Most PSU banks likely to report strong loan growth driven by Retail, Agri and MSMEs: Nuvama

Core Insights - Corporate loan growth remains subdued, but public sector banks (PSBs) are expected to see robust loan growth driven by retail, agriculture, and MSME segments [1][2] Loan Growth - Most PSBs are projected to report strong loan growth, particularly in the RAM (retail, agriculture, and MSME) sectors, while corporate loan demand has shifted towards mutual funds and capital markets [2] - Bank of Baroda (BoB) anticipates a quarterly loan growth of approximately 4%, while Punjab National Bank (PNB), Canara Bank, and Indian Bank expect around 2.5% growth [2][3] - State Bank of India (SBI) is likely to achieve close to 3% growth, whereas Union Bank of India is expected to lag behind sector averages [3] Margins and Asset Quality - The outlook for net interest margins (NIM) indicates a moderate decline, with PNB expecting flat NIM, BoB anticipating stable reported NIM but a potential slip in core NIM by seven basis points, and Indian Bank's margins possibly declining by under 10 basis points [3] - Canara Bank may face higher pressure due to lower current and savings account (CASA) ratios, while SBI projects a five basis point drop in margins [4] - Asset quality across state-owned banks is expected to remain stable, with no major slippages anticipated; SBI, BoB, and Indian Bank are expected to see improved slippage ratios [4][5] Return on Assets (RoA) - Sustainability of return on assets (RoA) above 1% remains a concern for investors, but key banks like SBI and BoB are positioned to maintain this benchmark due to stronger core income [6] - PNB may experience an expansion in RoA due to lower tax outgo [6] Performance Comparison - The PSU Bank Index has outperformed the private bank index by nearly 15% over the past six months, driven by stronger loan growth and asset quality performance [7] Revenue Trends - Net interest income (NII) growth has been under pressure for both state-owned and private banks, with PSBs experiencing flat to negative NII growth year-on-year in the first quarter of FY26 [8]