Large private-sector banks including Kotak Mahindra Bank and HDFC Bank are experiencing slower growth as public-sector banks continue to gain market share, according to Digant Haria, Founder of GreenEdge Wealth Services. The banking sector is witnessing a shift in performance dynamics, with traditional private sector leaders facing headwinds while state-owned lenders demonstrate stronger momentum.

Private Banks Report Slower Growth

Most large banks are currently growing at around 9-12%, which represents a decline from earlier cycles. The performance breakdown shows notable variations among major players:

Haria noted that public sector undertaking (PSU) banks are performing exceptionally well and capturing market share from private lenders. Recent results from large private banks were largely in line with expectations, but margins and growth were weaker than in earlier periods. This trend is expected to continue for the rest of the year, with PSU banks likely to outperform private lenders.

PSU Banks Show Strong Performance

Among state-owned lenders, several institutions have demonstrated stable performance. Indian Bank has particularly stood out, while Bank of Maharashtra and Bank of India have also reported steady numbers. More results from larger PSU banks are still awaited, which could provide further insight into the sector's performance trajectory.

State Bank of India (SBI) has already outperformed the banking index and its peers. However, Haria does not expect further sharp outperformance from current levels, with SBI's growth likely to remain close to the overall banking sector growth of around 11-12%, unless there is a major pickup in the country's economic expansion.

Regional Banks and Mid-Sized Lenders Stabilise

Regional banks and mid-sized lenders have reported steady performance across the sector. IndusInd Bank appears to be stabilising after recent weakness, supported by improving trends in its microfinance portfolio. Haria suggested that IndusInd Bank could positively surprise over the next 12 months as these improvements continue.

NBFC Sector Shows Clear Trends

Two distinct trends are emerging in the non-banking financial companies (NBFCs) sector:

Microfinance Stress Easing:

• Asset quality has started improving across lenders
• Quarterly slippages are declining
• Small finance banks, CreditAccess Grameen, and IndusInd Bank showing improvement
• "Microfinance, we can clearly say that the worst is behind," according to Haria

Gold-Linked Lending Rising:

• Demand for gold and silver remains firm
• Large share of household gold concentrated in southern India
• Supporting growth for gold loan companies and regional banks

IIFL Finance Faces Regulatory Review

Regarding IIFL Finance, whose stock declined sharply after news of a special audit, Haria noted that the company's gold loan business continues to perform well. Management has indicated that the income tax audit is routine and follows earlier regulatory reviews. While the business outlook for gold loans remains positive, investors should assess risks carefully until there is clarity on regulatory observations.