Overview

• MOFSL says Q1 FY26 sector NII fell 1% year on year as loan repricing and higher funding costs weighed on core income.
• Treasury profits surged on the G-sec rally after rate cuts and liquidity support, accounting for 22–40% of PSB other income and 5–30% for private banks.
• The brokerage expects NIM pressure through H1 FY26, possibly into Q3, with relief from H2 as funding costs decline.
• Systemic loan growth is projected at 11% in FY26E, rising to 12.5% in FY27E, supported by stronger consumption, lower GST and direct tax rates, normalized unsecured delinquencies, and cheaper borrowing.
• Earnings are projected to reaccelerate, with PAT growth turning about 9% year on year in H2 FY26 and sector earnings compounding around 17% over FY26–FY28, though treasury gains may moderate and reinvestment risk persists.