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Synopsis

• Scheduled Commercial Banks (SCBs) sustained quarterly net profits above the Rs 1 lakh crore mark in Q1FY27 for three quarters in a row, with net profit up 14.6% y-o-y to Rs 1.05 lakh crore due to a 12.8% fall in provisions along with a modest rise in operating profits. The decline in provisions was supported by continued improvement in asset quality. Private Sector Banks (PVBs) grew 16.3%, and Public Sector Banks (PSBs) grew 12.8%, with a Rs 5,680 crore legacy settlement at one large PSB, excluding which PSB growth would have been higher at 22%.

• Meanwhile, Return on assets (RoA) improved only marginally. RoA of SCBs rose 2 basis points (bps) yo-y to 1.30%, with PSBs flat at 1.06% and PVBs improving 5 bps to 1.70%. Median RoE improved 48 bps to 12.9%, with PSBs at 14.15% against 12.20% for PVBs, as PSBs continue to report higher returns to shareholders despite lower asset returns, due to higher gearing.

• Capital ratios strengthened, aided by two regulatory changes during the quarter. Median CET-1 improved 97 bps y-o-y to 16.4% and median CAR 61 bps to 18.2%, both comfortably above requirements. The RBI eased the conditions for including current-year profits in CET-1 and discontinued the Investment Fluctuation Reserve, moving reserves that had counted towards Tier 2 into core capital. The Tier 2 layer consequently declined across all groups by 29 bps q-o-q at SCB, with PSBs down 26 bps and PVBs down 27 bps, leaving total capital broadly unchanged while its composition improved.

• Capital raising has picked up since the quarter closed, with announced plans across four large PSBs exceeding Rs 80,000 crore for FY27 and banks citing the ECL transition rather than growth as the primary consideration. Returns are likely to remain broadly range-bound through FY27, with direction hinging on whether banks can protect margins as these supports fade.

Reported Earnings Improve Faster Than the Underlying Business

Figure 1: PSBs’ Net Profit Trend (Rs Lakh, Cr)

Figure 2: PVBs’ Net Profit Trend (Rs Lakh, Cr)

Figure 3: Income, Operating Profit and Net Profit Growth (y-o-y, %)

• Net profit of SCBs grew 14.6% y-o-y to Rs 1.05 lakh crore in Q1FY27, the third consecutive quarter above the Rs 1 lakh crore mark, well ahead of total income growth of 3.5% and operating profit growth of 7.9%. Income growth was held back by a 12.6% decline in other income as treasury gains moderated from an elevated base, partly offset by growth in fee income across retail and transaction banking. Profitability was instead supported by interest expenses growing 3.3% and supporting NII growth of 11.6%, alongside contained operating expenses and a 12.8% decline in provisions on lower fresh slippages and continued recoveries from writtenoff accounts.

o PSB net profit grew 12.8% y-o-y, restrained by the settlement of an old legal claim at one large PSB, the full cost of which was charged during the quarter. Excluding this, growth stood at around 22.0%. Profitability was further supported by a lower effective tax rate in Q1FY27, following migration to the new corporate tax regime. However, one PSB absorbed a one-time deferred tax remeasurement charge of Rs 1,237 crore on transition.

o PVB net profit grew 16.3% y-o-y, with the improvement concentrated among smaller banks. Other PVBs reported growth of 37.5%, as stress in microfinance and unsecured retail portfolios continued to recede, allowing provisioning to moderate from an elevated base. The y-o-y comparison for PVBs also reflects one-off gains reported by a large PVB in Q1FY26.

• Sequentially, SCBs' net profit remained broadly flat at 0.3% q-o-q, with PVBs growing 4.5% and PSBs declining 3.6%, largely reflecting the legal settlement by one large PSB. Treasury income recovered as bond yields softened towards the end of June, while employee expenses rose 10% q-o-q.

• Going forward, provisions also have limited room to decline further, with several banks already operating well within their credit cost guidance. Earnings growth through FY27 will therefore depend more on income, particularly on banks' ability to protect margins

RoA Improves Marginally as Asset Growth Absorbs the Earnings Gain

Figure 4: Movement of RoA for SCBs (annualised, %)

• RoA of SCBs improved 2 bps y-o-y to 1.30% in Q1FY27, a modest gain relative to net profit growth of 14.6%, as balance sheet growth of 12.4% absorbed most of the earnings improvement. Yields on advances remained the principal constraint, with the repo rate unchanged since December 2025, leaving much of the loan book unable to reprice. As a result, NII grew roughly in line with the loan book and did not significantly improve returns. Lower operating and credit costs helped profitability, but the decline in other income partly offset this benefit.

Figure 5: Movement of RoA for PSBs (annualised, %)

• PSBs' RoA remained flat at 1.06%, with Other PSBs improving 14 bps on lower credit costs and continued recoveries. In contrast, Large PSBs declined 4 bps, largely reflecting the legal settlement, which accounted for around 8 bps at the group level.

• PVBs' RoA improved 5 bps to 1.70%, with the gain concentrated in other PVBs at 24 bps, driven by improved asset quality and supported by fresh equity infusions. Large PVBs declined 3 bps, with a higher share of repolinked lending limiting their ability to protect yields during the quarter.

Figure 6: Movement of RoA for PVBs (annualised, %)

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