBL Bank remained under pressure, impacted by weak margins and asset quality challenges, even as treasury gains offered some cushion.

- ANI

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Reader Comments

R
Rohit P
The southern India housing loan slippages are concerning. Is this due to local economic conditions or poor lending practices? Banks need to be more careful with affordable housing schemes.
A
Aman W
As a small investor, I'm worried about RBL Bank's performance. Their stock has been volatile and now these downgrades. Should I hold or exit? 🤔
S
Sarah B
The report shows how important treasury operations have become for banks to offset weak NIMs. Interesting how even in tough times, banks find ways to maintain profitability.
K
Karthik V
RBI should keep a closer eye on mid-sized banks' lending practices. Too many are chasing growth without proper risk assessment. Stability is more important than rapid expansion.
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Nisha Z
ICICI's 5% upward revision for FY27 looks promising! Their digital transformation seems to be paying off. Maybe time to increase my SIP in their mutual fund schemes.
D
David E
While the report is comprehensive, it would be helpful to see more regional breakdowns. Banking performance varies so much across different states in India.

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