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

New Delhi [India], 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.

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