Nifty Bank: Banking sector index Nifty Bank witnessed a fresh milestone on Wednesday, November 19, as it climbed to a record high, crossing the 59,200 mark for the first time.
The index touched 59,264.25 in intraday trade, surpassing its previous peak of 59,000.50 hit earlier in the week. Nifty Bank gained 0.62% during the session, taking its six-month rise to nearly 7% and its year-to-date return to 16.5%.
At the same time, the flagship Nifty 50 has gained 10% in 2025 YTD.
Among individual names, Punjab National Bank, Bank of Baroda, SBI and Canara Bank emerged as the top gainers, rising between 1-2%.
Meanwhile, the Nifty PSU Bank index also logged a fresh record, climbing 1.2% to 8,584.95. In contrast, the Nifty Private Bank index remained muted with a 0.4% upmove.
The outperformance of public-sector banks (PSBs) has not been a recent phenomenon. Over the past year, the Nifty PSU Bank index has surged 28%, sharply ahead of the 15% rise seen in the private bank index. However, this leadership may now be nearing an inflection point.
Analysts now caution that this strong run for PSU lenders may be approaching its natural limit. A sector report by InCred Research suggests that the next leg of structural growth is likely to come from large private banks, not PSBs.
Large Private Banks Seen Leading the Next Leg of Growth
According to InCred Research, large private banks are poised for multi-year outperformance over state-owned peers as the banking cycle enters a decisive transition phase marked by firmer margins, stronger profitability and expanding return ratios.
The brokerage highlighted the early signs of an earnings inflection for private banks. “Core profitability is at the cusp of a recovery as core revenue growth inflects from 2HFY26F and operating leverage drives better core PPoP performance over the next few years,” the note said.
Analysts also flagged improving credit quality in unsecured portfolios and rising appetite for high-yield retail loans such as credit cards and personal loans.
A clear competitive edge for private banks, InCred said, is their structurally lower incremental funding cost – nearly 20-30 basis points below PSU banks – driven by robust liability franchises and tech-enabled distribution. This cost advantage is expected to allow players like Axis Bank, HDFC Bank and ICICI Bank to gain market share across retail lending categories, including home loans, auto loans, and unsecured credit, as liquidity conditions normalise.
InCred estimates that large private banks will deliver 15% CAGR in core revenue over FY26-28, while operating expenses rise at a slower 12% CAGR. This divergence, it said, will fuel 18% CAGR growth in core PPoP, driving structural improvements in RoA and RoE.
Why PSU Banks May Struggle to Keep Pace
The report warned that public sector banks are likely to face structural obstacles ahead, particularly on spreads and returns. With the repo rate-cut cycle bottoming out, PSU banks may find it difficult to sustain margins in the absence of treasury gains and with minimal room for deeper MCLR cuts.
“We expect margin improvement to be capped owing to shallow MCLR cuts so far (a delta of 45-65bp vs. large private banks), relatively faster attrition in investment yields, and margin-dilutive incremental spreads,” the report said. Elevated leverage is also expected to exert pressure on return ratios, with a sharper decline in RoE projected for PSU banks through FY27-28.
For example, SBI trades at 1.1x Sep FY27 core BV, with the brokerage citing a balanced risk-reward profile due to “weaker margin progression (vs. consensus) and risk to sustainability of non-core income.” Meanwhile, Canara Bank and Punjab National Bank may stay supported by strong non-core income pools, but the scope for valuation rerating remains limited.
Top Banking Bets
Within the private sector, Axis Bank is cited as the most compelling rerating candidate thanks to its reasonable valuation and potential positive surprise on credit costs. HDFC Bank is viewed as structurally better placed to deliver volume-led growth alongside stable margins. ICICI Bank, which has shown consistent profitability through cycles, may also see valuation upside as growth accelerates and leadership uncertainties fade.
On the PSU side, the brokerage maintained a HOLD on SBI and REDUCE on Bank of Baroda, highlighting stretched loan-to-deposit ratios and limited rerating potential.