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Key Points

Public sector banks outperformed private banks with 11% credit growth in Q1FY26, though only three PSBs saw net advances rise. Scheduled commercial banks faced slower NII growth due to higher deposit costs and falling CASA ratios. The festive season is expected to boost urban retail demand in Q2 and Q3. The full impact of the June 2025 repo rate cut will likely reflect in Q2FY26.

Key Points: PSBs Outpace Private Banks with 11% Credit Growth in Q1FY26

  • PSBs lead with 11% credit growth vs private banks' 8.1%
  • Only 3 of 7 PSBs saw net advances rise due to retail and MSME lending
  • SCBs' NII growth slowed to 4.1% amid rising deposit costs
  • CASA ratio fell to 37.3% as banks shifted to term deposits
3 min read

PSBs outperform private banks in credit growth 11% Vs 8.1% in Q1FY26: CareEdge

Public sector banks show stronger credit growth at 11% vs private banks' 8.1% in Q1FY26, driven by retail and MSME lending, per CareEdge report.

"Urban retail demand is expected to grow with the onset of the festive season in Q2 and Q3 of FY26 – CareEdge Report"

New Delhi, August 1

Public Sector banks (PSBs) performed better than Private sector banks (PVBs), PSBs credit rate growth was 11 per cent as compared to 8.1 per cent of PVBs in Q1 of the Financial Year, according to a report by CareEdge.

However, the report suggests, out of the seven PSBs included in the report, only three reported growth in net advances, mainly due to higher lending in retail, agriculture, and MSME sectors.

The other four PSBs saw a decline, as they chose to slow down loan growth and focus on profitability instead of expanding.

Additionally, In Q1FY26, Scheduled Commercial Banks (SCBs) also saw a slowdown in Net Interest Income (NII) growth to 4.1 per cent year-on-year, down from 12.7 per cent in Q1FY25. Net interest income is defined as the difference between interest revenues and interest expenses.

Interest income for SCBs rose by 6.0per cent y-o-y, with PSBs again growing faster at 6.8 per cent verses PVBs at 5.7 per cent.

However, interest expenses also rose by 7.4 per cent for SCBs, driven by a 10.0 per cent increase in PSBs and 6.4 per cent in PVBs, mainly due to higher term deposit growth.

On a sequential basis, NII for SCBs declined by 1.7 per cent in Q1FY26. PVBs saw a small drop of 0.6 per cent, while PSBs registered a sharper 4.8per cent decline, mainly due to falling yields on advances and sticky deposit costs, which compressed profit margins.

In Q1FY26, the CASA ratio fell to 37.3 per cent from 38.5 per cent a year ago, despite moderate growth in net advances and deposits.

This drop was mainly due to a shift towards higher-yielding term deposits and increased investments in alternative instruments, the report added.

Deposit repricing and strong inflows into term deposits also contributed, while retail CASA inflows stayed weak.

As a result, banks' access to low-cost funding declined. Even with ample liquidity in the system, attracting CASA deposits remained difficult, leading to a 3.0 per cent year-on-year drop in CASA deposits and a weaker overall funding mix.

In outlook for the second quarter, the report added that in Q2FY26, growth is expected across rural markets, the agriculture sector, and select MSME segments, despite pricing pressure.

"Urban retail demand is expected to grow with the onset of the festive season in Q2 and Q3 of FY26," the report said, adding that full impact of the June 2025 repo rate cut of 50 bps is anticipated to flow through in Q2FY26, along with ongoing deposit repricing.

- ANI

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Reader Comments

P
Priyanka N
Interesting data but we must ask - at what cost is this growth coming? The sharp 4.8% decline in NII for PSBs is worrying. They need to balance social objectives with financial health. Otherwise taxpayers will pay the price.
A
Amit K
As a small business owner, I've personally experienced how PSBs have supported us during tough times. Their focus on MSME sector is helping revive local economies. Private banks just want collateral and perfect credit scores!
S
Sarah B
The CASA ratio drop is concerning for all banks. With festive season coming, we might see more people moving money to mutual funds and stocks rather than keeping in savings accounts. Banks need better deposit products!
V
Vikram M
Good analysis but missing one key point - how much of this PSB growth is due to government pressure vs actual business decisions? We need transparency in banking sector reforms.
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Nisha Z
The rural focus gives me hope! 🚜 If banks continue supporting agriculture and MSMEs, we'll see more balanced economic growth beyond just metro cities. Private banks only care about urban rich customers.

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