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

New Delhi [India], 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.

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